This page has been archived and commenting is disabled.
ECB Rate Hikes could Kill Greece, Ireland, Portugal, and even Spain!
On Sunday, new analysis of the recent actions by the ECB was
published in the Observer (Guardian). The British media outlet hired
consultancy firm Fathom to evaluate the bailouts of different European
member states and the possible outcome.
The study concluded that the bailouts are not the biggest threat for
Europe. The renewed hawkish stance by the ECB, which led to the recent
interest rate hike, is far more dangerous!
Via the Observer:
Analysis by City consultancy Fathom, obtained exclusively by the Observer,
shows that because the interest rates on the bailouts provided to
Greece and Ireland track the European Central Bank’s lending rate, a
series of increases could push these countries – and Portugal – into
default.
“If the ECB continues to tighten policy, the impact is clear:
default is more or less inevitable,” says Fathom director Danny Gabay.
“Greece is clearly on an unsustainable path.”
Fathom also warns that Spain remains vulnerable, despite Madrid
insisting last week that its economy is much healthier than Portugal’s
and its debts are much more manageable. Spanish banks must roll over
debts worth more than 5% of GDP this year, and more than 9% in 2012, in
addition to the government’s financing needs. A two-point increase in
the interest Madrid pays in the bond markets – much of which could come
from the ECB, even without a further loss of confidence from bond
investors – would, on Fathom’s calculations, force Spain into a fiscal
crisis.
A string of defaults could shatter the markets’ confidence, Gabay
argues, resulting in a devaluation of up to 30%, with significant
knock-on effects: “What could make the markets lose confidence is
watching these countries implode.”
While the experts are discussing the future of the EU, the euro is on
a tear versus the dollar, choking European exporters. This could lead
to even more damage to tax income, i.e. state budgets.
There’s
no question about it: the tensions are building rapidly in Europe. At
the current pace, Code Red could be installed fairly quickly for the
European financial system.
Follow us on Twitter: @SmartMoneyEU
»
- advertisements -
dubya2
I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world - no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.
Just before he died Wilson is reported to have said that he had been deceived and "I have betrayed my country."
something that has not gotten near enough attention is that as short term interest rates rise, even as little as 25 basis points, from very low levels (prior 1% in eurozone, what 5 basis points in the u.s.?) the money supply must be reduced sharply to avoid significant inflation over the next, say, six months. the lower current levels of interest rates are, the greater the reduction required/the greater the inflation increase sans liquidity constriction. and the relationship is non-linear: much more powerful at first reversal coming off the interest rate bottom (see the inflation experience in late forties u.s. for instance).
the best, imo, on this very salient point is john hussman. see his latest and also his prior "sixteen cents". (and what do you get? another day older and deeper in debt: poor man made out of muscle and blood, muscle and blood and skin and bone; a mind that's weak and a body that's strong).
As I've stated before, all-out war is about to break out between members of the EU.
CNBC talking heads will then tell you how huge rebuilding will be positive for the markets.
War between the EU members?
*snort*
Give me a freaking break. The French and the British can't even take out GADDHAFI with the 2 planes they have between them, fer Chrissakes.
Here's what a Eurozone war would look like ...
http://www.youtube.com/watch?v=vMqSmiC_xHg
Lol, we'll make you the referee of the Euro League football final if you like...