Europe in Crisis
Unresolved crisis conditions.
by Stephen Lendman
Four and a half years after crisis conditions erupted, nothing's been done to resolve them. The smartest guys around haven't fixed things.
On June 14, rumors circulated about coordinated central bank intervention. European banks are especially troubled. Recapitalizing them hasn't worked.
Expecting more of the same to accomplish what hasn't so far worked is another way of defining failure.
Along with talk of more stimulus, Egan-Jones Ratings, an independent NRSRO (Nationally Recognized Statistical Rating Organization), downgraded French sovereign debt from A- to BBB+ with a negative outlook. Doing so shows core European weakness.
Dutch banks were also downgraded. So were Spanish ones and sovereign Spanish and Cyprus debt. Both countries approach junk status.
Germany shows weakness. Its 10-year sovereign debt jumped over 30 basis points from recent lows. It's troubled by having to fund more bailouts or face euro dissolution issues. It's also pressured by having to shore up the ECB in case it's threatened.
The average Eurozone country has a 500% debt/GDP ratio. Expects more defaults, write-downs, and frantic steps to shore up sovereign debt.
Spanish bonds touched 7% before settling slightly lower. Liquidity isn't the problem. Markets are awash with it. At issue is sovereign and banking sector solvency.
Multiple intervention rounds solved nothing. Neither will more of the same. Structural problems remain unresolved. More time alone is bought. It doesn't come cheap. The price is greater debt, higher service costs, and eventual crisis conditions too grave to fix.
Bad policies don't change basic economic fundamentals. Non-performing European bank loans are increasing. Italy may be the next Spain. Its sovereign yields top 6%. More on what's bad there getting worse below.
Economic growth forecasts are increasing. Europe's recession deepens. Next year looks worse, not better. Synchronized global slowing is occurring with ammunition running out to address it.
Five years ago, OECD countries sovereign debt/GDP ratios were 70%. Today it's 106% and rising. Governments are less able to stimulate growth. Failing to assures greater trouble. Rising debt + higher service costs + falling growth = eventual house of cards collapse.