Currency speculators are really betting on the fate of the Euro, not the delaying tactics of bail outs and loans governments are using to buy time.
The big question is not what will happen to individual economies like Spain and Greece, but will the Euro countries move to tighter fiscal union or break up.
The markets clearly do not believe Spain’s €100 billion bail out is any more than buying time – and the forthcoming Greek election may shift the focus away from Madrid to Athens for a while, but whatever the result, the dithering and dawdling by the eurozone is the real problem.
Under the bonnet, speculators can see the euro doesn’t work while individual governments have the power to set their own economic policies.
From a political standpoint, German Chancellor Angela Merkel cannot possibly link the fortunes of her economy to the runaway train of the euro unless she has some control over the engine, signals and timetable.
The end game must be the dissolution or cementing of the euro alliance.
Spain’s 10-year bond yield have already hit 6.8%. Italy is struggling along at around 6.4%. Greece’s fate is unknown and little Cyprus is ready to put out the begging bowl.
The eurozone is crumbling. Behind the scenes, politicians and eurobankers are quietly panicking.
There’s already talk of Greece defaulting on €300 million energy bills that could lead to black-outs and limits on Greek customer withdrawals from bank cash machines.
One commentator speaking for the market is F&C Investments analyst Ted Scott.
“The bailout of the Spanish banks is yet another policy announcement that does little more than buy time and remove short-term systemic risk,” he said.
“A ‘positive’ Greek election result will buy more time but eventually the politicians will have to choose the path between full fiscal union or break-up. The news over the weekend is a long way from a full banking union that would have been a significant step towards closer fiscal union and, crucially, gone a long way to cutting the umbilical cord that binds the sovereigns to the banks.
“If no new major policy measures are agreed in late June then the current rally will be short lived and the heat will be on the policy makers to act once again.”