The Eurozone Continues to Unravel

By:  Bob Adelmann
11/09/2011
       
The Eurozone Continues to Unravel

With Greece’s Prime Minister George Papandreou agreeing to step down in order to secure more bailout funds from the ECB, attention turned immediately to Italy’s financial problems that dwarf those of Greece’s. The Greek PM’s decision now clears the way for an interim government to agree formally to the new austerity measures demanded by the European Union as a condition of receiving additional financing by the end of the month. Those funds are needed to pay Greece’s bills through January 2012.

The bond market shifted its attention to Italy on Monday, driving interest rates on its 10-year bond to a record-high 6.66 percent, the highest since the country entered the union in 1999 and perilously close to the “bailout” levels reached before Ireland and Portugal were forced to ask for help from the European Central Bank. Said David Ader, head of government bond strategy at CRT Capital Group, “We’ve seen one European bank and one U.S. brokerage fail. We know there are strains for French banks. We [were] wondering how long it [would] be before Greek default worries spread to Italy and Spain. In a situation like that, money managers are going to decide simply to take their risk down.” The resulting sell-off in the bond market flowed over to the Euro as well, as it came down from its Greek-euphoria highs of last week by nearly 3 percent, and it could lose 6 percent by the end of the year according to the CEO of Intermarket Strategy in London, Ashraf Laidi.

With Greece’s Prime Minister George Papandreou agreeing to step down in order to secure more bailout funds from the ECB, attention turned immediately to Italy’s financial problems that dwarf those of Greece’s. The Greek PM’s decision now clears the way for an interim government to agree formally to the new austerity measures demanded by the European Union as a condition of receiving additional financing by the end of the month. Those funds are needed to pay Greece’s bills through January 2012.

The bond market shifted its attention to Italy on Monday, driving interest rates on its 10-year bond to a record-high 6.66 percent, the highest since the country entered the union in 1999 and perilously close to the “bailout” levels reached before Ireland and Portugal were forced to ask for help from the European Central Bank. Said David Ader, head of government bond strategy at CRT Capital Group, “We’ve seen one European bank and one U.S. brokerage fail. We know there are strains for French banks. We [were] wondering how long it [would] be before Greek default worries spread to Italy and Spain. In a situation like that, money managers are going to decide simply to take their risk down.” The resulting sell-off in the bond market flowed over to the Euro as well, as it came down from its Greek-euphoria highs of last week by nearly 3 percent, and it could lose 6 percent by the end of the year according to the CEO of Intermarket Strategy in London, Ashraf Laidi.

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Photo: Italian Prime Minister Silvio Berlusconi

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