The Eurozone will not continue in it's current form. Germany is not going to drag itself to the brink of insolvency and will opt out. From what I've read Greece, Spain, Ireland, Italy and France are in serious trouble. Mucho capital is needed toute suite. Who knows what the new form of the EU will look like, but I can imagine, the US economy will be greatly affected by this fiasco and drug into this mess as well.
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"Spain has supposedly been “saved” by a €100 billion bailout.
However, the details surrounding the source of the funding for this “bailout” still remain a mystery as there is no entity capable of providing the €100 billion in capital: neither the IMF, nor the Federal Reserve, nor the ECB have the political backing to launch a bailout of this size… and of the two EU mega-bailout funds, the EFSF and the ESM, the former can’t even raise €10 billion successfully while the latter doesn’t even exist yet.
Indeed, EU leaders have already pushed back the deadline for the creation of the ESM from July 1st to July 9th. And even if they do manage to hit the July 9th deadline (unlikely given that no EU political decision has made its deadline since the Crisis began) both Germany and Finland have stated that they are against the ESM buying sovereign bonds without “conditions.”
As we’ve already seen with Greece, those on the receiving end of the bailout gravy train are not prone to meeting “conditions.” Spain is no different: not only has it missed its budget deficit requirements several times but it is now openly ignoring demands from those propping it up:
Spain PM not to implement IMF suggestions for now
Spain will not immediately implement the International Monetary Fund’s latest recommendations, which include cutting government workers’ wages further, because they are nonbinding advice, the prime minister said Saturday.
The IMF is one of three organizations Mariano Rajoy’s government turned to for an assessment of the state of Spain’s banking sector ahead of a (EURO)100 billion ($125 billion) bailout for failing lenders.
The Link
Regardless of the underlying realities (there’s no money coming anytime soon), Spanish banks shares have risen during the last two weeks while the yields on Spanish bonds (most notably the ten year) and Spanish CDS have fallen.
There are three reasons for this:
1) Traders are praying that somehow the €100 billion will magically appear AND prove to be enough to support Spain’s banking system.
2) Spain successfully (depending on your definition of that word) sold €2.2 billion worth of two, three- and five year bonds (only €2 billion was expected).
3) Two auditing firms announced that Spain’s banks only need between €51 and €62 billion in capital to be solvent again.
Regarding #1, neither the ECB, nor the Fed, nor the IMF, nor the EFSF, nor the ESM, nor China can provide €100 billion for Spain. Those are the facts. The only one of the above entities that could even be a possibility is the ESM which, as noted before, doesn’t exist yet, and which Germany and Finland do not want buying sovereign bonds without “conditions.”
However, let’s say, for the sake of argument, that somehow the ESM is created on time and does have €100 billion to give to Spain (unlikely given that Spain and Italy account for 30% of the ESM’s funding). Even then Spain would still need more capital: remember, Spanish banks are currently drawing €316 billion from the ECB while Spain’s Prime Minister has admitted in private that Spanish banks’ real capital needs are in the ballpark of €500 billion.
Regarding #2: the “successful Spanish bond auction,” the markets are ignoring the fact that during said auction the yields on Spanish five-year paper hit their highest levels since Spain joined the Euro. So Spain can raise money… but at VERY high yields.
The markets also seem to be ignoring the fact that the majority of the buying during the bond auction came from Spanish banks… which, as noted earlier, are currently receiving €316 billion from the ECB. This tells us that:
1) The rest of the world isn’t interested in Spanish debt (for obvious reasons).
2) Even Spanish banks aren’t interested in buying Spanish sovereign debt unless it’s at very high yields (permitting them to pocket the spread between the interest they earn on the bonds and the interest they owe the ECB for the emergency loans they’re using to buy the debt).
In simple terms, an honest assessment of the Spanish bond auction shows it to be an absolute disaster. However, the EU media and political leaders are desperate to play it off as a great success because telling the truth would result in the acceleration of the Spanish banking system’s collapse (which is still coming regardless)."
"EU political leaders and their respective citizenry aren’t the only ones realizing that Greek political leaders are a bunch of crooks; the Greek people are also beginning to realize that their political leaders are not looking out for their best interests or for Greece’s: only 20% of the Greek bailout money went into the economy, the rest went towards paying off Greece’s creditors (read EU banks) and the ECB.
As a result of this, Greeks are increasingly voting for the SYRIZA party which is completely anti-bailout, anti-Euro, and anti-austerity:
October 2009
May 2012
June 2012
SYRIZA’s % of Vote
4%
16.8%
26.9%
As you can see, SYRIZA is rapidly gaining popularity amongst Greek voters. This is extremely problematic as it indicates that should the current, new Greek government fall to pieces (as it most assuredly will… the new Finance Minister just resigned after being in office for only one week), it’s quite possible SYRIZA will win whatever subsequent election takes places.
European leaders will be meeting this Thursday and Friday to discuss Greece and other issues. As the above articles headline reveals, neither Greece’s new PM nor its Finance Minister (they no longer have one) will be in attendance.
However, we already know from the headlines this morning that Angela Merkel will not agree to Euro bonds or any kind of shared deposit insurance if it means “joint liability” (read: Germany being on the hook for other EU members’ bank losses).
We also know that the ECB is not interested in buying more government bonds (it hasn’t for 14 weeks now). And the ECB has stated point blank that Greek negotiations will not begin with Greece “wish[ing] for more time.”
"So, there is a relatively high probability that a Grexit will be coming sooner rather than later. It all boils down to one simple fact: the second the money spigot from the EU to Greece gets turned off, Greece leaves.
Consequently, the real question is: “when does Germany and the rest of the EU stop picking up the tab for Greece?” Judging from the above survey in which even the French and Italians now think Greece should leave the EU if it doesn’t start paying its bills, it won’t be long: Greece will need another €16 billion in financing if the EU accepts its request for another extension (yes, this would be the third bailout)."
That is correct, 12 million RBS customers have been shut out of their accounts and ATM withdrawals for SIX days due to a “glitch.” REALLY?
Let’s be blunt, the EU banking system is a $46 trillion toxic sewer filled with PIIGS debt. Even the ECB’s is not immune to this mess: over a quarter of its balance sheet is comprised of this garbage.
This is why the ECB freaked out and pumped so much money into the EU banking system. You don’t spend over $1 trillion in nine months unless something very very bad is coming down the pike. The fact countries are now actively putting together contingency plans to get their citizens out of EU should give you an idea of how fragile the entire system is over there. Yes, they political leaders will try to float various ideas on how they’ll “solve” the problems, but the reality is that there simply isn’t enough capital available to prop up the system. And the market is starting to realize this (see the yields on Italian and Spanish bonds as well as those countries respective CDS)."
