Thursday, August 4, 2011

The endless spiral of crisis in the euro area

Markets are they caught up in a vacuum? The consent of Congress, Tuesday, Aug. 2, to raise the ceiling of the debt and the specter of a defect in the world's largest economy, had no effect on investors panicked. At the New York Stock Exchange, the Dow plunged on Tuesday to 2.19%, taking with it the Asian and European markets.

Wednesday, Tokyo yielded 2.11% while Paris and Frankfurt declined by 1.82% and 2.26% at the opening. In Europe, the renewed stress exacerbates the acute crisis of sovereign debt in a kind of self-fulfilling prophecy: the more rates rise, the debt is more difficult to repay. Fifteen days after the leaders had flung, July 21, what they thought was a nuclear weapon to neutralize the fears, the rate loans to ten years of Spanish and Italian and have reached historic highs: 6.36% for Spain and 6.18% for Italy on Tuesday.

Greek rates themselves remain at record levels (14.85%), investors fleeing to the Bund, the German obligation, considered safer, fell to 2.39%, below the level of inflation. The highest since reunification! Worried, the Spanish government, eyes on the markets, remains on the alert, while in Rome, the Italian Minister of Economy, Giulio Tremonti, having convened on Tuesday, a meeting of the Financial Stability Board , was to meet with President of the Eurogroup Jean-Claude Juncker.

But Brussels does not yet any discussion on a rescue plan for Italy and Spain. Points on the causes and consequences of this "runaway" speculative. What is the origin of renewed stress? The spectrum, however improbable and ultimately rejected, a failure to pay the United States, has alerted investors that the debt of the States could strike anyone.

Including the world's largest economy. Each was then remembered that in Europe the problem was not solved. The bailout plan submitted by Greece on July 21 has reassured that time. Above all, the publication of a series of macroeconomic data worse than each other shakes. The specter of a "double dip", a rocker in the U.S. economy into recession, resurfaces with its inevitable impact on the European recovery. But the best remedy to offset public debt is growing. Why the bailout of Greece announced July 21 he has not reassured? The agreement in the snatch July 21 between the heads of state and government of the euro area provides an extension of the mission of the European Financial Stability Fund (EFSF) - including the ability to acquire debt of State on the market - and participation of private creditors in the form of exchange of old Greek bonds.

If at the time of the announcement, investors seemed relieved, it is still necessary that the decision be endorsed. In France, changing missions of EFSF must be a vote in Parliament, and the special session on the draft supplementary budget that will validate the Europe Agreement will not commence until September 6.

Too slow, too late, too bureaucratic, consider the markets. Why is speculation now affects Spain and Italy? Italy, because of its very high debt ratio (120% of gross domestic product, GDP) and Spain (whose public debt has reached 63.6% of GDP, against 55% a year ago ) are two "weak links" in the euro area.

Italy's debt is higher than that of Portugal (93%) and Ireland (96%) and less than that of Greece (140%). The markets fear that the two countries from falling into a vicious spiral of distrust of investors resulting in higher rates leading to a narrowing of the country. All this combines to insufficient growth to reduce debt, a weakening of the banking system in Spain (very involved in real estate) and a political crisis in Italy.

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