Best of the Week
Most Popular
1.London House Prices Bubble, Debt Slavery, Crimea 2.0 - Russia Ukraine Annexation - Nadeem_Walayat
2. Gold And Silver – 2014 Coud Be A Yawner; Be Prepared For A Surprise - Michael_Noonan
3.Sheffield, Rotherham Roma Benefits Plague, Ch5 Documentary Gypsies on Benefits & Proud - Nadeem_Walayat
4.Glaring Q.E. Failure Spotted - Money Velocity Is Falling Rapidly - Jim_Willie_CB
5.Don't Miss the Boat on Big Biotech Catalysts: Keith Markey - Keith Markey
6.Gold Prices 2014: Do What Goldman Does, Not What It Says - David Zeiler
7.Bitcoin Price Strong Appreciation to Be Followed by Declines? - Mike_McAra
8.Gold Preparing to Launch as U.S. Dollar Drops to Key Support - Jason_Hamlin
9.Doctor Doom on the Fiat Money Empire Coming Financial Crisis - Andrew_McKillop
10.The Real Purpose Of QE - It’s Not Employment - Darryl_R_Schoon
Last 72 Hrs
America has Become a Police State - 19th Apr 14
Elite Herd Psychology And War By Default - 19th Apr 14
E.U. Officially Adopts the Bank Depositors Bail-In - 19th Apr 14
Goldman Sachs Is Highly Motivated To Low-Ball Gold Price - 19th Apr 14
Save MtGox - Bitcoin Important Implications of Going Down - 19th Apr 14
Stock Market SPX Topping Valuations - 19th Apr 14
Tesco Profits Panic! Back to Back £5 Off £40 Shop Voucher Promotions - 18th Apr 14
The Obama Game - Is Putin Being Lured Into a Trap? - 18th Apr 14
The Growing Threat to Capitalism - 18th Apr 14
Build Biotech Wealth on Solid Platforms - 18th Apr 14
Has Solar Power Finally Arrived? - 18th Apr 14
Bank Depositor Bail-Ins and Real Assets vs Liability-Based Assets - 18th Apr 14
10 Ways to Screw up Your Retirement - 17th Apr 14
One of Harry Dent’s Three Keys to Market Prediction is Cycles - 17th Apr 14
Obamacare Proof Stocks - 17th Apr 14
Gold, Silver And The Mining Sector: Prepare For A Severe Fall - 17th Apr 14
Hidden Australian Life Sciences Bio-tech Growth Stocks - 17th Apr 14
Disrupting Big Data Status Quo - 17th Apr 14
What the Stock Market Bears Have Been Waiting for... - 17th Apr 14
Copper Is Pathological and Suffers from SAD, but It Has Value - 17th Apr 14
Old World Order New World Order, Chaos And Change - 17th Apr 14
Even The US Government Will Abandon the U.S. Dollar - 17th Apr 14
Gold - Coming Super Bubble - 17th Apr 14
Glaring Q.E. Failure Spotted - Money Velocity Is Falling Rapidly - 16th Apr 14
High-Frequency Insider Trading - 16th Apr 14
Gold Prices 2014: Do What Goldman Does, Not What It Says - 16th Apr 14
These CEOs Will Make Investors Rich - 16th Apr 14
Climate Change, Central Banking And The Faustian Bargain - 16th Apr 14
Every Central Bank for Itself - 16th Apr 14
Social Security, U.S. Treasury Stealing Every Last Penny From Americans - 16th Apr 14
Ukraine Falling to Economic Warfare and Its Own Missteps - 16th Apr 14
Silver and Gold Miners Still Disappoint - 16th Apr 14
Silver, Gold, and What Could Go Wrong - 15th Apr 14
How I Intend to Survive the Meltdown of America - 15th Apr 14
France Wakes Up To The Multicultural Multi-Threat - 15th Apr 14
The Real Purpose Of QE - It’s Not Employment - 15th Apr 14
Peak Coal - 15th Apr 14
Flash Crash, Rigged Markets - What’s the Frequency Zenith? - 15th Apr 14
Forecasting U.S. GDP Growth: A Look at WSJ Economists’ Collective Crystal Ball - 15th Apr 14
Stock Market - Is Something Nasty About to Happen? - 15th Apr 14
How to Trade Your Way To Freedom - 15th Apr 14
Understanding (and Ignoring) the Media Bandwagon Against Gold - 15th Apr 14
When Stock Market Bubble Crashes, Take Refuge in Gold Stocks - 15th Apr 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Eurozone Debt Crisis "Day of Reckoning'

Interest-Rates / Eurozone Debt Crisis May 03, 2012 - 10:00 AM GMT

By: Money_Morning

Interest-Rates

Best Financial Markets Analysis ArticleDavid Zeiler writes: How many times have we been told the Eurozone debt crisis is resolved, only to have it turn up again like a bad penny?

Last year's string of good news/ bad news on the Eurozone debt crisis had the markets going up and down like a yo-yo until the routine grew so tiresome that most people stopped paying attention.


But while the crisis faded into the background, it never really went way.

Remedies that were sold as solutions haven't solved a thing.

The celebrated bailouts of countries like Portugal, Ireland, and especially Greece have served mainly to postpone real solutions that would be far more painful.

"The Eurozone politicians in their infinite wisdom have concluded that it is easier to prolong the agony than to take their medicine," said Money Morning Chief Investment strategist Keith Fitz-Gerald.

In fact, the Eurozone debt crisis is getting worse.

Collective debt among the 17 member nations is on the rise, having increased from 85.3% of GDP (gross domestic product) in 2010 to 87.2% last year. That's the highest level in the history of the Eurozone.

Unemployment in the Eurozone rose in March to 10.9%, up from 10.8% in February and 9.9% a year ago. Manufacturing also declined last month, as new orders fell for the 11th month in a row.

And the austerity imposed on the troubled PIIGS (Portugal, Ireland, Italy, Greece and Spain) to bring their budget deficits and debts under control have actually made the situation worse.

"It's done no good at all," Fitz-Gerald said of the Eurozone's efforts to deal with the debt crisis. "It's an absolute travesty."

The steep and sudden cuts in spending are pushing most of Europe back into a recession, which will eventually be felt here at home.

"The question is how long EU leaders will continue to pursue a deeply flawed strategy in the face of mounting evidence that this is leading us to social, economic and political disaster," Sony Kapoor, managing director of economic think-tank Re-Define, told the Associated Press.

A Eurozone debt crisis that climaxes in some sort of political or economic meltdown - which appears increasingly inevitable -will pinch the U.S. economy that much harder.

Eurozone Debt Crisis Spotlight Now On Spain and Italy
What's most disturbing about the recent news about the European debt crisis is that it centers on the much larger economies of Spain and Italy rather than the smaller economies of Greece, Portugal and Ireland --not that they don't still have problems.

Spain is the Eurozone's fourth-largest economy; Italy the third-largest. Bailing either out, even just to buy time, would not be easy.

In just the past week, Spain announced its unemployment is an alarming 24.4%. Unemployment among those under 25 is over 50%. Spain's economy contracted 0.3% in the first quarter and is projected to shrink 1.7% for the year.

Meanwhile, Standard & Poor's downgraded Spain's debt two notches. It was Spain's second downgrade this year, and places their rating three notches above junk status.

Italy's unemployment rate is over 9%, and is expected to reach nearly 10% this year. Italy expects its GDP to contract 1.2% this year.

Interest rates on the bonds for both countries have risen to uncomfortably high levels. Higher rates mean higher borrowing costs.

And as is the case with other PIIGS, Spanish and Italian banks have bought up much of that sovereign debt, increasing their risk of failure if the crisis reaches the default stage.

Just as ominous is the trend toward domestication of the debt.

"As the local bond markets have become owned only by domestic institutions, there is less and less incentive for the other countries to support and bail out one of those," Stephane Monier, head of fixed income and currencies at Lombard Odier Investment Managers, told Bloomberg News. "Basically you're planting the seeds for the disintegration of the euro zone."

Eurozone Debt Crisis "Day of Reckoning'
Although the game of prolonging the crisis by recycling the debt could go on for years, it just as likely could grind to a sudden, shattering halt.

"The day of reckoning is coming," Fitz-Gerald said. "At some point, the banks are going to say, "we're not doing this anymore,' or the nations will say, "we're not doing this anymore.'"

The strategy, Fitz-Gerald said, has been to stall the crisis long enough for economic growth to blossom and provide the money needed to climb out of the debt pit.

Of course, with austerity driving the Eurozone into recession, that plan clearly isn't going to work.

So the Eurozone is left with the same unworkable options it faced a year ago.

Troubled countries like Greece, Spain and Italy could be forced out of the Eurozone altogether, Fitz-Gerald said. Or the Eurozone could split into two -- the haves led by Germany, and the have-nots populated mostly by the PIIGS, though it's hard to see that working out well for anyone.

Governments could choose to end the euro, returning to their previous sovereign currencies. It would be a messy, expensive, and drawn-out affair, but over time would get Europe's economies back on the right track.

Or the Eurozone could start working toward a full fiscal union rather than just a monetary union.

That, however, would be politically difficult, as it would require all Eurozone nations to operate under a single unified budget. Many would balk at the loss of sovereignty, and Germany would end up even more responsible for cleaning up after the PIIGS.

"To adapt a classical allusion, the Europeans are between the Scylla of a currency breakup and the Charybdis of a federal union that nobody wants," financial historian and Harvard professor Niall Ferguson said on Bloomberg Television last fall. "And that's an extremely troubling situation to be in, because it means the economic solution is politically impossible."

With the Eurozone's political class unwilling to "take their medicine," it's becoming more and more likely that an unforeseen event will trigger a "Lehman moment" in the Eurozone debt crisis.

Which is why U.S. investors need to remain wary of Europe.

"The fundamental problems have not been resolved; indeed, the gap between creditor and debtor countries continues to widen," billionaire investor George Soros recently wrote in the Financial Times. "The crisis has entered what may be a less volatile but more lethal phase."

Source :http://moneymorning.com/2012/05/03/why-the-eurozone-debt-crisis-never-really-went-away/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014