Skip to comments.ECB Expected to Unleash QE after Launching of Euro-Bonds
Posted on 11/30/2011 6:02:29 AM PST by Diana in Wisconsin
Hardly a week goes by, without a major summit between German Chancellor Angela Merkel and French President Nicolas Sarkozy, trying to devise another clever scheme to save the Euro. Yet after 1-½ years of trying to contain the wildfire, - the Euro-zones debt crisis is more dangerous than ever. The collapse of Greeces 360-billion bond market, now trading at 26% of face value, has triggered contagion sales from periphery of the Euro-zone - Greece, Ireland and Portugal, and into the next upper tier of the Euro-zone, namely, the bond markets of Spain and Italy, which together owe 3-trillion of debt.
Even after Spain's right-wing Popular Party routed the social democrats in a national election and assumed power, pledging even more severe austerity measures, - Spains borrowing costs continued to ratchet higher. The yield on Spains ten-year bonds approached 7% last week, a level considered prohibitively high enough to topple the Euro-zones fourth largest economy into a depression in 2012. Despite assurances from Italys new Prime Minister Mario Monti of new austerity measures, Italys 10-year yield hit 7.50% last week, a 15-year high.
The newly installed governments of Greece, Italy and Spain are promising to imposed deeper spending cuts, further layoffs of public workers, and raising taxes, - all measures that can push their economies into a deep recession. However, as the Wall Street Journal noted on Nov 21st, Whether the ECB decides to boost its bond-buying or not, investors seem to be coming to the conclusion that any true solution to the European debt crisis will be a years-long process in which governments will be asking electorates to accept enormous sacrifices, in the form of entitlement cuts and tax increases, as well as weak growth and high unemployment.
The origins of the Euro-zone debt crisis began in the Greek bond market. Traders began to realize that Greeces small workforce of 6-million wage earners couldnt possibly payback 360-billion ($478-billion) of debt that was accumulated by the crooked politicians in Athens. Last year, Greeces total debt increased to 142% of gross domestic product (GDP). This year, its expected to reach 160-percent. Yet its nearly impossible for a government to run a budget surplus when its economy is shrinking, and tax revenues are falling.
In 2010, Greeces economic output fell by -4.5% and roughly 65,000 private companies declared bankruptcy. More than 200,000 people lost their jobs. The situation has gotten much worse this year. Greeces jobless rate hit a record high of 18.4% in August. The country is suffering from painful austerity measures demanded by foreign lenders. The jobless rate for workers in the 15-24-year category reached 43.5%, twice its level three years ago, and is a tinderbox that could explode at any moment. Greeces economy is now seen shrinking for a fourth consecutive year in 2011, at an annual pace of -5.5-percent.
At the same time, foreign lenders refuse to lend money to Greece. The rating agencies have downgraded the country so low that Athens must pay 152% for two-year bonds.If the EU and IMF hadnt agreed to cover Greeces 110-billion borrowing needs thru 2013, Athens wouldve already declared state bankruptcy. This wouldve resulted in massive losses for the European banking Oligarchs and Euro-zone governments that hold the toxic debt.
Under the guidance of Berlin and Paris, a large portion of Greeces toxic debt has already been clandestinely shifted from the portfolios of the banking Oligarchs, and dumped into the hands of the Euro-zone taxpayers. In 2009, private banks held 100% of Greek public debt. However, through backdoor bailouts arranged by the IMF, the Euro-zones Financial Stability fund and the ECB, much of the toxic debt is being transferred from the books of the banking Oligarchs to public hands. Bankers will probably still hold about 180-billion of Greek debt by the end of 2013, compared to just under 300-billion in 2009.
Its highly doubtful that Greeces downtrodden workers would agree to remain slaves to Europes Oligarchic bankers for long. Athens is now demanding that its lenders write-off three-quarters of the debt owed, in a new restructuring deal. The alternative is for Greece to abandon the European monetary system and reintroduce the drachma as its national currency. That would bankrupt the Greek banks and pension funds that have loaned the Greek state 75-billion. The export sector would see little benefit from devaluation, as exports contribute only 7% of GDP. Most likely, the introduction of the drachma would result in hyper inflation, and decimate the living conditions of broad layers of the population. For Greece, there are no good choices to choose from in Dantes Inferno.
Have a Great Day, LOL! :)
They will soon have the ship in calm water.
No magic can back that ship up, and no political magic can fix Europe's economies.
Fed joins in global QE....market futures soar
The question now becomes, does the governments have enough money to bail out the world and continue the PM price suppression scheme? Or does it matter anymore?
Stick a fork in us...
It’s moot at this point.
The elites are all strapping on lifejackets and launching lifeboats, while assuring the passengers locked bekiw in steerage that all is well.
“below” in steerage.
Just what I expected:
From Zero Hedge,
Global Central Banks Go to Defcon 4 - “Fire up the printing presses, gang!” Or at Least Swaps
Look at Euro bond yields versus US yields. US yields actually ROSE.
Yep. Me, too. Hate to see anyone suffering on my behalf, but it is what it is. Slow and steady wins the race. 13 years and counting... :)
I think Nicolas and Angela are seeing each other too often lately, and as far as I can tell, it is not a pleasant kind of meeting. Must be sick of each other by now.:-)