The region is now in the midst of banking and sovereign debt crisis. Capital has been flowing from Euro zone banks as depositors move to open accounts in safe Swiss banks. Pressure on the banking system continues to increase as Euribor rates rise on a daily basis. The banking system faces a debt rollover of $1.65 trillion in 2010-11.
Tonight when the Asian markets open, we’ll see evidence of this building anxiety over the fate of Euro zone banks and by Monday the financial system will have entered a sprial towards collapse.
We’re seeing signs that Germany might be considering offering an alternative plan to that of the ECB, one which would result in creditors taking haircuts on the sovereign debt of insolvent states. They appear ready to stand up to the ECB and oppose plans to try to recapitalize the banking system, since much of the burden would likely fall on them. A showdown is likely with Germany seemingly prepared to leave the EMU.
The crisis will reach a head this week and all the uncertainty is likely to drive the markets into a tailspin. This is the make or break weak for the future of the Euro zone and the euro. This weekend a number of articles and reports appeared contemplating the breakup of the Euro zone with some predicting the result would be devastating while others view the breakup as positive.
We’ll soon know the fate of the Euro zone and the European banking system.
Positive view of Euro zone breakup:
http://www.businessweek.com/news/2010-07-11/euro-breakup-would-unleash-gdp-growth-capital-economics-says.html
Negative view of Euro zone breakup:
http://www.guardian.co.uk/business/2010/jul/07/breakup-emu-eurozone-deep-recession
Germany’s proposal to force creditors to take haircuts on sovereign debt of insolvent states:
http://www.businessweek.com/news/2010-07-10/german-euro-insolvency-plan-comes-with-haircut-spiegel-says.html
- Summergames
