The European economy seems to have entered the meltdown phase, as prime ministers in both Greece and Italy are leaving their posts and rumors of a euro zone break-up in a matter of few days are emerging. The financial markets continues to tumble, as the euro zone is now subject to an unconstrained panic attack from financial markets, with Italian spreads at 5.6%, Spanish spreads over 4% and the French spreads creeping to 1.5%.
“The market meltdown signifies the effective collapse of the notion of a leveraged EFSF and other technical quick fixes.”
The euro zone’s latest “comprehensive solution” collapsed yesterday, as all the technical quick-fixes did before. We have now reached the bifurcation point in the crisis where the euro zone will, within days, have to make a choice between debt monetization, which is hardly feasible without a political commitment to a fiscal union, and a break-up. The latter will happen if no decision is taken.
According to Reuters, citing unnamed EU sources, French and German officials have been discussing a radical systems change, involving a smaller and more integrated euro zone.
Eurointelligence.com comments in today’s morning brief:
“We believe this story is true, but likely to make the crisis much worse. A break-up followed by ringfencing the core would, in a first stage, cause the total collapse of the financial system in Europe, including in Germany and France. We are not talking about crisis resolution here, but about the resurrection of Europe from the rubble.”
In others words: The political leaders are about to give up on a rescue operation of Europe, and are changing focus towards saving whatever is possible to save.
At the same time; government leaders are staring to resign, with Italian Berusconi and Greek Papandreau leading the way, leaving the euro zone in complete chaos.
Robert Shrimsley of the Financial Times makes the point that there is now a possibility of technical government – led by Lucas Papademos in Greece, and Mario Monti in Italy, both former high ranking EU officials.
While European officials may find this reassuring, it is not solving what is fundamentally a political problem in those countries. The problem with technocrats is that they have avoided the traditional routes to power. Shrimsley concludes the best politicians are also experts – they know what is politically possible.
“We agree with this. It is another one of these quick fix ideas. The EFSF did not work. Leveraging did not work. The next delusion is technical government. The euro zone crisis is a major political crisis at heart. This is why the financial markets are panicking,” http://www.eurointelligence.com writes.
As a result of the Italian crisis and the large exposure of Austrian banks to Italy ,Austria’s AAA rating may be in danger, Financial Times Deutschland reports.
In two weeks the analysts of Moody’s will visit the country and economists think that they decide to place the country on a negative outlook. In order to calm markets, the government now wants to quickly imitate the German example and introduce a constitutional debt break.
Personally, I’m quite stunned that a scenario I once (back in 2007) described as a “worst case,” is unfolding before my eyes, with the politicians repeating the same mistakes that others have done before them in almost every major crisis i history.
“In The Greek Midwinter”
See also: New Econparody Song About “Guess Who”
Related by the EconoTwist’s:
- The Global Economy is about to Crash
- EU: Drifting Towards Default, Destabilization And Disaster
- Poland Goes South?
- Kenneth Rogoff: Some European Countries Are Fundamentally Bankrupt
- “European Leaders Have Failed”
- EU Leaders Clueless As Borrowing Costs SoarsEurope: Out of Time
- Euro zone to split up in a matter of days – EuroIntelligence (politics.ie)
- Italy’s finances slump even more (mirror.co.uk)
- Italy needs some kind of bailout and France and Germany discuss a smaller and more integrated euro zone (nextbigfuture.com)
- Debt crisis: while Rome burns, the eurozone fiddles (telegraph.co.uk)
- Game Over? Reuters Says Germany, France Exploring Idea Of Core Euro Zone, End Of Existing Structure (zerohedge.com)
- Fed Watch: Endgame Approaching (economistsview.typepad.com)
- Support for Euro Risks Splitting E.U. (nytimes.com)
- Failing on Greece, EU must ring-fence Italy (theneteconomy.wordpress.com)
- France, Germany Explore Plans To Radically Overhaul European Union (huffingtonpost.com)
- Italy’s crisis: Endgame for the euro? (curiouscapitalist.blogs.time.com)