More trouble for the Euro last night. Things are happening so quick I literally can not finish one situation update before the situation changes and turns into something else. Last night the Euro fell again on further concerns about the need for a possible Spanish bailout, keep in mind that this is before the Irish bailout terms have been negotiated, before Portugal has requested any kind of assistance and while Spain has sought or made no comments about assistance. However, bond yields are rising, making it increasingly expensive for Portugal and Spain to raise money they need to keep their governments operating at a reasonable rate of interest repayment.
Now news is out this morning that the strongest of the Euro countries, Germany itself may be facing trouble along with France and the Dutch as CDS (Credit Default Swaps) have risen for all 3 in the last few days. CDS is most easily explained as an insurance against the borrowing country from defaulting on their bonds, so you can think of it as bond insurance for the 3 countries as rising.
Apparently the German people are panicking and angry as they feel Germany can not keep financing bailouts without going broke itself. Reportedly, you can not find a bank deposit box in Germany as people hoard gold and silver for fear of losing their savings as they did in 1923 and 1948. Their also angry that Germany may have to raise funds for other Euro country debtors as cuts to welfare programs in Germany are underway.
German debt itself is not considered to be high until you adjust it for the aging crisis (like our own baby-boomer Social Security crisis), once adjusted for that, Germany has one of the highest debt levels in the world.
Causing further tensions are the rumors and denials that the European Financial Stability Facility (EFSF) rescue mechanism of 440 billion Euro announced in May will need to be doubled to handle bailouts of Ireland, Portugal and Spain. The Spanish bailout could be twice as large as Greece, Ireland and Portugal combined. If Spain is bailed out, the bond vigilantes will most likely attack Italy which is already seeing its bonds go up at the rate of 10 basis points a day and with two trillion Euros in debt, they are forced to go to the bond market often; and then France next which would be one of the most difficult entitlement societies in the world to try to curb with austerity measures.
For those who think and have believed from the start that the E.U. Project will end badly, that eventuality may be forth coming sooner rather then later. The Greek bailouts, the EFSF and the ECB bond purchases are going to challenged in German constitutional court as a number of cases have already gone into the court system. German legal scholar and contributor to one of the complaints, Prof Hankel, said, “There has been a clear violation of the law and no judge can ignore that, I am convinced the court will forbid future payments."
I wrote a piece at Trade Guild to give some basics of the Korean Peninsula history and dangers as they may relate to the market and posted a video as well of a very vocal E.U. Critic, which is a short, but must see video.
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