July 4, 2012
The European Union held a summit meeting last week, prompting a significant rally in both European and American markets at the perception of progress in controlling the Euro meltdown. However, it’s difficult for a sober analyst to find anything of long-term significance coming out of the summit. Spain got a vague commitment to pump bailout money directly into its banks, instead of handing the Spanish government a pile of rescue money with “austerity” strings attached, but no one is terribly clear about where this bank bailout money will be coming from.
Post-summit euphoria has already begun to fade, and it fades nowhere more swiftly than in the nation that glumly supposes it knows damn well where the bailout money will be coming from: Germany. It is increasingly clear that the entire Eurozone is powered by a long extension cord, patched here and there with austerity duct tape, running all the way to Berlin.
The Germans know a bad investment when they see one, and Spain is a horrible investment, on a scale many times the size of the legendary Greek bailout void. Reuters notes that it might not be possible to recapitalize the Spanish national banks fast enough, even if the money can be found. Spanish debt remains well north of 80 percent of GDP, and its bonds hover near the 7-percent-yield meltdown point. It’s a classic example of unsustainable debt built up by decades of madcap government borrowing, and it’s chilling to watch a nation as large as Spain reach the terrible moment when it literally cannot borrow enough money to sustain itself. Anyone who thinks government deficits are arbitrary spreadsheet numbers which can be pumped up without limit should watch this horror show carefully.
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