Creating a new round of turmoil, Catalonia, the most indebted region of Spain, made its first call for bailout aid from the Spanish government. The news sent stocks and the euro plunging, and 10-year bond yields have reached a record high of 7.57 percent. Euro has declined against the US dollar to $1.2080 in Frankfurt, and the Stoxx Europe 600 Index witnessed a 2.4 percent fall in London.
Last week, european finance ministers couldn’t prevent the decline in euro, despite approving an aid package of 100 billion-euro ($122 billion) for Spanish banks. Many of the bankrupt Spanish states are now raising hands. Valencia, which is already crushed under 20 billion euros ($24 billion) of debt, urgently needs 2 billion euros; otherwise it has to stop the healthcare supplies. Murcia plans to raise $300 million from central government by September. Catalonia (total debt 42 billion euros so far) is also in difficulty.
CNMV, which regulates the Spanish stock market, has banned short selling for the next three months, due to extremely volatile conditions. Italy has also banned short selling on some insurance and banking shares, owing to the poor performance of stock markets.
“The problem in the region is profound, but the pace that it has been dealt with was slow,” said John Stopford of Investec Asset Management. “The bank bailout for Spain is far from sufficient to deal with the country’s problems.” People are increasingly becoming rebellious. On Thursday, over 100,000 people protested in Madrid and 80 other cities. Even police officers participated in protests.
Greece Continues to Suffer
Prime Minister of Greece, Antonis Samaras, compared the current economic condition in his country with the US great depression of 1929. For now, the biggest problem for Greece is, how it will pay 3 billion euros in bond payments which is due next month. The so-called troika of lenders – IMF, ECB, and European Commission are scheduled to meet in Athens tomorrow. It has raised concerns over the exit of Greece from the Union.
The officials from international creditors will evaluate whether Greece, the centerstage of Eurozone crisis, will be able to meet the bailout commitments, and will other European countries put up more funds in case it fails. The country is struggling to meet the debt obligations, and it is constantly looking for more help, as it plans to reduce the total debts to 120 percent of GDP by 2020.
Now, even the European officials are voicing that the exit of Greece from the Union will be less evil than the ultimate consequences if it stays.
Germany and IMF Tired of Pouring Funds
The International Monetary Fund had already signaled in March that it would fund no more money to Greece. We noted, that Pictet Group predicted this in June 2012.
However, now it says that it will make a decision on the next disbursement for Greece in August, after the troika discusses the situations with Greek officials.
Germany is more sour on the issue. “If Greece doesn’t fulfill those conditions, then there can be no more payments,” German Vice Chancellor, Philipp Roesler, said while talking about the bailout commitments of Greece.
Last week, the leader of Germany’s Social Democrats (SPD) party, Frank-Walter Steinmeier told MPs, before giving his consent to provide more funds for Spanish banks, “If the majority of us still vote in favour, this is only because in our view too the damage would be catastrophic if Germany denied aid to Spain… That also means however that it cannot go on like this.”
The most dangerous situation will be when Germany, and other European creditor countries, realize that bailing out PIGS won’t solve the crisis, and it may threaten their own economies in the future.