European Crisis Now Out of Control

The long running eurozone crisis turned a corner last night, and the news isn’t good.

The list of basket cases has grown by two: Spain and Italy can no longer raise money in the bond markets at sustainable rates. The Spanish government has given up its attempt to serve out its term and has called early elections for the fall; Italy’s finance minister flew to Luxembourg for emergency consultations as Italian financial markets stagger on the edge of collapse.

If Spain spirals into a Greek-style meltdown, European banks face a crisis. If Italy melts down, European governments face one.

Until yesterday, an Italian crisis was a possibility. Today it is a fact.

Fasten your seat belts.

Posted in Economics & Business, Europe, Quick Takes

Bart Hall (Kansas, USA)

These challenges are only the beginning. My Hungarian in-laws have (for years) bemoaned the phenomenon of Hungarians — along with Czechs, Slovaks, Romanians, and others — borrowing mortgage money in Swiss Francs and Euros because the interest rates were lower.

Now that the CHF and the EUR are on a tear, in part because central Europeans must convert into those currencies to make their mortgage payments, the local-currency cost of those mortgages have gone through the roof.

Central Europeans are selling whatever they can in order to keep making mortgage payments, but that gig is nearly up and the delinquencies — followed by defaults — are already in the pipeline.

The same sort of problem some 80 years ago led to the collapse of Kredit Anstallt (Austria) in May, 1931, which is what really triggered the Depression in Europe. Three months later Britain was forced to abandon the gold standard.

Our present era is rhyming quite well, to echo Mark Twain. It will not be pretty.

We have passed the point of collective solutions. Individuals and families must now look after their own circumstances.

This thing will not be over until all the bad debt is washed away. ALL of it. My guess is that things won’t really begin to turn around until the mid ’20s.

Enjoy the ride.
Luke Lea

End of the Euro?
Luke Lea

Lot of good comments here, below the article. Roubini is good too of course.
Tom

Business Insider has an interesting idea: bifurcate the currency into 2 blocs: the Euro (deadbeats) and the Geuro (the Franco-German-everyone else) units, and proceed from there.

http://www.businessinsider.com/what-we-need-is-the-geuro-and-the-euro-2011-8
Luke lea

[editor: America's credit downgrading is disgraceful. Please write about it.]