The Euro-zone in its current form is in its final chapter. Anyone who argues otherwise is not paying attention.
Consider the Greek situation. Greece’s debt problems first made mainstream media headline news at the beginning of 2009. The IMF/ EU/ ECB/ and Federal Reserve have been working on this situation for two years now. And they’ve yet to solve anything: after two bailouts, significant debt write-downs, and numerous austerity measures, Greece remains bankrupt.
Now, if the Powers That Be cannot solve Greece’s problems… what makes anyone think that they can address larger, more dangerous issues such as Italy or France, etc?
Consider that the world’s central banks staged a coordinated intervention in November… and Italy’s ten year is back yielding more than 7% less than two months later. Again, a coordinated intervention by the world’s central banks bought less than two months’ time for Italy.
And now we find the debt contagion spreading to France:
French Debt Costs Rise at Bond Sale as AAA Decision Looms
France sold 7.96 billion euros ($10.2 billion) of debt, with 10-year borrowing costs rising in the country’s first bond auction of the year as credit-rating companies threaten to cut the nation’s AAA grade.
The government sold 4.02 billion euros of the bonds maturing in October 2021 at an average yield of 3.29 percent, from 3.18 percent on Dec. 1. The euro fell to its weakest level against the dollar in 15 months, and the extra yield investors demand to hold French 10-year bonds instead of benchmark German bunds widened to the most in about six weeks.
“There’s still the threat of a downgrade hanging over France and until we get that situation cleared up you can’t signal the all-clear,” said Eric Wand, a fixed-income strategist at Lloyds Bank Corporate Markets in London.
France has the biggest debt burden of the six top-rated euro nations, at 85 percent of gross domestic product. Its 10- year yield spread to German debt widened to a 21-year high of 204 basis points on Nov. 17 amid concern Europe will struggle to contain the region’s debt crisis. Today, it reached 151 basis points, or 1.51 percentage points, the most since Nov. 25. It was at 149 basis points at 5:39 p.m. Paris time compared with a premium of 47 basis points for AAA rated Finland and 39 basis points for the Netherlands.
The significance of this cannot be overstated. European nations need to roll over hundreds of billions if not trillions of Euros’ worth of debt in 2012. And this is at a time when even more solvent members such as France and Germany are staging weak and failed auctions.
| Maturing Debt Plus Budget Deficit as a % of GDP | ||
| 2011 | 2012 | |
| Portugal | 21.6% | 21.0% |
| Italy | 22.8% | 23.1% |
| Ireland | 19.5% | 18.0% |
| Greece | 24.0% | 26.0% |
| Spain | 19.3% | 18.7% |
| UK | 15.7% | 13.6% |
| France | 20.6% | 19.7% |
| Germany | 11.4% | 10.5% |
Previously, EU sovereign nations would rely on European banks for these debt needs. However, European banks have their own debt issuance problems to deal with. To wit, before the end of 2012…
- French banks need to roll over 30% of their TOTAL debt.
- Spanish banks and Italian banks need to rollover more than 33% of their TOTAL debt.
- German banks need to roll over nearly 40% of their TOTAL debt.
- Irish banks need to roll over almost HALF (50%) of their TOTAL debt.
Thus, the question becomes: WHO is going to buy all this debt? China’s increasingly focusing on domestic issues. Japan is on the verge of its own solvency Crisis. And the US is running terrible Debt to GDP and Deficit to GDP ratios as well.
Again… who’s going to put up the funds to roll over this debt? The only player that could possibly do that would be the ECB. But Germany won’t stand for that level of debt monetization. And the Fed can’t monetize everything in today’s political climate
Thus, the fact remains: the EU in its current form will be broken up sometime in 2012. The Powers That Be are rapidly losing control over there. And once the stuff really hits the fan, it’s going to make 2008 look like a joke.
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