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Eurozone Debt Crisis: Why U.S. Investors Still Can't Relax

By David Zeiler, Associate Editor, Money Morning • @DavidGZeiler - February 14, 2013

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Eurozone Debt Crisis: Why U.S. Investors Still Can't Relax

By David Zeiler, Associate Editor, Money Morning • @DavidGZeiler - February 14, 2013

After nearly four years, billions in bailouts and increasingly strict austerity measures, not only is the Eurozone debt crisis no closer to resolution, but the attempts to solve it are pushing the region deeper into recession.

According to Eurostat, the Gross Domestic Product (GDP) for the 17-nation Eurozone plunged 0.6% in the final quarter of 2012, a steeper drop than the 0.4% economists had expected and the worst decline since 2009.

It's the third consecutive GDP decline for the Eurozone, reaffirming that the area is mired in a recession that started with the 2008 financial crisis and has been exacerbated by the ongoing Eurozone debt crisis.

For all of 2012, the Eurozone economy shrank 0.5%, while the U.S. economy grew 2.2%. Even the GDP of beleaguered Japan increased 1.9%.

Most ominously, the GDP decline of the Eurozone's largest and strongest economy, Germany, mirrored that of the region as a whole, falling 0.6%.

Long one of the few bright spots, Germany is slowly getting dragged down by its weak neighbors, which include Italy, Spain, Greece and even France.

The bad GDP news also belies the sunny assessments recently delivered by many economists and EU leaders.

"These are horrible numbers, it's a widespread contraction, which does not match this positive picture of stabilization and positive contagion," Carsten Brzeski from ING told the BBC.

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Eichengreen: Eurozone Debt Crisis To "Heat Up Again in 2013"

By David Zeiler, Associate Editor, Money Morning • @DavidGZeiler - January 25, 2013

Contradicting optimism at the World Economic Forum in Davos, Switzerland, that the worst of the Eurozone debt crisis is over, U.S. economist Barry Eichengreen warned that it would "heat up again in 2013."

While the pledge of European Central Bank (ECB) head Mario Draghi to buy short-term debt from struggling EU members has eased worries of an imminent Eurozone meltdown, Eichengreen contends it hasn't fixed the problem.

"None of the underlying problems have been solved. There is no economic growth in Europe. Germany itself is on the verge of recession," Eichengreen told The Associated Press while attending the Davos conference.

One flash point in particular, he said, is the lack of progress toward a banking and fiscal union.

"The banking union doesn't exist. There's less consensus on completing it than we thought last year, so the markets are going to lose patience at some point and the crisis will be back," said Eichengreen, who has written books on international finance, the European Union and the Great Depression.

Negative developments in the Eurozone debt crisis typically drag down U.S. markets, as the EU
is a chief U.S trading partner. Fresh problems in 2013 would be bad news for U.S. stocks.

Efforts of EU leaders to tame the Eurozone debt crisis succeeded in calming European stock markets in the later part of 2012, and have given some bond market relief to such debt-plagued nations as Greece, Ireland, Italy and Spain.

But as Money Morning Global Investing Strategist Martin Hutchinson pointed out in December, the bond market isn't always the best judge of a nation's fiscal health.

"Don't be fooled by those bond yields," Hutchinson said. "In 2006, after all, they were trading Greek bonds at less than 0.5% yield above German bonds. So much for rational markets."

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Soaring Spanish Bond Yields Another Hit to Growing Eurozone Debt Crisis

By Diane Alter, Contributing Writer, Money Morning - July 23, 2012

Investors today (Monday) have been selling on news that Spain might need more bailouts as its 10-year yield reached a record high.

Spanish bond yields reached a record high of 7.56% and the latest unemployment rate sits at a miserable 24.6%.

Global stock markets plummeted Monday after Spain's borrowing costs soared on a third consecutive day amid concerns that an intensifying recession in the region would require Spain's government to request a full-fledged bailout.

The fresh worries come on the heels of a report Friday from the Valencia region, revealing that its economy would contract by 0.5% in 2013 instead of 0.2%, as had been forecast.

Spanish bond yields broke the critical 7%-mark last Thursday, a level many analysts worry could eventually alienate Spain from public markets and force it to seek a bailout similar to its ailing neighbor Greece.

"Those levels indicate that Spain may soon struggle to fund itself in the market and therefore unless some positive action is taken, the country will need a full bailout," Gary Jenkins, managing director of Swordfish Research told the Associated Press.

The deeper worry rattling markets worldwide is that with so many of its 17-member nations needing bailouts, European finance ministers will have a tough time finding funds to rescue an economy as large as Spain. Spain is the region's fourth-largest economy after Germany, France and Italy.

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The Next Phase of the Eurozone Debt Crisis

By Dr. Kent Moors, Global Energy Strategist, Oil & Energy Investor • @KentMoors_OEI - July 2, 2012

Today (Monday), as we digest what happened in Europe, the obvious question arises: What comes next for the Eurozone debt crisis?

For starters, the heads of state coming out of the Council of Europe meeting last week pledged to have the new structure by July 9, even though the new stabilization mechanism will take longer to phase in.

For the first time, there will be a greater accountability (and control) over continent-wide commercial banking and access to some underwriting of debt coverage. It also means that national banking systems will need to relinquish some oversight to the European Central Bank (ECB).

For months, a number of people (myself included) have insisted that the solution to th e Eurozone debt crisis requires greater financial integration. The shortcoming seemed rather straightforward.

The EU had ushered in a more centralized monetary system (single currency and all that) but had no centralized fiscal system to parallel it. Simply put, that required adherence to currency rules without any ability to coordinate the credit and fiduciary end of the spectrum.

Well what came out of the Council in the early hours of Friday will not solve the debt problem in Spain , Italy , Portugal, or Greece. There is no magic short -term fix. But it might just provide the underpinnings for a credit system that may begin to operate.

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The banks are the problem right now

Eurozone Debt Crisis: EU Reaches Bailout Deal

By Dr. Kent Moors, Global Energy Strategist, Oil & Energy Investor • @KentMoors_OEI - June 29, 2012

The recent marathon session in Brussels was the EU Council's 18th meeting on the Eurozone debt crisis. As it is comprised of the heads of government from European Union members, the Council was largely thought of as a grand debating society.

Not this morning.

In what may well be the first glimmer of light at the end of the tunnel, the EU will agree to coordinate bailouts across the continent. The details are still incomplete, and there is always devil in the details.

In addition, EU members must approve the substantive plan, meaning more coming politics in parliaments from London to Warsaw.

So this is not a done deal.

Actually, until there is some flesh on the bones, we are still uncertain what the "deal" really is.

But this much we do know.

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EU Calls for "Banking Union" to Ease Eurozone Debt Crisis

By Diane Alter, Contributing Writer, Money Morning - May 30, 2012

Blame the tumultuous tumble in equities Wednesday on Europe.

World markets were shaken as worries over the Eurozone debt crisis, in particular the Spanish banking system, again rattled investor confidence.

The Dow Jones was down 160 points, the S&P 500 fell 19 and the Nasdaq lost 34.

Sending shivers through markets Wednesday was a statement from the European Central Bank (ECB) saying it had not been consulted on the bailout for Spain's No.4 bank Bankia, and that such a recapitalization could not be provided by the Eurosystem. Spanish lender Bankia announced last week it needs $23.8 billion in state aid.

Also weighing on markets was Spain's debt downgrade late Tuesday by independent ratings agency Egan Jones. The move sparked more questions about the ailing country's ability to fund bank bailouts that could balloon to some 100 billion euro.

A number of other Spanish banks have recently been downgraded by various rating agencies. The woes hanging over Spain and its sickly banking system shoved the euro down to a near two-year low Wednesday of around $1.24.

"I believe that the markets have not yet fully priced in a Greek exit, nor the full implications of a Spanish default - both of which remain distinct possibilities in my mind," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "Until they do, expect trading to be an unholy mess of rallies driven by hopes for further bailouts, and short, sharp declines driven by the absence of the same."

Now the EU has a new bailout plan.