Europe’s democracies must not subcontract their destiny to the Bundebank…(War In 3…2…1…)

Monday, June 11, 2012
By Paul Martin

Europe has lit the fuse on an economic and financial bomb. The rescue package for Spain cannot plausibly be contained to €100bn once it begins, given the subordination of private creditors and collapse of global confidence in the governing structure of monetary union.

By Ambrose Evans-Pritchard
TelegraphUK
10 Jun 2012

Italy must guarantee 22pc of the bail-out funds, even though it cannot raise money itself at a sustainable rate. You could hardly design a surer way to pull Italy into the fire.

Citigroup warned over the weekend that Italy’s economy will shrink by 2.5pc this year and another 2pc next year as the fiscal squeeze starts in earnest, with grim implications for debt dynamics. Public debt will jump from 121pc of GDP to 137pc by 2014.

“The situation could rapidly become critical, because the country is highly vulnerable if the sovereign debt crisis persists or intensifies. A significant further rise in yields would deepen and extend the recession and accelerate the rise in the debt/GDP ratio, triggering a worsening vicious circle. We expect that Italy will have to request help,” it said.

The world is uncomfortably close to a 1931 moment. Italy’s public debt is the world’s third largest after the US and Japan at €1.9 trillion. There is no margin for political error.

The EU machinery (EFSF/ESM) exists largely on paper, a €500bn declaration of intent. It had trouble raising trivial sums last year to fund Irish and Portuguese loan tranches — understandably so, since the fund is a transparent attempt to evade the imperative of Eurobonds and EMU debt pooling.

The Rest…HERE

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