Greece is not the big story of Europe anymore - just a smoke screen.
The big story is Spain and the United Kingdom, and the news is getting worse.
In the past week, Spanish officials acknowledged to reporters that the country's banks and companies were having difficulty obtaining credit. The credible website EuroIntelligence reported that Spain is now effectively cut off from international capital markets, which is a major new development.
Spain
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Why Investors Must Keep an Eye on Spain
Are Spain's Banks Better Off than Speculators Would Like to Believe?
Somebody is bluffing.
Either Spain's financial system is on the verge of a breakdown, or hedge funds and speculators are exaggerating the vulnerability of Spain's banks to capitalize on short-selling Eurozone securities.
Investors will have a clearer picture of what's going on in Spain when the results of stress tests performed on the nation's banks are released. But until those results are known, rumors of a bailout of Spain will continue to circulate and liquidity will remain tight.
Borrowing costs in Spain and throughout Europe have been on the rise in recent months, as market observers fret over high levels of debt. At a closely watched auction for 12- and 18-month bills on Tuesday, the Spanish government raised $6.4 billion (5.2 billion euros). However, the 2.3% interest rate on the 12-month bills was 0.7 percentage points higher than what it paid last month. And t he yield on the country's benchmark 10-year bond rose 9 basis points to 4.823%, the highest in almost two years.
Either Spain's financial system is on the verge of a breakdown, or hedge funds and speculators are exaggerating the vulnerability of Spain's banks to capitalize on short-selling Eurozone securities.
Investors will have a clearer picture of what's going on in Spain when the results of stress tests performed on the nation's banks are released. But until those results are known, rumors of a bailout of Spain will continue to circulate and liquidity will remain tight.
Borrowing costs in Spain and throughout Europe have been on the rise in recent months, as market observers fret over high levels of debt. At a closely watched auction for 12- and 18-month bills on Tuesday, the Spanish government raised $6.4 billion (5.2 billion euros). However, the 2.3% interest rate on the 12-month bills was 0.7 percentage points higher than what it paid last month. And t he yield on the country's benchmark 10-year bond rose 9 basis points to 4.823%, the highest in almost two years.
Spain's Banco Santander Stands Strong Against Debt Crisis with Confident Global Expansion
The Eurozone's largest bank, Banco Santander, S.A. (NYSE ADR: STD) of Spain, showed the European debt crisis has not hurt its prospects by announcing today (Wednesday) it would buy Bank of America Corp.'s (NYSE: BAC) stake in its Mexico unit. The $2.5 billion purchase increases Santander's exposure to the high growth opportunities of Mexico's banking sector.
Despite Eurozone debt concerns and rocky markets, Santander's move to expand into Mexico shows a healthy balance sheet that has stood strong against the debt problems plaguing other European banks. Santander has managed to keep solid footing among Spain's unstable banking sector, where the nation's debt has hurt financing conditions and smaller unlisted savings banks have been suffering losses on property and housing loans.
"Santander is showing that it can still make decisions and go on with its business plan despite the liquidity problems in the markets," Venture Finanzas analyst Ignacio Mendez told Reuters.
Despite Eurozone debt concerns and rocky markets, Santander's move to expand into Mexico shows a healthy balance sheet that has stood strong against the debt problems plaguing other European banks. Santander has managed to keep solid footing among Spain's unstable banking sector, where the nation's debt has hurt financing conditions and smaller unlisted savings banks have been suffering losses on property and housing loans.
"Santander is showing that it can still make decisions and go on with its business plan despite the liquidity problems in the markets," Venture Finanzas analyst Ignacio Mendez told Reuters.
Borrowing Costs on the Rise as Banks Cope with Contagion Fears
LIBOR (London Interbank Offered Rate) - the rate banks pay each other for three-month loans in dollars - yesterday (Tuesday) rose to its highest level since last July.
The rise in borrowing costs is directly attributable to Europe's debt crisis, which is forcing financial institutions to re-think their peers' creditworthiness.
The Libor increased to 0.536%, the highest level since July 7, from 0.510% on Monday, the 11th consecutive day it has increased, according to data from the British Bankers' Association (BBA). German and French bonds surged, pushing 10-year yields to record lows, as investors moved into the safest assets.
The rise in borrowing costs is directly attributable to Europe's debt crisis, which is forcing financial institutions to re-think their peers' creditworthiness.
The Libor increased to 0.536%, the highest level since July 7, from 0.510% on Monday, the 11th consecutive day it has increased, according to data from the British Bankers' Association (BBA). German and French bonds surged, pushing 10-year yields to record lows, as investors moved into the safest assets.
Investors See Caution Flags as Spain Bails Out Struggling Savings Banks
Spain's central bank has decided to bail out regional savings bank CajaSur with $621.75 million (500 million euros), causing investors to worry that Spain's savings banks are in more trouble than the country can handle.
Spain's savings banks drastically increased lending when the economy was booming, leaving them highly exposed to a precipitous decline in housing prices. The unlisted banks have granted about $341 billion (243 billion euros) in real estate/construction loans.
Now savings banks - often criticized for their lack of accountability - are refusing to price the mortgage-related assets on their books to accurately calculate their losses. Estimates put the banks' exposure as high as $408.4 billion (300 billion euros). The savings banks' ownership models make it difficult to raise money as they are controlled by local politicians and cannot easily sell shares.
Spain's savings banks drastically increased lending when the economy was booming, leaving them highly exposed to a precipitous decline in housing prices. The unlisted banks have granted about $341 billion (243 billion euros) in real estate/construction loans.
Now savings banks - often criticized for their lack of accountability - are refusing to price the mortgage-related assets on their books to accurately calculate their losses. Estimates put the banks' exposure as high as $408.4 billion (300 billion euros). The savings banks' ownership models make it difficult to raise money as they are controlled by local politicians and cannot easily sell shares.
Despite Spiraling Contagion Fears, Spain Debt Worries Are Overblown
It had a huge housing boom, and is now dealing with the fallout. It has a left-of-center government and a big budget deficit, but relatively low debt in relation to its gross domestic product (GDP). And it has a worrisome current account deficit.
I'm talking, of course, about Spain, which investors clearly fear will be the next domino to fall as a result of the Greek debt contagion.
I disagree.
I'm talking, of course, about Spain, which investors clearly fear will be the next domino to fall as a result of the Greek debt contagion.
I disagree.
To see why Spain will shrug off the Greek contagion, please read on...
Taipan Daily: Could Continent-Wide Bank Runs Collapse the Eurozone?
The eurozone's woes are giving us a preview of what could eventually happen in the United States (but not before Europe is engulfed first). As fears of sovereign debt crisis mount, the debt "contagion" spreads. It is not just Greece that has investors afraid, but Portugal. And Spain... and Italy... and so on.
The problem is classic, and long ago highlighted by Austrian economics. Building up a lot of debt, to make a slightly crass analogy, is like putting on a bunch of weight. It's hard work getting the debt off - the same as it is taking weight off.
The way to lose weight is to eat right and exercise. The way to get out of debt is to cut back on spending and increase productivity.
The problem is classic, and long ago highlighted by Austrian economics. Building up a lot of debt, to make a slightly crass analogy, is like putting on a bunch of weight. It's hard work getting the debt off - the same as it is taking weight off.
The way to lose weight is to eat right and exercise. The way to get out of debt is to cut back on spending and increase productivity.
Debt Contagion Fear Spreads in Europe as S&P Lowers Eurozone Credit Ratings
Standard & Poor's yesterday (Wednesday) lowered Spain's credit rating - just one day after downgrading the ratings of Greece and Portugal. The downgrades have prompted Germany to promise a quick release of Greece bailout funds as fears of a debt contagion spread rapidly across Europe.
"It is probably fair to say that Tuesday, 27 April was the day that the situation in the euro area took a dramatic and rather frightening turn for the worse," credit analysts at Credit Suisse (NYSE ADR: CS) in London said in a research note. "The concern is the extent and speed of the spreading of the crisis in an environment of too many financial obligations, not all of which will be serviced, in our view, and in a crisis which in our view is about far more than Greece."
S&P downgraded Spain's long-term credit rating one notch to AA from AA+ with a negative outlook, citing an extended period of low economic growth and high borrowing costs.
"It is probably fair to say that Tuesday, 27 April was the day that the situation in the euro area took a dramatic and rather frightening turn for the worse," credit analysts at Credit Suisse (NYSE ADR: CS) in London said in a research note. "The concern is the extent and speed of the spreading of the crisis in an environment of too many financial obligations, not all of which will be serviced, in our view, and in a crisis which in our view is about far more than Greece."
S&P downgraded Spain's long-term credit rating one notch to AA from AA+ with a negative outlook, citing an extended period of low economic growth and high borrowing costs.
U.S., Britain Say EU Proposals Will Damage Hedge Fund Industry
The European Union (EU) on Thursday defended its sweeping hedge-fund reform proposals against criticism from the United States and Britain.
British Prime Minister Gordon Brown met with French President Nicolas Sarkozy Friday in hopes of compromising on the proposed regulation.
Many EU countries are determined to change the hedge fund industry, which is often murky. The use of derivatives, such as credit-default swaps have been linked to the downfall of Lehman Bros. and exacerbating Greece's sovereign debt difficulties.
British Prime Minister Gordon Brown met with French President Nicolas Sarkozy Friday in hopes of compromising on the proposed regulation.
Many EU countries are determined to change the hedge fund industry, which is often murky. The use of derivatives, such as credit-default swaps have been linked to the downfall of Lehman Bros. and exacerbating Greece's sovereign debt difficulties.
What's In Store for U.S. Stocks in Light of Greece's Tragedy?
The recent month of February was quite interesting for U.S. stocks, because while the Dow Jones Industrial Average rose 2.6%, it didn't exactly take a direct route to those gains: There were eight separate triple-digit moves in the Dow, both up and down.
At the root of that volatility were political and economic developments that challenged the rationale for the huge rally out of the March 2009 low. Bulls were basically rethinking their beliefs that the home-price plunge had abated, employment was on the verge of a big turnaround, governments could cut taxes and boost spending without end, and that interest rates would remain at zero for years.
I had prepared subscribers for much of this turmoil. Back in early November, I highlighted signs of trouble in the market for government debt well before the troubles in Dubai and Greece came to a head. In December, we started a dialogue on what to expect as the U.S. Federal Reserve withdrew liquidity from the economy and lifted interest rates. The upshot was a series of letters detailing why you should expect the first nine months of the year to trade flattish with a lot of volatility.
At the root of that volatility were political and economic developments that challenged the rationale for the huge rally out of the March 2009 low. Bulls were basically rethinking their beliefs that the home-price plunge had abated, employment was on the verge of a big turnaround, governments could cut taxes and boost spending without end, and that interest rates would remain at zero for years.
I had prepared subscribers for much of this turmoil. Back in early November, I highlighted signs of trouble in the market for government debt well before the troubles in Dubai and Greece came to a head. In December, we started a dialogue on what to expect as the U.S. Federal Reserve withdrew liquidity from the economy and lifted interest rates. The upshot was a series of letters detailing why you should expect the first nine months of the year to trade flattish with a lot of volatility.
Billonaire Investor George Soros Questions the Euro's Future
In an editorial penned for the Financial Times, billionaire investing icon George Soros said that while Greece could be salvaged by a makeshift financial-rescue package, bigger problems lie ahead for the euro.
According to weekend news reports, Germany's finance ministry has sketched out a plan under which countries using the euro currency will provide between $27 billion and $33.7 billion (20 billion and 25 billion euros) in aid for Greece, which is teetering on the brink of default.
Soros says that "a makeshift assistance should be enough for Greece," but warns that the growing threats posed by other debt-laden, euro-member countries - particularly Spain, Italy, Portugal and Ireland - could prove overwhelming.
According to weekend news reports, Germany's finance ministry has sketched out a plan under which countries using the euro currency will provide between $27 billion and $33.7 billion (20 billion and 25 billion euros) in aid for Greece, which is teetering on the brink of default.
Soros says that "a makeshift assistance should be enough for Greece," but warns that the growing threats posed by other debt-laden, euro-member countries - particularly Spain, Italy, Portugal and Ireland - could prove overwhelming.
As Greece's Woes Demonstrate, the Fuse Has Been Lit on the Global Debt Bomb
The big story in the international markets so far in the New Year has been the increasing shakiness of a number of countries' government bonds, with Greece right now being the most troubled of all.
Since U.S. investors tend to avoid foreign government bonds, many will dismiss this as an irrelevant development.
That's a mistake. The reality is that the international implications of this bond-market problem are serious for the world's stock markets, as well as for the global economy as a whole.
The fuse has been lit on a global debt bomb. And Greece has quickly become a poster child for the explosion that's all but certain to occur.
Since U.S. investors tend to avoid foreign government bonds, many will dismiss this as an irrelevant development.
That's a mistake. The reality is that the international implications of this bond-market problem are serious for the world's stock markets, as well as for the global economy as a whole.
The fuse has been lit on a global debt bomb. And Greece has quickly become a poster child for the explosion that's all but certain to occur.
To find out all about the "Global Debt Bomb," read on...
Credit Trouble for Spain and Greece Spreads Fears of Sovereign Defaults
Standard & Poor's today (Wednesday) cut its credit outlook for Spain to "negative" from "stable," fanning concerns that sovereign defaults will spread throughout the global economy.
The dimmer outlook for Spain "reflects the risk of a downgrade within the next two years," S&P said.
It also increased fears among investors that the world could see a wave of global credit defaults. After the default of state-owned Dubai World forced investors to think twice about the recent rally in global stocks, Fitch Ratings Inc. on Tuesday cut Greece's credit rating to BBB+ from A-minus.
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