Thursday, November 24, 2011

Death Throws Of The Euro

It's only a matter of time now.

Germany suffers from poor bonds sales.

Financial markets were also unnerved on Wednesday by newspaper reports that Belgium may be pressing France for an expansion of a $120bn bailout of the failed bank, Dexia.

On top of this, a special report by Fitch Ratings suggested France had limited room left to absorb shocks to its finances, such as a new downturn in growth or support for banks, without endangering its cherished AAA credit status.

After one of the least successful debt sales by Germany since the launch of the single currency, the euro fell and European shares sank to seven-week lows.

Signs that European banks are increasingly shut out of credit markets and reliant on the European Central Bank (ECB) for funding have added to pressure for the bloc's leaders to find a broad and lasting solution to the crisis.


The Euro contagion has now struck at the very heart of the Eurozone, Germany.  Capitol was flying to quality and security to Germany giving it a very low rate on its bonds. No more. Look for T-bills become a very hot property; Standard and Poor's be damned. T-bills are already giving a rate of return only slightly better than stuffing one's money in a mattress; look for the return to become essentially negative. With Germany now in a pinch the anti-Euro sentiment in that nation will only become stronger.

The Euro is sinking for the proximate cause that German voters are unwilling to shell out any tax dollars to bail out nations they think acted irresponsibly. Greek went belly up because German voters did not want to give one Pfennig to the spend-thrift Greeks. This allowed a disastrous bank run on the "PIGS" to spiral out of control. Now fortunes' wheel had come round and the German decision to moralize on economics has bitten the prissy Teutons in the tenders. 

As Merkel's default seems to be more of the same: more moralizing, more austerity, more pandering to German reluctance, I don't see how the Euro survives her parochial concerns. Stick a fork in the Euro gentle reader; it's done.
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