Posts Tagged ‘eurozone debt crisis’

European Central Bank Scrambles As Eurozone Debt Crisis Rages

June 3rd, 2012 Comments off

ECB President Mario Draghi, it is rumored, will cut interest rates, in a frantic effort to retard the rampaging Eurozone Debt Crisis. Since assuming the ECB presidency, Draghi has engaged in stealth quantitative easing, buying up sovereign bonds, and engaging in other monetary gimmicks. But nothing seems to be working. With ECB rates already very low, there is not much left to be cut.

The schism is over supposed austerity measures in the vulnerable Eurozone countries with large sovereign debts neutralizing any impact  from ECB monetary policies. However, the real issue involves the bond markets; will they open up their coffers and offer more loans to countries that already have an unsustainable debt to GDP ratio? In the Eurozone, both economic /fiscal and monetary policies are totally detached from the harsh realities of the marketplace.




Spanish Government Sells Its Bonds, At A Price

April 20th, 2012 Comments off

The financial pundits and Eurozone boosters are gloating, with fingers crossed behind their backs. The recent auction of Spanish sovereign bonds by Madrid reached its target sale in excess of two and a half billion euros. But what the cheerleaders ignore is that the bonds sold for only two reasons; a substantial increase in the yield on the 10-year bonds from 5.4 percent to 5.74 percent. The increase of 34 basis points was also helped by the perception that the European bailout fund stands ready to assist Spain and her creditors.

Despite all the recent happy talk about the global economy allegedly “turning the corner” and the Eurozone sovereign debt crisis being ameliorated, the signs are all there for those with open eyes. The crisis remains, and despite the policy of kicking the can down the road, all the indicators point to deterioration rather than amelioration.



Spanish Bond Yields Rise

April 6th, 2012 Comments off


The yield on Spanish government 10-year bonds has risen another 13 basis points, now standing at just over 5.8 percent.  This is in line with the deteriorating economic and fiscal situation in Spain. Madrid has recently enacted draconian government spending cuts. However, the conundrum is this; previous government spending was unsustainable, but the most recent cuts are a massive fiscal drag, which will also exacerbate the government deficit in its annual spending. Investors know this, which is why Spanish bond yields are rising.

With the highest official unemployment rate in the Eurozone (23 percent)and the economy continuing to contract, there is increasing concern that the center of gravity in the Eurozone sovereign debt crisis has migrated from Greece to Spain. In the meantime, the European Central Bank continues its policy of stealthily monetizing debt throughout the Eurozone through its printing press.



Spain’s Crippled Economy Is Again In Recession

March 28th, 2012 Comments off

Spain’s central bank, The Bank of Spain, has officially stated that for the second time since the onset of the global economic crisis in 2008, Madrid’s economy is in recession. The news that the Spanish economy has entered a double-dip recession is no surprise for the Spanish people, currently experiencing the misery of an official unemployment rate of 20 percent.

In the words of the Bank of Spain, “The most recent information for the start of 2012 confirms the prolongation of the contraction in output.” This all happens as the Spanish government reins in spending, with a current deficit to GDP ratio of 8.5 percent. With the fiscal drag imposed by a retrenchment in government spending, there will be no Keynesian solution to Spain’s current recession. Furthermore, Spain is not alone; other vulnerable Eurozone economies are in recession-or about to double dip into one. The economists keep telling us that economic growth is the only solution to the Eurozone’s debt crisis. With many of its struggling economies in negative or stagnant growth, it is hard to see a solution to the Eurozone’s debt crisis, other than bank-destroying sovereign defaults and inflation-creating loose monetary policies by the European Central Bank.







European Central Bank Chief Claims Eurozone Debt Crisis Is “Over”

March 22nd, 2012 Comments off

Only a few weeks after the latest  version of the Greek bailout package, the President of the European Central Bank, Mario Draghi, is boasting that the worst of the Eurozone debt crisis is “over.” He made this remarkable claim in an interview with a German publication. Draghi boasted that the economies of the Eurozone were now stabilizing.

Draghi must be toking some powerful weed, or otherwise he is attempting to repeat U.S. Fed Chairman Ben Bernanke’s previous boasts about economic “green shoots.” The latest PMI figures from Germany, which show that the country’s manufacturing  sector is weakening, and other similar statistics from elsewhere in the Eurozone, make ECB president Draghi’s boast sound bizarre, to say the least.

Despite Mario Draghi’s high profile delivery of rosy prognostication, the Greek debt crisis is far from over, and the other PIIGS nations (Portugal, Ireland, Italy and Spain)have not seen their dangerous debt and deficit to GDP ratios, poor economic growth figures or catastrophic levels of unemployment magically improve. Draghi may be a wonderful propagandist for the Eurozone, but he is no magician.



Greece, Germany and the Eurozone Sovereign Debt Crisis

February 16th, 2012 Comments off

The current Eurozone debt crisis is not only an acute economic and debt crisis. It is also political farce, with a heavy dose of irony. The motivation for the creation of the euro was noble; the European continent had ripped itself apart over centuries of internecine warfare, culminating with two world wars in the 20th century had massacred tens of millions of Europeans. What better way to unite Europeans and end this circle of bloodshed than to create a common currency, the euro. That explains how good motivation can lead to very bad ideas.

The concept that a common currency can be used by 16 nations with vastly different economic and fiscal policies  was sheer folly. The past two years have witnessed the irrationality of this concept. Yet, Eurozone politicians have so much invested in the survival of the euro, they are prepared to defend it to the last European taxpayer. This mantra inevitably means defending the euro to the last German taxpayer. And it now seems that the rulers of Germany recognize that they cannot indefinitely ransom off the financial future of their voters to subsidize the euro and expect to remain in power. Thus, after a series of “final” resolutions to the Greek debt crisis, which were supposed to prevent the sovereign debt contagion spreading to Ireland, Portugal, Spain and Italy (which has clearly not happened) German ruling circles are beginning to raise skepticism over the most recent promises of Greek politicians. This leads to the possibility that eventually the largely German subsidized loans to Athens to stave off bankruptcy may come to an end. Increasingly, there is not only talk from Greece about leaving the Eurozone. There is emerging talk within Germany’s political and financial elites that perhaps the farce of repeated Greek bailouts should end, Athens should default on its debt and be kicked out of the Eurozone.

The irony of the situation is that a project intended to end inter-European strife through a common currency has not only proven to be a fiscal and economic disaster for the continent. The crisis is now re-igniting the embers of past conflagrations and hatreds in Europe. An example was the recent front page of a Greek newspaper featuring  German Chancellor Angela Merkel wearing a Nazi armband and storm-trooper’s uniform.  The increasingly strident comparisons of Merkel with Nazis in the Greek press is a reference to World War II, when Nazi Germany conquered Greece and inflicted a painful  three and a half year military occupation of their country.  That the euro seems to be failing as a political tool as much as a monetary unit is proof once again that the path to Hell is so often paved with the best  of intentions.



Fitch Ratings Agency Downgrades Eurozone Countries

January 31st, 2012 Comments off

Following in the wake of a string of downgrades of the Eurozone, including S & P cuttings its rating on France, Fitch has joined in with its own updated list of woes. Italy, Spain, Belgium, Slovenia and Cyprus have had their sovereign debt ratings cut by Fitch, just before the most recent Eurozone emergency leaders summit on the sovereign debt crisis. It seems surreal that the most recent emergency meeting is on the topic of “economic growth,” just as more quarterly results show  negative growth from various Eurozone members.

It is unlikely that the increased rhetoric emanating form the mouths of European politicians that their monetary bloc is just on the cusp of a new wave of economic growth will impress the ratings agencies. The question then is this; who will investors trust? Will it be the ratings agencies, which are falling all over each other in their ratings cuts and negative outlook with respect to the Eurozone, or will they place their bets on European politicians, who so far are batting a big fat zero in all their multitude of prognostications on the trajectory of the global economic crisis? I suspect the answer will not surprise many.



IMF Cuts Global Economic Growth Forecast

January 25th, 2012 Comments off

The International Monetary Fund has another revised global forecast that reflects growing pessimism. In the debt-crisis ravaged Eurozone, the IMF now projects negative growth of minus .5 percent, in effect a double-dip recession. A recession means plummeting tax revenue, rendering the sovereign debt crisis even more  virulent.

While the IMF still projects overall global growth, though at a lower projected 3.3 percent, its latest report states that this strangely optimistic projection is “predicated on the assumption that in the euro area, policymakers intensify efforts to address the crisis.” In other words, the Eurozone must reverse its fiscal austerity, and once again engage in deficit stimulus spending.

What the IMF seems to ignore is that the bond market is increasingly unlikely to lend money to debt-strapped European economies at interest rates that are sustainable. Or, perhaps, the IMF is hoping it will gain a massive cash infusion so it can bail out Eurozone economies, or the European Central Bank will get the hint, and start running its printing press at maximum velocity. But not even the ECB’s printing machine, along with the IMF, can easily sort out this economic and fiscal crisis.




Dire Warning From World Bank on Eurozone Debt Crisis

January 20th, 2012 Comments off

The World Bank has released a report, Global Economic Prospects 2012, which lowers previous forecasts on global economic growth and presents a grim picture of what lies ahead. The World Bank now projects global growth at 2.5 percent, with virtual stall speed for advanced economies. The report makes clear that the repercussions of the Eurozone debt crisis are now worldwide.

Developing economies are still projected to have a higher growth rate than developed economies, but at a slower rate, due to overall global contraction resulting from the sovereign debt crisis in Europe.  In a warning to developing economies, Justin Yifu Lin, the World Bank’s chief economist said, “developing countries need to evaluate their vulnerabilities and prepare for further shocks, while there is still time.”  It should be added that all countries need to be prepared for future shocks, as the Eurozone debt crisis, now rampaging for two years, seems likely to get a lot worse during the course of 2012.




IMF Head Christine Lagarde Warns On Economic Crisis Becoming Another Great Depression

December 16th, 2011 Comments off

The International Monetary Fund’s boss, Christine Lagarde, has issued another warning regarding the global economic crisis. This time, she spoke in Washington DC about  the danger of another Great Depression unless all countries work together to resolve the Eurozone sovereign debt crisis. If they don’t act in unison and effectively, Lagarde said the consequences would be, “Protectionism, isolation, and other elements reminiscent of the 1930s Depression.”

The grim outlook from the IMF is in sequence with cascading warnings from France and Germany that unless fiscal policy in the Eurozone becomes “harmonized” (e.g. more erosion of national sovereignty) and other countries outside the Eurozone (especially China) provide funding for the “big bazooka” to backstop the danger of sovereigns becoming insolvent, the global economy will implode. What the IMF and the politicians have not said is that it is politically impossible for them to obtain all the scenarios they claim are needed to prevent outright catastrophe.



Officer Larry of the NYPD is on his way to Zuccotti Park in lower Manhattan to arrest peaceful protesters involved with the Occupy Wall Street movement. Being a public spirited member of the New York Police Department, Officer Larry does remind us that there is a global economic crisis underway that rivals the Great Depression of the 1930s.