Best of the Week
Most Popular
1.Stock Market in DANGER of Strangling the Bears to Death - Nadeem_Walayat
2. Germany Pivoting East, Exit US Dollar, Enter Gold Standard - Jim_Willie_CB
3.Flight MH17 – Kiev Flash Mob's Last False Flag? - Andrew_McKillop
4.Stock Market Crash Nightmare! - Nadeem_Walayat
5.Gold - The Million DOLLAR Question... - Rambus_Chartology
6.Gold And Silver – BRICS And Germany Will Pave The Way - Michael_Noonan
7.The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - Nadeem_Walayat
8.The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - Felicity Arbuthnot
9.Which Way is Inflation Blowing? Watch Commodities - Gary_Dorsch
10.U.S. Economy Quarterly Review and Implications for 2014-2015 - Lacy Hunt
Last 5 days
No Road Map For Avoiding The Future - 25th July 14
Israeli War Machine Concentrating Women and Children into UN Schools Before Killing Them - C4News - 25th July 14
Israeli Government Paying Jewish Fundamentalist Students to Post Facebook Gaza War Propaganda - 25th July 14
Why the Stock Market Is Heading For A Fall - This Time Is Not Different - 25th July 14
An Economic “Nuclear Strike” on Moscow, A “War of Degrees” - 25th July 14
BBC, Western Media Working for Israeli Agenda of Perpetual War to Steal Arab Land - 25th July 14
Ukraine: What To Do When Economic Growth Is Gone - 24th July 14
Stock Market Clear and Present Danger Zone - 24th July 14
The Five Elements to Creating a Something-for-Nothing Society - 24th July 14
Instability is the New Normal? - 24th July 14
Israel's Suicide Bombers Over Gaza - 24th July 14
EUR-AUD Heads Into The Danger Zone - 24th July 14
Tesco Supermarket Death Spiral Accelerates as Customers HATE the Mega Brand - 24th July 14
Ukraine MH17 Crisis - Best Remember Who Your Friends Are - 24th July 14
Three Reasons Why Gold Price and Gold Stocks Will Rise - 24th July 14
HUI Gold Bugs Fighting To Break Downtrend - 23rd July 14
What Putin Knows About Flight MH17 - 23rd July 14
Why Microsoft Will Continue to Rebound, Huge Upside Potential - 23rd July 14
Will Putin Survive? - 23rd July 14
MH17 Crash Next Phase Economic Warfare - 22nd July 14
The TRUTH about China’s Massive Gold Hoard - 22nd July 14
Forex Multi-week Consolidation in EUR/USD Ended - 22nd July 14
Bitcoin Price Medium-term Trend Being Tested - 22nd July 14
Beware Of The Flash Mob - 22nd July 14
Can Putin Survive? - 22nd July 14
Israel Assault on Gaza: A Historic Crime, Nazi Like Final Solution - 22nd July 14
Zionist Israel an International Pariah - 22nd July 14
Reflections on the Global Misery Index - 22nd July 14
GDP Economic Statistic : A Brief But Affectionate History - 22nd July 14
TransTech Digest: Super Battery Bio-Power vs. Dirty CleanTech - 21st July 14
How to Find Trading Opportunities in the Currency Markets - 21st July 14
Stock Market One More Pull Back - 21st July 14
The Conquest Of Real - Degenerate Philosophies of the Book - 21st July 14
A Clear Way to Profit from a Graying Population - 21st July 14
Last Chance Critical Financial Market Forecasts Special Total Access - 21st July 14
Stock Market Crash Nightmare! - 21st July 14
Why the Stock Market Is STILL Cheap - 21st July 14
From Gore-Bore To Gore-War - 21st July 14
Gold Price Looking Drab - 21st July 14
An In-Depth Look at Gold Chartology - 21st July 14
The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - 20th July 14
AUD NZD Taking The Forex Bull By The Horns - 20th July 14
US-backed Israeli Invasion of Gaza Unleashes Death and Destruction - 20th July 14
The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - 20th July 14
Stock Market in DANGER of Strangling the Bears to Death - 20th July 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