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  1. #1
    Senior Member AirborneSapper7's Avatar
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    Now EU Rescue Threatens Germany...

    EU rescue costs start to threaten Germany itself

    The escalating debt crisis on the eurozone periphery is starting to contaminate the creditworthiness of Germany and the core states of monetary union.



    Chancellor Angela Merkel would risk popular fury if she had to raise fresh funds for eurozone debtors at a time of welfare cuts in Germany.

    By Ambrose Evans-Pritchard 6:00AM GMT 26 Nov 2010

    Credit default swaps (CDS) measuring risk on German, French and Dutch bonds have surged over recent days, rising significantly above the levels of non-EMU states in Scandinavia.

    "Germany cannot keep paying for bail-outs without going bankrupt itself," said Professor Wilhelm Hankel, of Frankfurt University. "This is frightening people. You cannot find a bank safe deposit box in Germany because every single one has already been taken and stuffed with gold and silver. It is like an underground Switzerland within our borders. People have terrible memories of 1948 and 1923 when they lost their savings."

    The refrain was picked up this week by German finance minister Wolfgang Schäuble. "We're not swimming in money, we're drowning in debts," he told the Bundestag.

    While Germany's public and private debt is not extreme, it is very high for a country on the cusp of an acute ageing crisis. Adjusted for demographics, Germany is already one of the most indebted nations in the world.

    Reports that EU officials are hatching plans to double the size of EU's €440bn (£373bn) rescue mechanism have inevitably caused outrage in Germany. Brussels has denied the claims, but the story has refused to die precisely because markets know the European Financial Stability Facility (EFSF) cannot cope with the all too possible event of a triple bail-out for Ireland, Portugal and Spain.

    EU leaders hoped this moment would never come when they launched their "shock and awe" fund last May. The pledge alone was supposed to be enough. But EU proposals in late October for creditor "haircuts" have set off capital flight, or a "buyers' strike" in the words of Klaus Regling, head of the EFSF.

    Those at the coal-face of the bond markets are certain Portugal will need a rescue. Spain is in danger as yields on 10-year bonds punch to a post-EMU record of 5.2pc.

    Axel Weber, Bundesbank chief, seemed to concede this week that Portugal and Spain would need bail-outs when he said that EMU governments may have to put up more money to bolster the fund. "€750bn should be enough. If not, we could increase it. The governments will do what is necessary," he said.

    Whether governments will, in fact, write a fresh cheque is open to question. Chancellor Angela Merkel would risk popular fury if she had to raise fresh funds for eurozone debtors at a time of welfare cuts in Germany. She faces a string of regional elections where her Christian Democrats are struggling.

    Mr Weber rowed back on Thursday saying that a "worst-case scenario" of triple bail-outs would require a €140bn top-up for the fund. This assurance is unlikely to soothe investors already wondering how Italy could avoid contagion in such circumstances.

    "Italy is in a lot of pain," said Stefano di Domizio, from Lombard Street Research. "Bond yields have been going up 10 basis points a day and spreads are now the highest since the launch of EMU. We're talking about €2 trillion of debt so Rome has to tap the market often, and that is the problem."

    The great question is at what point Germany concludes that it cannot bear the mounting burden any longer. "I am worried that Germany's authorities are slowly losing sight of the European common good," said Jean-Claude Juncker, chair of Eurogroup finance ministers.

    Europe's fate may be decided soon by the German constitutional court as it rules on a clutch of cases challenging the legality of the Greek bail-out, the EFSF machinery, and ECB bond purchases.

    "There has been a clear violation of the law and no judge can ignore that," said Prof Hankel, a co-author of one of the complaints. "I am convinced the court will forbid future payments."

    If he is right – we may learn in February – the EU debt crisis will take a dramatic new turn.

    http://www.telegraph.co.uk/finance/fina ... tself.html
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  2. #2
    Senior Member AirborneSapper7's Avatar
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    EU Debt Crisis Escalates... http://online.wsj.com/article/SB1000142 ... TopStories

    100,000+ march in Dublin over budget cuts... http://www.guardian.co.uk/world/2010/no ... ors-dublin

    'Day of Reckoning' Nears... http://news.yahoo.com/s/ap/20101126/ap_ ... _crisis_28

    Banks downgraded -- one to junk bond status... http://news.yahoo.com/s/ap/20101126/ap_ ... _crisis_28

    Portugal Denies Report on Bailout... http://www.cnbc.com/id/40377533

    Spain Bets on Budget Cuts... http://www.bloomberg.com/news/2010-11-2 ... uyers.html

    Next Debt Crisis 'May Start in Washington'... http://www.cnbc.com/id/40378597
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  3. #3
    Senior Member AirborneSapper7's Avatar
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    November 28, 2010

    Europe's debt problem has gone from bad to worse

    Rick Moran
    11 Comments

    Can anything be done to save the Euro? At this point, it doesn't look very good: http://www.telegraph.co.uk/finance/fina ... worse.html

    Another week, another crisis for the euro. In April, the single currency wobbled as Greece was rescued. This week and last, Ireland sparked the panic. Next week, if the markets are to be believed, it'll be Portugal. Then Belgium. And, finally and fatally, Spain. On current trends, the euro is in for another roller-coaster month before it splinters, having crashed into the safety barrier.

    If such a scenario was being sketched by the euro's detractors, it would be one thing. But, it's the euro's own members who are warning of the perils ahead. "The risk of a eurozone break-up is very real," Ivan Miklos, finance minister of the area's newest member Slovakia, said this week.

    Luis Amado, Portugal's foreign minister, aired similar views recently. He warned: "The alternative to the situation we confront is eventually leaving the euro. That is a situation that could inevitably be forced on us by markets to consider."

    "We are in a survival crisis," European Union president Herman Van Rompuy noted last week. Even Angela Merkel, the German Chancellor, has admitted that the eurozone is "facing an exceptionally serious situation", with her finance minister Wolfgang Schäuble adding: "Our joint currency is at stake."

    There is talk of a two tier Euro zone where debtor nations on the periphery drive out bondholders who will refuse to further finance their growing debt.

    Simon Derrick, currency chief at the Bank of New York Mellon, said investors are giving up on the euro periphery - pushing the cost of debt to cripplingly high levels and creating a two-tier euro area as spreads over German bunds rocket.

    "Investors are beginning to realise that the problem with the euro is a structural one," Mr Derrick said. "Monetary policy was set for core Europe and inappropriate for the periphery. Because of the debt overhang and the explicit plan for bondholders to take haircuts, you are baking in long-term differentials. Why would a country want to remain in marginal Europe?"

    The dream of a united, integrated Europe has been around well over 100 years. Maybe there was a reason no one was stupid enough to try and achieve that dream until now.
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