Monday, November 29, 2010

European Debt Panic Intensifies

Stocks plunged this morning as the markets continue to worry about the European debt crisis.

The Financial Times chief economic commentator Martin Wolf chimed in this morning with his take on how this crisis could spread across all of Europe minus Germany.

The cost of protecting Portuguese and Spanish debt soared to record highs on the news of the Irish Bailout:

"The cost of insuring against default on Portuguese and Spanish government debt soared to record high levels as an aid package for Ireland failed to reassure investors the region’s debt crisis will be contained.

Credit-default swaps on Portugal jumped 36.5 basis points to 538.5, and contracts on Spain climbed 24.25 to 347, according to CMA. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments increased 6 basis points to a record 194, based on closing prices."

My Take:

The terms of the bailout are flat our ugly for the people of Ireland.  The austerity plan that will be implemented to pay back these debts is brutal and it includes a provision where they will raid their pension funds:

"EU ministers tonight spelt out the terms of Ireland's €85bn international financial rescue package, and revealed the Dublin government will have to raid its national pension fund and other cash reserves for €17.5bn as a condition of the deal to bail out its banks and debt-laden economy.

The unexpected contribution from Ireland was demanded at a hastily arranged meeting of the eurozone's finance ministers, who were desperate to secure a deal before the markets open tomorrow."

Take Continued:

One must seriously ask themselves if the Irish people are going to take this sitting down.  Essentially, the banks destroyed the country financially and the people are left paying the tab.

Using the pension funds to pay off debt would be no different then the USA raiding our 401k's to do the same if we were in Ireland's shoes.  Don't think that could happen here?  Think again.

I would have told the EU to go screw themselves if I was Ireland.  This was not the people's fault so why are they forced to pay for it?  Every banker that was involved with this blatant fraud must go to jail.

I am seriously afraid that social chaos could break out in Ireland as they suffer through a wicked depression in order to pay off these debts.  I also wouldn't be surprised to see some type of revolt against the government as a result of this debacle.

The Bottom Line

Europe finds themselves in a full blown debt panic.  The bond vigilantes are trying to force the hand of the EU by punishing Portugal and Spain's debt.

They are demanding answers from the ECB/EU because the problems in these two countries look to be the same as Greece and Ireland.  The problem here is the money isn't there to bailout Spain's trillion dollar economy.

Debt contagion is ugly when it starts to unwind, and I don't see a way out without massive debt restructurings.  If Spain goes down, then I believe the Euro is in deep trouble.

Stay tuned folks.  These are very serious problems. 

The threat of political and social chaos also loom large as the people of these countries realize how badly they have been screwed by the bankers and the politicians.

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