Published on 04-28-2010
Source: The Independent
The eurozone "lurched towards the endgame" yesterday as Standard & Poor's finally relegated Greece's sovereign credit rating to "junk" status, downgraded Portugal by two steps to A-, and the yields on Greek debt climbed beyond 15 per cent, a signal that the market regards a default as virtually certain.
The contagion that many feared is threatening to overwhelm the entire single currency area in a remarkably short time. The course of events has parallels with the banking crises of the autumn of 2008, when successive institutions came under attack and their interrelationships and size devastated confidence in the financial system, famously so after the failure of Lehman's.
For many observers yesterday, it was a matter of "for Lehman's, read Greece", as sovereign debt became the new sub-prime. Again there was classic domino effect: bond yields also rose in the other so-called PIIGS group of highly indebted nations – Ireland, Spain and even Italy, as investors demanded higher risk premia to take on these governments' debts. It raises fears of a sovereign debt crisis on a pan-eurozone scale, and beyond even the resources of Germany and France to resolve, and could leave the very future of the euro in doubt, a little past its tenth birthday celebrations.
Should that happen, or appear remotely likely, then it could plunge the world economy into a further crisis of confidence, jeopardising shaky growth prospects. Investor nervousness was signalled by the fall in the FTSE 100 index – down 2.6 per cent to close at 5603.5 – its biggest one-day fall since last November.
UK and European banks, with varying exposure to Greece, slid and the euro fell a further 1 per cent against the dollar. German Bund futures hit a session high as institutions caught the flight to safety, also driving up US Treasury bills and gold. European equities suffered their biggest losses in two months. British banks have a near-£100bn exposure to the struggling European economies, of which £8bn is to Greece, including public and private entities.
There will also be a capital loss for the European Central Bank, which has taken an undisclosed sum in Greek government bonds as collateral for loans.
A more substantial worry would be if there was an indiscriminate dumping of PIIGS paper, freezing the market in much the same way the interbank market closed down in 2008. Banks, insurance companies and fund managers that hold vast quantities of these bonds would find them effectively unmarketable and valueless – hence "the new subprime" label.
The turmoil prompted officials in Berlin to step up their efforts to get the €45bn IMF/eurozone rescue package ready by the time the next instalment payment on Greek sovereign debt falls due, 19 May. Eurozone leaders are discussing the possibility of a special summit in Brussels on 10 May to activate the aid package.
Colin Ellis, economist at Daiwa Securities, said; "The euro area crisis lurches towards the end game. Portugal's situation illustrates that, quite apart from the tragedy unfolding in the Hellenic Republic, European leaders need to move swiftly to bolster the credibility of the whole economic governance structure in the euro area."
Please remember to RATE, SHARE, FAVORITE, COMMENT AND SUBSCRIBE.
911 cover up wtc 93 twin towers bombs terrorist wmd aud/usd bac bank run bank scam banker bailout bonds central banks fail global economy greece international monetary fund chemtrails cloud seeding weather modification biological warefare germ warefare swine flu day trading dollar destruction economic collapse economic crisis eur/usd forex trading futures trading gdx GLD GLOBAL PANDEMIC gold gold manipulation gold silver us dollar economic collapse gs interest rates jpm market correction market crash market meltdown market shut down marshal law martial law. mortgage home loan refinance hard money commercial loan foreclosure bankruptcy OIH oil crude oil futures energy stocks pandemic silver SLV SPY stock market rally stock trading swine flu swing trading systems trading us dollar usd/chf usd/jpy wall street WALL STREET STOCK MARKET FOREX TRADING 911 william cooper alex jones world trade center new order nwo fema camps automaker Bankruptcy Banks Bank Safety chinese commercial Corruption Countries crime currency depression economy energy FDIC Financial Transaction Fee food gold healthcare housing inflation japan jobless Jobs manufacturing martial law nafta New World Order Poverty prostitution retirement scam silver starvation stocks survivalist taxation 911 william cooper alex jones world trade center new order nwo fema camps lies government david icke fire chile quakes quake earthquake earth uk aliens bases phil george bush immortal technique music riots riot infowars clouds chemtrails contrails con police dog cat baby monsanto food clones cloning john kennedy jr mind control mk ultra sex nude nazis nazi germany jew zion zionism jewish god religion jesus commandments 10 son united nations un paris queen prince harry princess diana jayz beyonce Toronto Police State Canada puppet barack obama fall of the republic Obama Deception exposed alex jones infowars prison planet zbigniew brzezinski CFR military ron paul jayz illuminati secret societies freemasons 33 degree mason rap hip hop jay-z blueprint bilderberg group trilateral commission bohemian grove ritual sacrifice masonic symbols