Italy’s second largest Bank, Mediobanca, has warned the nation could need a rescue deal in the next six months. The economic crisis within Italy is deepening, and even large companies are feeling the effects of the credit crunch in the country.
Italy’s €2.1 trillion debt is the third largest sovereign debt in the world after the US and Japan.
Any stress in the markets could threaten to reignite the eurozone crisis once more.
Read More: The Telegraph
Lawmakers in Greece were able to push through a bill worth 13.5bn-euro ($17.3bn). The bill includes tax hikes and pension cuts. These are needed before Greece can secure the next instalment of their bailout money from the EU/IMF.
The latest austerity bill was passed by only three votes, and has seen violent protests in Athens as a result.
For more information see BBC News
The eurozone countries, in their attempts to contain the debt crisis had ratified an agreement to create a permanent bail-out fund, the European Stability Mechanism (ESM), the permanent fund was to be €500 billion ($638.8 billion). However, some German lawmakers said that German involvement in the fund was in breech of their constitution. Today, Germany’s highest court ruled that the fund does not violate the German constitution, thus removing a considerable road block towards solving part of the debt crisis.
The court hearing has caused much uncertainty in European and global markets. Had the German lawmakers ruled to block the bailout fund, it would have sent panic through the global economy, and would have ended the bail-out fund as a rescue vehicle; Germany is the biggest contributor to the fund, as they are the largest economy in Europe.
However, the German court have placed a limit on Germany’s contribution to the European Stability Mechanism; Germany’s financial liability in the bail-out fund cannot be increased without agreement from the German parliament. Germany will not sign a blank cheque to Brussels!
With the Spanish banks now in line for a bail-out of €100 billion you would think the markets would be delighted. That faith and confidence would return, that Spain’s salvation from economic oblivion has been averted… hip hip hooray!
Not so fast… the markets have not reacted with joy and happiness. The markets may know more about the present deal than the politicians would like them to.
The fact is Spain’s economic woes require much more than €100 billion. If Nigel Farage of the UK Independence Party (UKIP), and Member of the European Parliament, is to be believed, Spain requires € 400 billion. Watch the part of Farage’s speech to the European Parliament, he explains the problem of the Spanish bailout perfectly.
What is more, the bailout may have averted the bankruptcy of Spain’s banking sector in the short term, but it still has not solved the fundamental problems of the Eurozone. Sadly for the countries of the Eurozone, the only way out of their problems is for a polling of sovereign debt and far greater economic and political ties. This would mean a common economic policy, and loss of national sovereignty.
As George Soros warned last week the solution to the problems will very probably see Europe looking like a German Empire, Mr Soros said in his speech in Italy, “It would be a German empire with the periphery as the hinterland,” Well if Germany is to shoulder the debt of it’s neighbours, she will want to call the shots, and determine the economic path of the Eurozone.
The sad irony is that the EU was established in the wake of the second world war , for the precise reason of stopping German might from taking control of Europe- something which tore Europe apart twice in the 20th century. An important lesson from history that Brussels would do well to remember: attempts in Europe’s history to unite the continent under one rule of government has caused wars throughout the centuries: from Hitler to Napolian Bonaparte.
The close of trading this week has seen the Dow Jones down for the fourth consecutive week. The last few weeks have seen global markets fluctuate wildly. On many days the spread of the gains and losses have been so extreme, one would expect to see such changes over the course of a year, not a day’s trading.
The erratic behavior of the markets has fueled fears of a double-dip recession in the US and Euro-zone nations, as already slow growth reduces even further.
Economic analysts are seeing markets behave in ways never before seen in the history of stock market trading- this is unknown territory. Some believe we may be heading for a global depression, or Japanese style stagnation.
The fear within the markets is primarily being fed by the continued uncertainty in the Euro-zone nations. Italy and Spain are looking increasingly unstable, and either one of their economies would be too big to bail out, in the manner of Greece. Even the second Greek bail-out package is looking uncertain, as the other Euro-zone nations loose confidence in Greece’s ability to pay back their debts.
Economists have not given up all hope of finding a way through this present crisis, although the margin for error is very slim. Many believe the only way out is for a break up of the single European Currency. If the economic heavy weights of the Euro- Germany in particular- were to leave it would allow the Euro to devalue, bringing relief for the PIGS nations. Despite the economic virtue of such a plan it is currently politically unthinkable in Germany, as such a move would plunge Germany into a harsh recession.