Euro crisis deepens as time starts to run out for Spain's banks and regions

[alp227]

Source: The Guardian

Spain dragged the eurozone closer to the edge of collapse despite winning the backing of finance ministers from the single currency's major economies for a €100bn (£77.8bn) bank rescue fund.

Concerns that Madrid is running out of options to bring down the debts of its ailing banks and bankrupt regions sent the country's borrowing costs soaring above 7.2% – a rate seen as unsustainable for a country that cannot devalue its own currency and is suffering a lengthy double-dip recession.

The bank bailout had been supposed to push down the country's borrowing rates, but the country's problems continue to mount. On Friday the region of Valencia was forced to turn to the Spanish central government for cash help.

That move, together with a downgrade of Spanish bonds to junk status by the credit ratings agency Egan Jones, saw the Madrid stock market suffer its biggest one day fall for two years.

Read more: http://www.guardian.co.uk/business/2012/jul/20/spain-crisis-eurozone-valencia

[DallasNE]

1. Spain Just Agree To A New Round Of Austerity

Even after the old round of austerity failed so miserably so they are destined to more misery. Spain needs to call new national elections but I don't expect that to happen. Europe just isn't very enlightened right now so economic pain will persist until new leadership is put in place. I believe Germany has federal elections next year so that would be a good starting place.

[cstanleytech]

2. I'm not saying I support austerity because I dont but what else can countries

like spain and greece really do?
Its not like they have the same GDP we here have in the US after all.

[DallasNE]

4. Weak Demand

In order to turn things around something needs to happen to increase demand. Spain is being crushed by high borrowing costs. They need greater liquidity to bring down those interest rates. Some of that needs to come from the European Central Bank and some from the IMF. Merkel in Germany has stopped the ECB from engaging in a Quantative Easing program. Greece could use some targeted, job creating spending to turn some of those unemployed into tax paying citizens Their wealthy shipping owners could be asked to pay a fair share of taxes.

[cstanleytech]

6. But what kinda jobs exactly for spain? I know part of the greeks problem from what I read is

that they were reliant on tourism and with a weakened world economy they took a major hit so is spain suffering from a similar problem? If so then how do you propose to fix the lack of tourists?

[Marooned]

3. Why would you think new elections in Germany would change anything?

No new party that takes over for Merkel is going to start handing out German taxpayer money to bail out Greece, Spain or Portugal. The German's can't be expected to compensate for other countries fiscal irresponsibilities. From the looks of it no one has an easy answer how to solve the problems of southern Europe. Austerity is painful and kills growth but the governments can't spend money to spur growth because they have to borrow it to do that which further puts them in to debt.

[DallasNE]

5. Who Said Anything About Taxpayer Euro's

The European Central bank is a lot less independent than our Federal Reserve. A new government in Bonn would most likely grant the European Central Bank more leeway to lower interest rates, perhaps even a round of quantatative easing. Right now government policy has its hands around the throat of the European economies, with most of Europe currently in recession and the rest headed in that direction. Governments not only can, they must spend money to spur growth. Yes, that spending must be targeted to items that create jobs but spending is the only way out. Austerity simply takes more money out of the hands of the middle-class and hands it up to the rich. Closing tax loopholes for the wealthy would be a bonus -- especially in Greece.

[Psephos]

7. Any ECB liquidity can only come from the issuance of more debt.

That's how they would do it. They would electronically print more money to fund bonds to replace the toxic bonds. It's fake money. There is no physical asset behind it, and it does not represent anyone's labor or tax contribution. No one with actual tangible wealth will trade it for the paper promises of bankrupt central banks. So they just print up the pretend money, and use it buy their own debt.

It's as if you were in trouble with your credit cards, so you wrote yourself an IOU, then declared it as a fungible asset in a financial statement to collateralize a line of credit to pay off your credit cards. It's called fraud.

You cannot solve debt by taking on more debt, just as you cannot put out a gasoline fire by spraying it with gasoline. Economic history shows conclusively that once a sovereign enters a debt spiral, there is no exit except default and reset. Five countries in Europe are in a debt spiral currently. There will soon be more.

One can look at Chile's debt crash 30 years ago, and the way it rebuilt itself economically since, to see that there is reason for hope after the money dies. There are good examinations of Chile's renaissance on the web if you go look for them.

The death of the money in Europe cannot be avoided. It's past the time when solutions could be applied. All that's left is the endgame.