April 28, 2010
—With the chaos they have unleashed in their attempt to force through a so-called Greek rescue package, the British have pushed the Eurozone into a terminal collapse.
Interest on two-year Greek treasury bonds shot up 3 percentage points Monday to 13%, and yesterday another 2 percentage points to 15%. These are highest rates for short-term bonds in the world, according to Brown Brothers Harriman as reported in the Financial Times. "Contagion" is now spreading, with Portuguese two-year bond yields having shot up from 3.051% to 3.985%. The FT article has graphs underneath the article to show the rise of Greek bond yields, the Portugese bond yields, and the Euro-dollar rate — not set in years, months or days but set in hours over the course of Monday, as if it were Weimar Germany, 1923.
The system can't stand this sort of wrenching strain. The present Eurozone crisis has justly been compared to the Kreditanstalt collapse of 1931, in its unleashing a next yawning gulf of collapse in the trans-Atlantic system.
It is clear that the issue is not whether the deal will go through, but that even if it does go through, it will not solve the problem, since Portugal, Ireland, and above all, the main act, Spain and Britain, are waiting in the wings.
Bloomberg reports that credit default swaps for Portugal's sovereign debt are trading at rates worse than those for Lebanon and Guatemala. While Portugal's public debt is 77% of GDP, its private debt is 236%. This compares with 205% in Italy, and 195% in Greece. Only 17% of its public debt is held by Portuguese; the rest is held by foreigners, a huge amount. The country also has had virtually no growth in the past 10 years and has no prospect for growth in the future.
Bloomberg also reports that not only are credit default swaps for Portugal, Spain, and Ireland increasing, but the crisis is having a spillover effect on the commercial bond market where CDS rates are also rising.
In an effort to convince the Bundestag to fork over EU8.5 billion for the EU45 billion cement-shoe "rescue" package, International Monetary Fund Managing Director Dominique Strauss-Kahn and European Central Bank President Jean-Claude Trichet have been asked to address the Bundestag tomorrow.