More: The European debt crisis has claimed its latest victim, Silvio 'BungaBunga' Berlusconi. The Italian PM lost his
parliamentary support and he agreed to resign after austerity budget measures are passed. Proving once again that bond prices are stronger than a lot of sex. Italy's cost of borrowing reached a sky high 7.3% and the Dow meter sank 3.7% indicating plutocrats are not convinced that Italy can revive its moribund economy, and expressing doubts that the EU is big enough to bail out #3 Italy. But Italy is not Greece since its debt ratio to domestic product is more in line with Great Britain's and it could withstand higher interest payments for a longer period of time. France is the next domino in line, holding the most Italian debt of about $100 billion. French bond yields rose over 3% on Wednesday while French big bank shares went down more than 2%. Two big French banks, Societe General and BNP Paribas are derivative players with US counterparts.
♫♩"The leg bone is connected to the thigh bone, the thigh bone is connected....♪♬"
{7.11.11}Papandreou is out as the Greek government scrambles to deal with the stark reality of years of painful economic relapse or national insolvency. He won a confidence vote Friday night, but was continually under pressure to resign by his parliamentary opposition. Leaders agreed to a coalition government of national unity yesterday, but the Prime Minister must step aside, possibly in favor of the Finance Minister Evangelos Venizelos who supported the European bailout in the face of Papandreou's surprise call for a referendum on the bailout which comes with onerous austerity strings. The chart below shows what the Greek government is up against in terms of upcoming debt payments:
Most financial observers believe Greece will run out of money in December without additional loan money from the EU. That money has been cut off until Greece sees its way clear to ratifying the terms of the agreement reached last month. Greece's chaotic political gyrations has roiled the financial markets and the nation has come under huge pressure from worldwide financial interests to resolve the crisis:
The dilemma facing European governments is that the fiscal austerity demanded by international finance is dampening economic growth, making their debt overhang more difficult, not easier to pay down. The other major problem is that the deep pocket countries, mainly Germany, are not willing to allow the ECB to issue more debt such as Eurobonds to prop-up the already debt ridden PIIGS. Germany, however, does not have clean hands in the crisis. Germany violated the fiscal stability rules it demanded at the creation of the monetary union with impunity in 2002-05 by borrowing more than 3% of its GDP. A forensic study of Greek economic and budgetary data from the time of its admission in 2000 indicates that its data was
manipulated to insure entry.
Americans may be viewing the European financial difficulties with wry amusement and feelings of smug superiority. They would be wise to think not. Besides the indisputable financial connection of American banks 'too big to fail' with European banks in a liquidity crisis, there is the spectacle of a impotent U.S. Congress unable to agree on austerity measures of its own. The super-committee of budget negotiators created to circumvent partisan deadlock is itself deadlocked over a deficit reduction plan. Under the debt ceiling-budget deal between the President and Congress the negotiating committee has until November 23rd to propose ways to cut the budget by $1.2 trillion. The only issue widely agreed on is that the automatic defense cuts of 5% (termed "sequestration") in the absence of a bipartisan deficit reduction plan should not be allowed to occur. In other words to cut federal spending the federal government's largest spending category, national defense, should not be reduced. Only in Washington would such an inversion of common sense make perfect sense to politicians beholding to the plutocracy for his or her elite status. The political farce in Washington makes the Greeks look positively stoic.
