"Last week the head of the European Central Bank, Mario Draghi told a German newspaper that while there were still risks, the worst of the eurozone crisis was over and the situation had stabilised. This rosy scenario is far from reality as concerns grow that a new round of the crisis may be set off by the worsening situation in Spain and Portugal.
In the short term, financial markets have reason to celebrate. The Greek bailout has meant that most of the debt contracted by the banks and other financial institutions has been transferred to the state, to be paid for by ever-deepening austerity means imposed on the Greek people. In addition, the €1 trillion injected into the European financial system by the European Central Bank (ECB) has averted an immediate financial meltdown by providing banks with a lucrative source of ultra cheap money.
However, no serious observer believes this policy has resolved any of the fundamental problems and may, in fact, be making them worse. Critics maintain that the bailout is leading to the creation of many “zombie” banks, which are completely dependent on the ECB for finance and are reluctant to provide credit either to each other or to businesses.
Portugal has carried out all the austerity demands of the European Union in implementing an austerity program. Yet Portuguese 10-year bonds are still trading at interest rates of more than 12 percent, at least double the level considered sustainable.
Spain presents an even bigger danger. As the Financial Times noted, up until last week it might have been thought that the dangers of a Spanish debt default were receding. “That confidence,” it continued, “is already starting to evaporate. A growing chorus of economists and analysts is warning that the Spanish economy—the eurozone’s biggest after Germany, France and Italy—is in much worse shape that markets might suggest.”
According to Citigroup chief economist Willem Buiter, Spain is “at a greater risk than before” of being forced to accept a debt restructuring. Such a move would pose a far higher threat to the European banks and financial markets than the Greek crisis..."
at http://www.wsws.org/articles/2012/mar2012/euro-m26.shtml
In the short term, financial markets have reason to celebrate. The Greek bailout has meant that most of the debt contracted by the banks and other financial institutions has been transferred to the state, to be paid for by ever-deepening austerity means imposed on the Greek people. In addition, the €1 trillion injected into the European financial system by the European Central Bank (ECB) has averted an immediate financial meltdown by providing banks with a lucrative source of ultra cheap money.
However, no serious observer believes this policy has resolved any of the fundamental problems and may, in fact, be making them worse. Critics maintain that the bailout is leading to the creation of many “zombie” banks, which are completely dependent on the ECB for finance and are reluctant to provide credit either to each other or to businesses.
Portugal has carried out all the austerity demands of the European Union in implementing an austerity program. Yet Portuguese 10-year bonds are still trading at interest rates of more than 12 percent, at least double the level considered sustainable.
Spain presents an even bigger danger. As the Financial Times noted, up until last week it might have been thought that the dangers of a Spanish debt default were receding. “That confidence,” it continued, “is already starting to evaporate. A growing chorus of economists and analysts is warning that the Spanish economy—the eurozone’s biggest after Germany, France and Italy—is in much worse shape that markets might suggest.”
According to Citigroup chief economist Willem Buiter, Spain is “at a greater risk than before” of being forced to accept a debt restructuring. Such a move would pose a far higher threat to the European banks and financial markets than the Greek crisis..."
at http://www.wsws.org/articles/2012/mar2012/euro-m26.shtml
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