25IQ

4 euro end game scenarios http://baselinescenario.com/2010/11/28/the-eurozone-endgame-four-scenarios/  

[Martin Wolf writes masterfully here] “…In the eurozone, the fact that global interest rates were low and demand in core economies weak, exacerbated this effect. These ultra-low interest rates triggered asset price bubbles and credit booms in peripheral economies. These, in turn, encouraged construction booms. In these circumstances, what the late John Kenneth Galbraith called the “bezzle” – the stock of financial crime – rises, to emerge in the crash. As the financial system implodes, the economy collapses and the public finances, seemingly strong in the boom, turn sharply for the worse.  http://www.ft.com/cms/s/0/259c645e-fcbb-11df-bfdd-00144feab49a.html#axzz16olqLX3M  

the chief economist of Citigroup …claims Ireland is insolvent, Portugal is quietly insolvent, Greece is de facto insolvent and Spain will be insolvent once the problems in its banking sector are recognised. At which point things get really interesting. Buiter predicts the ECB could be forced to buy Spanish government paper and fund its banking system by purchasing the debt from the European Financial Stability Facility if things get really bad. http://ftalphaville.ft.com/blog/2010/11/30/420606/insolvent-greece-ireland-portugal-and-probably-spain/

A paradox of the debt crisis is that the 16-nation euro zone, as a whole, has a budget deficit of around 6% of its gross domestic product and total public debts of around 84% of GDP. While not exactly low—6% is twice what’s supposed to be the maximum in euro-zone countries—that is healthier than in the U.S., which is running a budget deficit of over 11% and has total debts of around 92% of GDP.  http://online.wsj.com/article/SB10001424052748703994904575647073671547454.html?mod=WSJ_hp_LEFTWhatsNewsCollection

The Portuguese 10 year is sitting at 7.1% this morning.  It looks like a foregone conclusion that they’ll need aid at some point in the first half of 2011.  http://pragcap.com/portugal-austerity-failed

Spain, with its size, is worrying people the most, and the chart of its default risk doesn’t look pretty.  For much of 2009, Spain CDS traded at prices just above CDS for France and Germany, but default risk has recently spiked to levels that haven’t been previously seen for that country.  For the time being, default risk for France and Germany hasn’t hit new highs.  France is getting close, however, while Germany still has a ways to go. http://www.bespokeinvest.com/thinkbig/2010/11/29/european-default-risk.html

“Even the QE2 is not sufficient to restore growth to the trend level,” he said. “The problems of the economy are not problems of liquidity, but problems of credit insolvency, and therefore monetary policy cannot resolve this.”   http://www.bloomberg.com/news/2010-11-29/roubini-says-portugal-quite-likely-to-need-funding-update1-.html