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Europe Debt Crisis

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Eurozone Debt Crisis Exposes What EU Leaders Fear Most

By , Associate Editor, Money Morning • @DavidGZeiler -

European Union leaders have seemingly changed their tune lately on how best to deal with the long-running Eurozone debt crisis.

Increasingly, EU politicians have been sounding the theme that economic growth - not Eurozone austerity - is the answer, and that deadlines set for reductions in public spending needed to be loosened.

It started about a month ago, with none other than European Commission President Jose Manuel Barroso.

"While I think this policy [of austerity] is fundamentally right, I think it has reached its limits," Barroso said. "A policy to be successful not only has to be properly designed, it has to have the minimum of political and social support."

Shortly afterward, French Prime Minister Pierre Moscovici chimed in, "We're witnessing the end of the dogma of austerity."

Meanwhile, the European Commission seemed to confirm the policy shift when it recently extended the deadlines for most of the troubled EU nations to fix their budget deficits.

News headlines throughout Europe trumpeted the "end of austerity."

But what the EU leaders have really done is buy themselves more time by stretching out the Eurozone austerity policies - which are mostly still in place - over a longer period of time.

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Why the ECB's Plan Can't Save Europe

By , Capital Wave Strategist, Money Morning • @WallStreet_II -

So, Thursday was a big deal. Did you get that?

Markets rallied around the globe, especially European markets and U.S. markets.

But did you get what really happened?

I know you saw the rally, and I'm sure it lifted your spirits. It lifted mine for about a day - that is, until I lifted up the ECB's skirt to see if their provocative language would leave Europe's knickers in a twist or not.

If you're not the kind of person to look at such intimate things too closely, don't worry. I love all that stuff and am driven to know how all the bits and pieces come together or apart. So, I'll tell you what I saw up there.

Europe's knickers certainly are twisted. So much so that if an ill wind blows, everyone is going to see the naked truth.

Let me show you what I mean...

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Eurozone Debt Crisis: Why Cyprus Needed the Fifth Bailout

By , Contributing Writer, Money Morning -

U.S. stocks were rattled Monday as two more countries asked for bailout packages in the ongoing Eurozone debt crisis.

Shortly after word came that Spain had formally requested a bailout package for its ailing banks, Cyprus chimed in and also asked for aid.

The Mediterranean country has become the fifth Eurozone nation to hold out its hand for an international rescue. While the smallest of the bunch to seek relief, Cyprus highlights the European Union's increasingly stressed resources as it wrestles with weakening economic conditions.

The aid request followed Fitch's downgrade Monday of the island's stressed banks to "junk" status. The credit cut means the country has lost it investment status with the trio of the largest and most influential rating agencies.

Fitch said in a statement, "Cypriot banks will require substantial injections of capital in order to secure confidence in their financial viability."

Cyprus, saddled with Greek private sector debt, could need as much as 10 billion euros ($12 billion) in bailout funds.

"Classic contagion, "BBC's chief economics correspondent Hugh Pym said of Cyprus' troubles.

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Spain Bailout Package of $77 Billion Will Not be Enough

By , Contributing Writer, Money Morning -

The Spain bailout package has a steep price, but still might not be enough to save the country's banking sector.

Spanish economy minister Luis de Guindos formally asked Eurozone partners for up to 62 billion euros ($77.4 billion) to recapitalize his country's ailing domestic banks. The financial institutions are weighed down by bad loans to property and construction companies, and by an ongoing Eurozone debt crisis.

In a letter to the Luxembourg Prime Minister Jean Claude Juncker, who serves as head of the 17-nation Eurozone finance ministers, Guindos explained he wanted to settle on details and conditions of the loan before the next euro group meeting on July 9.

Juncker acknowledged receipt of the letter and said that the ministers expect to give a go-ahead to the European Commission, the European Central Bank and the European Banking Authority to negotiate terms of the bailout.

The request was anticipated after the results of two independent audits were released last week. Financial consultants Oliver Wyman and Roland Berger made the first step in a two-part audit of the Spanish banking system.

Wyman found that worst-case scenario, Spain's banking sector would need a bailout package of between 51 billion euros ($63.6 billion) and 62 billion euros ($77.4 billion). Berger estimated on the lower end with 51.8 billion euros ($64.6 billion).

The formal request for a Spain bailout has made investors more nervous, and is driving the bond yields higher, making it increasingly likely Spain will need more money to try and resolve its debt crisis.

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Eurozone Bailout Package: What's Next for Greece

By , Contributing Writer, Money Morning -

The question regarding whether or not Greece will stick with the Eurozone got at least a short-term answer after the country's elections Sunday, when the conservative, pro-bailout New Democracy party narrowly won the crucial vote.

But Greece's trials and tribulations are far from over, and the relief is temporary. Concerns are increasing over the global cost of a Eurozone bailout package as the mounting woes in Spain and Italy persist.

Citizens of Greece are clamoring for change, but many recognize that the election results are no quick fix. There was no cheering in Greece and global markets reacted cautiously following the vote.

Borrowing costs across Europe rose with Spain taking the lead. The yield on Spain's 10-year bonds spiked to a euro-era high of 7.18%. A reading above 7% raises a red flag that a nation may be approaching the need for a bailout.

Italian bonds also sold off on fears that if Spain is in need of a bailout, an Italy bailout package might not be far off. Italian bonds' 10-year yields are around 6%.

While the Greek election results staved off a calamity, they failed to fix the wider problems facing Greece and its struggling neighbors.

Moody's Analytics' chief economist Mark Zandi told USA Today, "We dodged a bullet, but they've got more bullets coming."

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Eurozone Debt Crisis: The Greek Elections are a Make or Break Moment

By , Global Investing Specialist, Money Morning -

What happens this Sunday, June 17 , may be the trigger for a final resolution of the Eurozone debt crisis.

Now I understand that you probably don't follow Greek elections. But this is one you'll want to keep an eye on. At the moment, it dwarfs the contest between Mitt Romney and President Barack Obama.

In fact, come Monday it will be what every banker, politician and trader is talking about.

In the balance is the very fate of the Eurozone.
The
ripple effects could be enough to actually bring the EU down.

That's the first part of the story. Admittedly, it's not a very pleasant one.

The second part concerns your portfolio, since the solutions will involve more money-printing and, in the long run, more inflation.

But you needn't worry. We've already read the central banker's playbook for you.

In this case, the message is clear. Don't buy Europe. But do buy hard assets -- whether gold, oil, or other commodities.

These safe-havens are one of the best ways to hedge yourself against these characters and their money printing schemes.

Now that you know why Sunday is so important, here is how it will likely play out-in both the short term and in the long run.

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Why an Italy Bailout Package is on the Way

By , Contributing Writer, Money Morning -

With news of the Spain bailout package still fresh, and Greece's crucial elections on Sunday, the next event in the Eurozone debt crisis is already brewing.

An Italy bailout package is likely to be the next costly move in the spiraling contagion.

Italy on Thursday held its first bond auction since European finance ministers came to Spain's rescue, willing to give the ailing country up to 100 billion euro ($126 billion) to shore up its beleaguered banks.

The auction raised a heap of concerns.

Italy's borrowing costs soared following a Treasury sale of 4.5 billion euros of debt, including 3 billion euros of its 3-year benchmark bond that yields a lofty 5.3%. That was the highest yield since December and an increase of nearly 1.4 percentage points from the last sale just a month ago.

In addition, Fitch Ratings reported May 23 that foreign ownership of Italian debt slipped from 50% in 2008 to a current 32%.

"I think Italy could well be a problem, because its current government isn't very good and has no legitimacy, having been imposed by the EU - and it hasn't cut spending as it needs to," said Money Morning Global Investing Strategist Martin Hutchinson. "I'd put it a few weeks away though - market's focused on Greece and Spain at present."

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Why the Spain Bailout Package Won't Work

By , Contributing Writer, Money Morning -

The pricey Spain bailout package convinced markets it could fix the Eurozone debt crisis for only a moment Monday, before reality set in that the plan was far from ideal.

Following the announcement of a $126 billion (100 billion euro) bank rescue package, markets rose briefly. But the relief was short-lived as investors hastily refocused and remembered that the struggling Eurozone still faces a number of key obstacles.

The Dow Jones Industrial Average lost 142.97 points, or 1.14%, to close at 12,411.23.

Spain's bailout package was assembled swiftly as EU officials attempt to stave off suppositions about the country's sickly banks with crucial Greek elections just a few days away.

But it falls short of resolving what the Eurozone as a whole is up against.

Banking analysts at Societe Generale summed up in a note to clients, "The plan looks like a classic Eurozone fudge."

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Eurozone Debt Crisis: Why the Next Three Months are Crucial

By , Money Morning -

Many people wonder how much longer the Eurozone can survive as it struggles to deal with its plaguing debt crisis. Well, billionaire investor George Soros has the answer. On Saturday, in a thorough and enlightening speech made at the Festival of Economics in Trento, Italy, Soros gave the region a deadline for resolving its debt […]

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