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Archive for the ‘Italy’ Category

Oh, how the mighty have fallen.  In just a matter of days, two of Europe’s most venerable leaders have been toppled.  George Papandreou was the third member of the Papandreou dynasty to be prime minister of Greece.  Silvio Berlusconi had dominated Italian politics for nearly two decades.  But now they are both heading out the door and the international media have been reporting on their resignations with the kind of enthusiasm that is normally reserved for sporting events.  “Down goes Papandreou!  Down goes Berlusconi!”  If you didn’t know better, you would almost be tempted to think that some of the recent news reports were describing a boxing match.  But this is what happens when debt problems spiral out of control.  It is the leaders who take the fall.  So will the resignations of Papandreou and Berlusconi help anything?  Of course not.  Europe is still headed for a financial collapse of epic proportions.

As I wrote about recently, it has been the fumbling of the Greek debt crisis by European leaders which has set the stage for the burgeoning financial crisis in Italy to go to a whole new level.

Once the Greek debt deal was announced, I warned that it would shatter confidence in the sovereign debt of the rest of the PIIGS and it would cause their bond yields to soar.

That is exactly what has happened.

The yield on 10 year Italian bonds (probably the most important financial number in the world at the moment) is now up to 6.7 percent.

Never before in the euro era has the yield on Italian bonds been as high as we have seen this week.

So why is this important?

Well, the reality is that Italy simply cannot afford to service its massive national debt when yields are this high.

We are officially in the danger zone.

Carl Weinberg, the chief economist at High Frequency Economics, recently said the following about what would happen if Italian bond yields go up into the 8 to 10 percent range….

“If it has to pay those yields to finance itself, Italy is dead, and the sovereign crisis just blew up”

So watch that number very carefully over the next few months.

Italy is being called “too big to fail, too big to save”.  There is no way that Europe can afford Italy to crash, but there is also no way that the rest of Europe can put together enough money for a full scale bailout of Italy.

So there is panic in the air.

The Italian government is in a state of near chaos and over the past couple of weeks we have seen Berlusconi’s coalition break down.  Now Berlusconi has agreed to resign, and the future of Italian politics is murky at best.

The following is how a Reuters article described the agreement for Berlusconi step down….

Berlusconi confirmed a statement from President Giorgio Napolitano that he would step down as soon as parliament passed urgent budget reforms demanded by European leaders after Italy was sucked into epicenter of the euro zone debt crisis.

The votes in both houses of parliament are likely this month and they would spell the end of a 17-year dominance of Italy by the flamboyant billionaire media magnate.

Many believe that the departure of Berlusconi is going to pave the way for brutal austerity measures to be imposed on the Italian people.

Suddenly, it very much feels like we are watching a replay of what has happened in Greece over the past couple of years.  Just check out the following excerpt from a recent article in the London Evening Standard….

The Italians feel they’ve been humiliated by having to accept that monitors from the IMF will be arriving in the country this week to oversee a rise in pension ages, a sell-off of state assets and new rules to make jobs less secure.

Does that not sound like exactly what happened in Greece back near the beginning of their crisis?

In Greece, brutal austerity measures demanded by the EU and the IMF plunged the country into a depression, tax revenues plummeted, Greek debt exploded to even higher levels, bond yields soared into the stratosphere and the EU and the IMF demanded even more austerity measures be implemented.

Is the same sad story going to play out in Italy?

The Italians are definitely going to agree to some pretty significant budget cuts.  But if bond yields keep rising, they are going to wipe out all of the savings from the budget cuts and then some.

This is why I keep preaching about the horror of the U.S. national debt over and over and over.  If you don’t deal with it when you can, eventually interest rates rise to unbearable levels and a horror show quickly unfolds.

Anyway, right now Italy has a debt to GDP ratio of 118 percent.  If they keep expanding that debt it is going to result in a financial nightmare, but if they try to implement strict austerity measures it is also going to result in a financial nightmare.

They are damned if they do and they are damned if they don’t.

Of course we should not forget about Greece.

The EU has been freaking out for quite a while about what to do about tiny little Greece.

Now that George Papandreou has been kicked to the curb, it looks like Lucas Papademos is going to be the next prime minister of Greece.

Papademos previously served as the governor of the Greek central bank, as a vice president of the European Central Bank and as a senior economist at the Federal Reserve Bank of Boston.

In other words, he would be the ideal choice of the international banking community.

Not that anyone is going to be able to do much for Greece at this point.  Greece is a financial basket case, and unless someone gives them gigantic piles of money for free that is going to continue to be the case.

A year ago, the yield on 2 year Greek bonds was a bit above 10 percent.  Today, the yield on 2 year Greek bonds is over 100 percent.

If you want to see what a financial meltdown looks like, just check out what is happening in Greece.

The rest of Europe is in panic mode too.  For example, France is desperate to keep their AAA credit rating.  In an article for the Telegraph, Ambrose Evans-Pritchard described the austerity measures that France is implementing in an attempt to head off a debt crisis of their own….

The belt-tightening plan — the second package since August, taking total cuts to €112bn — include a 5pc super-tax on big firms, a rise in VAT on restaurants and construction, and cuts on pensions, schools, health, and welfare. It is the latest squeeze in a relentless campaign of fiscal tightening across the eurozone.

In the end, all of this is too little, too late.

Europe is heading for a date with destiny.  They have spent themselves into oblivion and now they are going to pay the price.

Some members of the financial community fear that a full-blown crisis could erupt at any moment.  For example, according to Business Insider, Colin Tan of Deutsche Bank recently said that he believes that it is possible that “we could be in full crisis mode” by the time the week ends….

Its not inconceivable that we could be in full crisis mode by the end of this week. The situation with Italy feels increasingly like one that has little chance of materially improving until some
extreme pressure is put on someone to act. It may not come to a head this week but the signs are not good that we can avoid an extreme situation emerging soon.

For those of you that are freaking out about now, don’t worry too much.  A full-blown crisis is not going to happen this week.

But time is running out.

And when Europe comes apart, it is going to have a dramatic impact on the United States as well.

According to an article in the Financial Post, the Federal Reserve made the following statement in a report about a survey that it just released….

“About one-half of domestic bank respondents, mostly large banks, indicated that they make loans or extend credit lines to European banks or their affiliates or subsidiaries”

Big U.S. banks have a lot of exposure to European debt and to European banks.  When the financial dominoes start to fall, a lot of those dominoes are going to be in the United States.

One of the biggest dangers to be concerned about are all of the credit default swap contracts that U.S. banks have written on European debt.  Just check out what a recent article posted on the website of MSNBC had to say about that….

U.S. banks have written about $400 billion in CDS contracts on European sovereign debt, according to the Bank for International Settlements. Those payouts would be triggered if Greece or Italy defaults. Because financial institutions are not required to report their CDS holdings, little is known about which banks or investment firms are on the hook, and for how much.

As I have written about previously, there is a very good chance that the world could be facing a massive derivatives crisis at some point in the next five to ten years.

If you hear the news talk about a “problem with derivatives” or a “derivatives crisis” then you will want to pay very close attention.

Over the past 30 years, the global financial system has constructed a gigantic mountain of debt, risk and leverage unlike anything the world has ever seen before.

At some point the whole thing is going to come crashing down.

When it does, it is going to affect the entire globe.

A huge storm is coming.

Get prepared while you can.

The Economic Collapse

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The Italian 5-year is yielding 6.87% while the 10 year is now 6.77%.

The curve-inversion is very bad and is a stark warning: Get ready.

This has not yet managed to get to the 2yr (6.38%)

Pundits have opined that due to the relatively long duration of the bond portfolio outstanding it’s not a “big deal.”  They’re wrong.

MTM losses will force margin calls and while “risk-weighting” for sovereign debt is typically zero (illusory though that is) it doesn’t matter if your counterparties don’t believe you’re good for the money.  That’s exactly how MF Global blew up, incidentally.

Today, right now, these bonds are not trading as an implied discount in a default.  Tomorrow they might be though and if we don’t cut the crap it is inevitable that it will happen.

Last night it was revealed that Japan had been buying about 10% of the EU’s “support” of the bond market.  If this was supposed to be bullish it didn’t work out very well; between that and the revelation that Olympus has been hiding losses for years the Nikkei dove 111 points.

The world is being dragged kicking and screaming into recognition of two fundamental facts:

• You cannot borrow your way to prosperity. 
• You have to pay for what you demand from the government.

People want to talk about this using the term “austerity”, as that’s got a nasty and dirty ring to it.  But austerity is not a dirty word as to be “austere” is to be simple, unadorned, morally strict or somber.

Yeah, I know, it also means having no comforts or luxuries.  To that I say it’s perfectly ok to have luxuries if you can pay for them in the present tense.

We can’t.  They can’t.  And Europe’s governments won’t level with the people.

I can’t sway European governments and neither can you.  But we can, and had better, sway ours.

We’re out of time folks.  When I embarked on writing Leverage as those of you who have followed me know I had predicted that the next part of the ugly saga that began in 2007 was going to come out either Europe or Asia — it would not originate here.

But having squandered the opportunity to ringfence the essential elements of our government and financial system in favor of handing out bailout funds to big banksters and allowing their ripoffs of the public to go unpunished, we also failed to severe the chains — specifically, those linked to derivative risk.  It’s not only still there, it’s been growing since the crisis.

At the time this mess began to unfold I recommended that the government step in and declare the following:

• All derivative contracts must be exchange traded with nightly margin posted.  That margin must be across the board equal for everyone and it must be in cash or cash-equivalents (e.g. short-term T-bills, say 26 weeks or less.)  The latter requirement essentially takes duration and interest-rate risk off the table for the collateral-holder and ultimate payee if the bet goes bad.
• The existing contracts have a short period of time (~60 days to six months max) to be moved to an exchange and margin posted.  No fear, no favor, no ifs ands buts or maybes.  Everything from that point forward is double-blinded just as it is for listed options and futures now.
• If you can’t or don’t do the above, your contracts are torn up as void ab-initio for lack of consideration.  It’s simple: A contract to do an impossible thing is no contract at all.  Either prove that performance is possible or your alleged contract is declared a fraudulent edifice and thus unenforceable.

Yes, I know this tweaks the die-hard libertarians and some others (including all the banksters.)  That’s just too damn bad.  The solution to 30 years of intentional fraud and willful aversion of regulatory oversight sometimes requires that you put back into place the fence that should have existed in the first place.  Libertarians can disagree on the mechanism but not on the essential function of government: To provide effective redress against force or fraud.

Well, a contract that you cannot perform on is a fraudulent edifice.  This is even more true when you cook the terms ex-post-facto (as we just saw with CDS on Greece) so as to redefine what “is” is.  Voluntary my ass; a gun in the face immediately preceding the handover of your wallet is not voluntary when the other option is that your brains become the new room wallpaper.

Never mind the incestuous manner in which the ISDA “determines” a credit event.  The majority of the committee are the writers of these swaps (that is, those who have to pay if they trigger); would you play against the NY Yankees for the World Series if the plate umpire was the Yankee’s coach?

This crap has to stop and stop now.  We cannot have the government spending more than it takes in via taxes.  It’s that simple.  Nor can any other nation.  If you want to call this names (“austerity”) that’s fine; I call it prudence and truth, because it is.

The so-called “supercommittee” isn’t going to do jack and squat in this regard.  They’ll pull some dog and pony show, but this much I assure you: When, not if, Europe comes apart if we have not erected the walls necessary to withstand that financial tsunami first we’re all going to be 500′ below sea level.

From twitter….

My understanding is that Larry later (on the air) said these were “rumors”, although there is no later tweet I can find on the subject (there’s only one in his timeline after this, and it has nothing to do with banks.)

Let’s make sure we understand what’s at stake here: If this is true then the ECB and Italy had better put a stop to it right now.  Like before Europe opens.  This means that if the “rumor” is false the banking authorities need to get on the air right now and refute it with hard facts, not platitudes and denials.

If there is a deposit run on Italian banks that is not immediately stemmed it will result in a severe and probably intractable liquidity crisis that will (1) shut down lending in Italy and (2) result in one or more of the involved banks blowing up as it goes under regulatory capital minimums – or worse, simply runs out of liquid funds period.

The Euro zone has no meaningful way to deal with this.  Forbidding transfers out will simply make the panic worse in that it will confirm that the bank(s) involved can’t cover withdrawals.  Doing nothing is unacceptable as well.  And if these institutions blow up, we’re going to get a replay of Creditanstalt and all of its knock-on effects, right here, right now.

I do not normally reprint rumors at all, as they tend to be very destructive, but this is a special case because the risks, if the rumor is correct, are exceedingly high.  I’m sure you thought the 500 point loss on the DOW today was horrifying, never mind the 60 handles on the S&P 500 that came off and the 105 (!) on the Nadaq 100.

Here’s a hint: Those are small numbers if a major bank in Italy blows up in an uncontained fashion.

I have no idea if this is real or not.  But we’ve seen, according to Bloomberg, $2 trillion come off stock market valuations in the last ten days.

Ham-handed “interventions” have made the situation worse instead of better.  We’re now sitting in an extreme oversold condition that unfortunately leave us with a binary outcome: Either a rip-your-face-off rally is imminent, or we’re looking at an all-on collapse.  One policy mistake at this juncture, or even failure to provide a (reasonable and believable) answer to these sorts of rumors could trigger the collapse option.

If you have open positions tonight please be extremely careful.  As this goes out Asia in the toilet with several indices down more than 4% and the rest anywhere from around 2-3% negative.  CNBC tried to call this all “reactionary” to the selloff in Europe and the US today, but I’m not sold on that explanation and you shouldn’t be either.

My personal confidence level in the leadership of all the nations involved, including the United States, is zero.  None of them have told the truth to their people since this crisis began in 2007.  Our Congress and President lied repeatedly over the debt issues, not just in the latest debate but going back to 2007 and before, all the way through Dick Cheney’s “deficits don’t matter” line.  Yes they do matter, although it is frequently true that the harm is not instantly apparent.

This much I do know – Europe’s problems are no longer confined to the periphery and the “PIIGS”; the CAC was down nearly 4% today and the DAX 3.5%, with the FTSE off 3.4%.  This is now a pan-European problem and whatever is going to be done, if anything, it had better be put in place now or the market will continue to sell down price until exhaustion is reached which could easily be 10, 20 or even 30% lower from here, and that decline could literally come “all at once.”

Note: This may have been responsible for the huge dump in the US market into the close.  The timing is approximately correct to have caused it.  That just makes the situation worse; if it was a malicious rumor passed around with the hope of it getting wide dissemination, well, it did.  On the other hand if it’s true…..

As I write this the DOW is down 178, the S&P is down 19, and the Nasdaq 100 is down 32, all well more than 1%.  In addition volume is more than 10:1 down on the NYSE and about 8:1 on the Nasdaq.

It’s a bloody day in the markets.

But one problem is apparent – the TNX, or 10 year Treasury bond interest rate, is actually up about 0.2% on the day, and the 30 year is up 1% in yield.

They shouldn’t be.

When investors get nervous about stocks, they usually flow to bonds.  Today, they’re not.  They’re buying Gold instead which is up just under 1%, or silver, which is up 3.2%, both on the day.

These correlations have been solid for a long time.  Now they’re failing.  This failure is telling you something – that our Congress and President had better get their heads out in the daylight instead of up their respective asses, and they better do it soon.

Oh sure, we’re not seeing the sort of out-of-control ramp in government bond rates that Italy has seen the last few weeks.

Yet.

But remember the 1930s.  A bank called Creditanstalt turned what was a nasty stock market crash and credit contraction into a global Depression.

Regulators then, as now, ignored the crash’s warnings and refused to force those who were not properly capitalized to close.  They allowed people to double into bad bets.  Those bad bets compounded, and when the economy started to slip for real, instead of just on paper, the leverage they were carrying, both that which everyone knew about and that which people did not, ultimately blew them up.

Now we have a “little bank” in Italy that is teetering on the same edge – Unicredit.  It is too big to bail out – it holds hundreds of billions in liabilities.  There’s no money available to bail them out and the time to resolve them, as with our banks, was two and three years ago.

The risks are extremely high here folks.  I know many have laughed at my warnings for the last three years and have hooted and hollered as the stock market “recovered”, buoyed by yet more cheap money.  But during this the coverage of government debt with employment has not recovered at all – in fact, it’s worse now by far than it was in 2008.

So now what’s available in terms of policy tools?  There’s no funds available to bail people out, and a bank of that size isn’t able to be bailed out anyway in reality – all you can do is lie and hope people believe it.  But the market is calling all the bluffs now, one after another.

Remember 2008?  Buffet was going to buy the world.  Then it was Korea’s Development Bank.  Both, and many more yarns that were spun, were lies.  Those who believed got skinned alive in the collapse that followed.

If you think it can’t happen again, you’re wrong.  It both can and will, and nobody will be held to account for the lies they tell, just as they weren’t the last time.

Our government isn’t helping.  We should have taken all the big banks into receivership and went through every one of their alleged “assets” in 2008, forcing them to prove by independent valuation that they were holding them at reasonable valuations and that their “credit insurance” was backed by someone with 100% of the actual cash required to pay.  We didn’t, because Paulson and Geithner both knew that under such a standard not one of the big banks would survive.

So instead of forcing bondholders to eat it, which is what should have happened, they rolled the dice.  They bet that there would not be another Creditanstalt.

This is now looking like a bet they are going to lose.

You awake at this hour of the night?

You should be.

The Euro is breaking down severely along with big declines in Asia.  Why?  Lies.

What’s the actual exposure at Unicredit to bad debt?  Everything – mortgages, sovereign, Greek, whatever?

Does the market know the truth?  No.

Does it know the truth about our banks?  No.  Bank of America just recently took a charge that was massively in excess of their alleged reserves for the same event.  Do you believe its over?  Why would you – it hasn’t been thus far.

This campaign of lies is now running out of gas.  The market is calling “Bull!” on everything that is being emitted from the so-called “authorities”, including in this case Junker.

There’s no fix for lies other than truth.  The problem with the truth is that the banks are insolvent.  Yes, ours.  Yes, theirs.  They did not take down their leverage.  They hid it.  There, here, everywhere, and it was done with the full complicity and active involvement of governments.  Specifically, swaps and derivatives were not forced onto an exchange where chained risk is eliminated and independent nightly margining by a third party who has to make good if they don’t do their job is enforced.

This is why Greece isn’t fixed and why there’s such a tizzy over defaults and “restructuring.”  It is why the ECB is so pissed about the possibility of a credit event, because they broke their own rules on collateral quality and are holding a bunch of this trash themselves.  Yeah, they’ll probably survive Greece if it blows.

Italy?  Not a prayer in Hell and the market is telling you it’s going to happen.

Our government, for its part, faked a “recovery” with more than 10% of GDP in borrowed and blown funds.  We spent it on things like giving free illegal guns to Mexican gangs through Gunwalker (yes, that was in the porkulus bill) which unfortunately turned into a subtraction to GDP when the guns were subsequently used to kill people that actually were productive.

Italy “restricted” short sales today.  This is yet another desperation move.  Were the shorts wrong in 2008?  No, they were right.  They were trading on knowledge that Lehman was factually bankrupt.  They knew this because Lehman tried to repo with them and their collateral was no good – and when challenged on it, they had nothing else to use.  Those were not “bets”, they were positions taken with knowledge of the facts.

Facts that our government and Federal Reserve intentionally concealed from the rest of us.  That is, they lied.

This evening we’re being treated to the same sort of instability in the futures markets that we saw in 2008, just a few weeks and months before it all blew up.  History in the markets rarely repeats, but it often rhymes, and I hear echoes of the crying by CNBS anchors as the DOW fell 700 points.

Folks, I hope you’ve enjoyed the ride upward in the market and the faux “recovery” that produced no jobs and in fact has a lower labor participation rate than it did in 2009.  That, of course is otherwise known as the “taxpayer rate”, or those who can pay taxes (it’s hard to pay taxes when you’re unemployed and on the dole.)

Yes, there will be more sticksave attempts.  I expect one this coming morning, in fact, as another day like today over in Europe is going to break some key technical levels and might set off a waterfall decline, both in their markets and ours. Then you’ll have to see Obama on the TeeVee once again telling us how exceptional America is.

He’s right – we are exceptional.

We’re exceptional liars, starting with him.

Get some rest folks – it’s going to be in short supply soon.

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A protest movement that started in Spain has now spread to Italy. The Spanish government has banned protests, but that has only encouraged more protests.

I picked the story up two days ago in Protests Mount in Spain; Sovereign Debt Crisis to Follow

Acting on a tip, the New York Times picked up the story a day later in Protesters Rally in Madrid Despite Ban.

Protest Images

Here are a few protest images by Juan Luis Sanchez on Yfrog.

Spain’s Icelandic revolt

Protests in Iceland helped bring down the Icelandic government and stopped the bailouts of banks at the expense of Icelandic taxpayers. Can the same thing happen in Spain?

Please consider Spain’s Icelandic revolt

After passively submitting to the crisis, young Spaniards have finally taken to the street. Breaking out on the eve of municipal elections, the protests of recent days have been inspired by those in Iceland that led to the fall of the government in Reykjavik.

One morning in October 2008, Torfason Hördur turned up at what Icelanders call the “Althing”, the Icelandic parliament in the capital city, Reykjavik. By then, the country’s biggest bank, the Kaupthing, had already gone into receivership and the Icelandic financial system itself was in danger of going under. Torfason, with his guitar, grabbed a microphone and invited people to talk about their dissatisfaction with the freefall of their country and to speak their minds.

A movement spawned by the internet

But those voices calling for real democracy are not just being raised in Iceland, a country of about 320,000 inhabitants. Here in Spain, the umbrella organisation for various Spanish movements – Democracia Real Ya (Real Democracy Now) – already lists among its proposals some 40 points ranging from controlling parliamentary absenteeism to reducing military spending through to abolishing the so-called Sinde law (a law restricting on-line infringements of copyright).

The demonstrations have broadened spontaneously, as was the case for those who rallied under the umbrellas of the “alternative globalisation” movements, and have evolved, one decade after the World Social Forum in Porto Alegre, Brazil, on a more modest stage than the one demonstrators faced in the past at the World Economic Forum of the global elite in Davos, Switzerland.

All this is happening at astonishing speed via the Internet, which has amplified the echo of discontent and opened the lanes of cyberactivism to groups such as Anonymous, notable for intervening against companies like PayPal and Visa during the advocacy campaign for Wikileaks chief Julian Assange. Yet it was also there at the beginning of the revolts in the Arab world, to help people get round the censorship of the Tunisian and Egyptian dictatorships.

“When we grow up, we want to be Icelanders!” cried one of the leaders of the organisation during the march on Sunday May 15 before a column of young – and not so young – parents and children, students and workers, the jobless and pensioners. Many Saturdays in Iceland were needed before citizens won the changes they had demanded. Spain’s first Sunday has taken place, and was followed by a Tuesday [May 17]- but there’s still a long way to go.

Protests have now spread to Italy and beyond.

Protest Camps

Green tents are current protest camps. Purple tents are planned protest camps.

My friend Bran who lives in Spain writes …

A Spanish revolution is slowly gaining coverage, both internationally and locally. http://www.ikimap.com/map/2CYF is a map of existing, planned and evicted camps. Politicians and administrations are trying to claim sympathy and similarity to the protests expression, yet no one has good faith in the political class.

‘Revolution’ jumps from Spain to Italy

Courtesy of Google Translate (a choppy one, slightly edited by me) please consider ‘Revolution’ jumps from Spain to Italy and Italy to the rest of the world

Agglutinated protests in Spain by platform Real Democracy Now has called for demonstrations in at least six cities in the country, today and tomorrow at 20.00 .

Concentrations have been summoned by a profile of the social networking site Facebook entitled ‘Italian Revolution. Reale Democrazia Ora ‘, launched yesterday. The cities are Florence are scheduled today at 20.00, and Rome (Plaza of Spain), Milan, Bologna, Padua and Pisa, tomorrow at the same time.

The manifesto makes specific reference to the protests in Madrid, which cites as inspiration and express their solidarity. And the story is repeated all over the world

After Spain and Italy are numerous cities that have emulated the system concentrations.

Berlin joins the struggle for real democracy, support to Spain and joined the protest. “This decision May 20 Berlin Street,” announced their posters.

Paris or Buenos Aires will focus today. Brussels, Birmingham and Bogotá Ahram, tomorrow.

Amsterdam will hold a rally on Saturday 20.

For Spanish speaking readers, here is the original link: http://ecodiario.eleconomista.es/espana/noticias/3081817/05/11/Italia-copia-a-Espana-y-crea-su-Italian-Revolution.html

It is difficult to know what exactly might transpire from these protests, but we certainly have seen some shocking results in Africa and the Mideast already.

Watch Italian and Spanish Government Bonds

Most eyes remain focused on Greece. It is more important, to pay attention to Spain and Italy. Here are the charts I have been watching.

Spain 10-Year Government Bonds

Italy 10-Year Government Bonds

If yields break North of those zones shown in the above charts it will signify a lack of faith in the government bonds of those countries. Spain is huge, but Italy is massive. Italy has as much debt as Germany in an economy nowhere near as big.

I believe it is simply a matter of time before the markets start questioning Spanish government debt. Should Italian debt come into question, so will the very existence of the Euro itself.

Mike “Mish” Shedlock
Global Economic Analysis