The European Monetary Situation

EVERYBODY PAY ATTENTION TO IRAN AND NORTH KOREA; nothing to see here, move along.

One false move in Europe could set off global chain reaction

If the trouble starts — and it remains an “if” — the trigger may well be obscure to the concerns of most Americans: a missed budget projection by the Spanish government, the failure of Greece to hit a deficit-reduction target, a drop in Ireland’s economic output.

But the knife-edge psychology currently governing global markets has put the future of the U.S. economic recovery in the hands of politicians in an assortment of European capitals. If one or more fail to make the expected progress on cutting budgets, restructuring economies or boosting growth, it could drain confidence in a broad and unsettling way. Credit markets worldwide could lock up and throw the global economy back into recession.

Anybody think any of these government officials can walk this tightrope without a misstep?

Bank of Spain seizes control of savings bank CajaSur

By MarketWatch

TEL AVIV (MarketWatch) – The Bank of Spain on Saturday took control of and appointed an administrator for CajaSur, a savings bank that was hurt by bad property loans, media reports say.

Based in the southern city of Cordoba, CajaSur has $16.36 billion of loans outstanding and holds $23.9 billion, or 0.6%, of the assets within Spain’s financial system, the reports say.

CajaSur on Friday determined not to go ahead with a plan reached in August to merge with a bigger lender, Unicaja of Malaga. The failure of that plan prompted the authorities to take over CajaSur, reports say.

For 2009, CajaSur posted a net loss of 596 million euros ($750 million). Bank of Spain officials estimate that restoring the bank to solvency will require about 500 million euros of fresh capital, reports say.

CajaSur, which had been controlled by the Roman Catholic Church, was the second Spanish bank failure in a bit more than a year, reports say. In March 2009, the Spanish central bank seized control of Caja Castilla-La Mancha.

The seizure of CajaSur comes against the background of international concern about Spain’s creditworthiness. This month, the European Union put in place a financial backstop against the prospect that Spain and other countries could default on their debt.

You know it’s bad when the longest running continuous government in the world (The Vatican) takes a hit like this.

Euro Declines Against Dollar as Spain Takes Over Lender

May 24 (Bloomberg) — The euro dropped the most versus the dollar in four days after the Bank of Spain took over a failing regional lender.

The pound rose versus the euro as the U.K. announced $9 billion in spending cuts to contain the budget deficit. Yuan forwards rose the most in four days as President Hu Jintao said China will move gradually and independently in making changes to its exchange-rate mechanism. The euro fell against all of its most-traded counterparts as investors sold the currency to fund trades in higher-yielding currencies.

“We are headed for a softer patch of growth, which is hurting the euro today, and is unfavorable for risk assets going forward,” said Lee Hardman, a currency strategist at Bank of Tokyo Mitsubishi UFJ in London. “Risk currencies, such as the Australian dollar, are overvalued.”

The euro fell 1.5 percent to $1.2384 at 6.41 a.m. in New York, from $1.2570 on May 21. It touched $1.2144 on May 19, the lowest level since April 17, 2006. Japan’s yen strengthened 1.3 percent to 111.48 per euro and was little changed at 90.05 per dollar.

The 16-nation euro dropped toward a four-year low against the dollar after the Bank of Spain said on May 22 it appointed a provisional administrator to run CajaSur, a savings bank crippled by property-loan defaults. The lender, based in the city of Cordoba, Spain, and controlled by the Roman Catholic Church, will be run by the government’s bank restructuring fund, the regulator said.

Nouriel Roubini said the bubble would burst and it did. So what next?

Just three years earlier, Roubini had been the object of derision in the economics community as he prophesied a US housing market crash, financial crisis and partial collapse of the banking sector. Today, as an adviser to governments and central bankers and much feted in the media, he’s well aware of the power of being right.

“In my line of business your reputation is based on being right,” he says. “The publicity is just noise. Certainly with a global crisis, the dismal scientists are having some prominence, even if most of the economics profession actually failed to predict it.”

*break*

As eurozone leaders panic and markets continue to dive, Roubini believes Greece will prove to be just the first of a series of countries standing on the brink.

“We have to start to worry about the solvency of governments. What is happening today in Greece is the tip of the iceberg of rising sovereign debt problems in the eurozone, in the UK, in Japan and in the US. This… is going to be the next issue in the global financial crisis.”

It already is. And Roubini claims to have foreseen it as far back as 2006.

“I was writing about the PIGS [Portugal, Italy, Greece and Spain] six to nine months before everyone else, I was worried about the future of the monetary union back in 2006,” he says. “At the World Economic Forum I outraged a policy official by suggesting the monetary union might break up.”

We are so proverbially screwed, and what do we have in Washington? The District of Criminals.

The World Is Smouldering: Protests In Ireland and Romania

For those that do not know what PIIGS stands for; it is the acronym for Portugal, Ireland, Italy, Greece, and Spain whose economies are on fire and linked to each other.  The contagion is spreading and we must start thinking about who we are as Americans, how we are going to react, and what we are going to do when it all hits the fan.  That trillion dollars in bad assets that the banks have not put on their balance sheets is hanging over our heads like a very sharp sword.

Everyone (by now) knows about the protests in Greece, but a protest turned violent in Ireland on Tuesday, and another protest is scheduled for Saturday.  Protests are happening in cities all over Romania due to the austerity measures being put in place by their president.

Ireland

Protest at Leinster House, 11th May 2010 – Next Protest Anglo Irish HQ – 2pm, Sat May 15th, 2010:

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The Dominoes Are Rocking

The Dominoes Are Rocking

Strap in folks, the slow motion train wreck we have been watching since 2006 is picking up speed.  The DOW dropped 213 points yesterday in response to Greece and Portugal’s credit rating changes and Goldman Sachs all over the news in front of Congress.  The dominoes of teetering governments that Basil, the IMF, the WB, The Fed, and the other usual suspects have been trying to keep upright are now gently rocking.  So far, the only person who appears to have their head screwed on straight is Angela Merkel, Germany’s Chancellor.

Fears of Greek debt default hit markets

(Reuters) – Fears that a planned rescue of Greece could stall and extend the financial crisis to other euro zone countries hit European markets on Wednesday as investors worried that Athens may default on its debt.

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