Eurozone Deathwatch

Wednesday, September 7, 2011
By Paul Martin

By: Mike Whitney
Market Oracle

There’s no way to overstate the calamity that’s unfolding across the Atlantic. The eurozone is imploding. The smart money has already fled EU banks for safe quarters in the US while political leaders frantically look for a way to prevent a seemingly-unavoidable meltdown. Here’s an excerpt from a post at The Streetlight blog that explains what’s going on:

“…ECB data seems to indicate that monetary financial institutions (MFIs) in Europe have been moving their deposits out of European banks. Where is that money going?….

European banks are shifting their cash assets out of European banks and putting much of them into US banks. … This has happened at a significant rate, with a net transatlantic flow from European to US banks that probably totals close to half a trillion dollars in just six months.

If you’re wondering exactly who has been the first to lose confidence in the European banking system, look no further. It seems that at the forefront is the European banking system itself.” (“Europe’s Banking System: The Transatlantic Cash Flow”, The Streetlight blog)

The spreads on Spanish and Italian sovereign bonds have risen to nosebleed levels while the interest rate on the Greek 1-year bond has topped 70 percent, a tacit admission that Greece has lost access to the capital markets and will default despite the efforts of the IMF and ECB.

The eurozone is experiencing a slow motion run on its banking system. And–while the ECB’s emergency loans and other commitments have kept the panic from spreading to households and other retail customers–the big money continues to vamoose as leaders of large financial institutions realize that a political solution to the monetary union’s troubles is still out-of-reach.

German Chancellor Angela Merkel has been blocked in her attempt to push through changes to the European Financial Security Facility (EFSF) that would permit it’s governors to use billions in emergency funds to bail out underwater EU banks that made bad bets on sovereign bonds. The German parliament (Bundestag) will vote on the issue on September 23 with the future of the 17-member monetary union hanging in the balance. If the EFSF is not given “expanded powers”, the bond markets descend into chaos and the confederation will begin to break up.

The Rest…HERE

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