It was simply a matter of time before the markets starting training their sights on Spain and Italy in part because of their size and indebtedness and also because of the ineffectual policy response offered by the EU and ECB to development in Greece and Ireland. Credtibility is being lost as fast as rates and spreads increase.
Additionally, there are sharp divisions over whether to extend another round of bailout porridge to Greece and by most accounts Ireland will be extending their tin for a second helping in the coming days. (This prompted Moody to cut Irish debt to junk today).
Moreover, it's clear there that beyond obfuscation and delay all of the finance ministers within the EZ and apparatchiks of the EU are clueless as how to deal with serious financial problems stemming from mountains of debt, slow growth and structural insolvency. There are also bitter divisions over private sector haircuts and whether the ECB should be given expanded authority to purchase sovereign debt in the secondary markets. There are also arguments over expanding the EFSF/ESM.
With intractable problem and no consensus, we should look for continued patchwork, further debt downgrades, a possible restructuring of the EZ and calls by the ECB to secure approval to engage bond purchases. Against this backdrop, credibility problems will mount and markets will continue to roil.
Despite assurances to the contrary, this has the potential to make Lehman Brothers look trivial.
Italy Becomes a Major Headache [View article]
Additionally, there are sharp divisions over whether to extend another round of bailout porridge to Greece and by most accounts Ireland will be extending their tin for a second helping in the coming days. (This prompted Moody to cut Irish debt to junk today).
Moreover, it's clear there that beyond obfuscation and delay all of the finance ministers within the EZ and apparatchiks of the EU are clueless as how to deal with serious financial problems stemming from mountains of debt, slow growth and structural insolvency. There are also bitter divisions over private sector haircuts and whether the ECB should be given expanded authority to purchase sovereign debt in the secondary markets. There are also arguments over expanding the EFSF/ESM.
With intractable problem and no consensus, we should look for continued patchwork, further debt downgrades, a possible restructuring of the EZ and calls by the ECB to secure approval to engage bond purchases. Against this backdrop, credibility problems will mount and markets will continue to roil.
Despite assurances to the contrary, this has the potential to make Lehman Brothers look trivial.