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Spain Still Teetering as Ministers Gather (Again)

Another day, another eurozone summit. With European finance ministers set to gather in Brussels to fill in the details of last month’s bailout agreement for Spanish banks, nervous investors have already signaled their pessimism, pushing Spanish bond yields above the danger zone of 7 percent. (In stark contrast, German bond yields fell into negative territory; investors, it seems, are so concerned with the stability of the rest of the continent that they are prepared to pay to let the German government hold their money.)

The BBC has more:

The finance ministers are likely to confirm the size of the bailout and which conditions will be applied to the loans, both for the banks and the government.

It has also been reported that on Tuesday, Spain will be given an extra year to bring its budget deficit down to the permitted level.

Among the key agreements from the 29 June summit were moves towards banking union with the European Central Bank (ECB) acting as a supervisor and allowing European bailout funds to buy bonds to try to reduce countries’ borrowing costs.

But since the summit, there have been signs that Finland and the Netherlands would oppose the use of bailout funds in this way.

It was only a week ago that Eurocrats were hailing the June 29 summit as a major breakthrough. Clearly, the summit effect has already worn off; bond yields are back where they were before the magic fix. Finance ministers at today’s meeting will be looking for a another magic communique to keep financial Armageddon at bay for a few more days or weeks. We, and our retirement portfolios, wish them every success in the world.

But before the ink is dry on this next set of “final” agreements and “breakthroughs”, it will be time to plan yet another chicken wire and spit party to put yet another magic, cure all solution for Europe’s woes together and calm the markets for a few more days.

Nothing, absolutely nothing, about this situation is good.

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  • Felipe Pait

    Is it already time to recognize that this is exactly what mainstream economists such as, yes, Paul Krugman, have been saying all along?

    Or should we try voodoo once again to see if it works now?

  • Kris

    “nervous investors have already signaled their pessimism, pushing Spanish bond yields above the danger zone of 7 percent.”

    Felipe@1: Mainstream economists have indeed been predicting this result of excessive debt all along. How strange that some want to practice voodoo and increase the debt still further!

  • Felipe Pait

    Kris #2, mainstream or reality-based economists have not. You may be referring to voodoo economists who have been predicting hyperinflation in the US as a result of, well, whatever; they are spectacularly wrong. Inflation is low and so are interest rates.

    As for Spain, the reason for high interest is the doubt that they can repay their debt if the austerity policy continues. End of story.

  • Kris

    Felipe@3: Ah, so Spain enacted their austerity policy just for the heck of it!

  • Old School Conservative

    Perhaps Spain can create a vibrant economy out of thin air by building more frickin’ windmills using play money.

  • Government Drone

    “Another day, another eurozone summit.”

    Or, as I increasingly think of it, another roomful of naked emperors.

  • Felipe Pait

    Kris #4, no, Spain did it for reasons that turn out to be exceedingly incorrect, and now it is paying the price. That it was going to be so could have been told by anyone familiar with the theory and history of economics, but their sound advice was rejected because too many individuals had a vested interested in a policy that never had any chance of working.

  • Kris

    It is apparently basic economics that if you want to restore investor confidence, you must go ever deeper in debt. It’s true, so Professor Ponzi taught me!

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