The euro is about to reap the result of months of dithering by leaders who lacked the moral strength and political will to deal with the rising tide of debt.
Two killer factors are circling the euro economies and are about to strike:
- The perception of collapse is spurring investors in to action. The economic result doesn’t matter, they have to move their money because of the chance that the eurozone will implode
- Sooner or later the rescue cash will run out because the rest of the world is broke as well. No one’s creating cash, so no one is getting richer, it’s just like a rearrangement of the deck chairs as the ship sinks.
The rest of the world has shown forbearance and some degree of sympathy by standing back to let the euro have some air while governments and central banks put a rescue plan in to place.
Sadly, squabbling and indifferent attitudes to the problems of others has failed to deliver the promised solution.
The Greek economy is in meltdown and whether they stay in the euro is anyone’s guess.
Spain is another black of debt where managing the economy gets tougher seemingly by the day.
Moody’s is the latest credit agency to downgrade bank ratings – with 16 banks losing their status, including Santander.
Bankia has already had an injection of rescue cash, but is in the middle of a run on deposits that might yet pull it under.
Government bonds are now only selling with a near crippling 5% plus interest rate which is driving away international financiers who perceive the risk is too great for the return.
“This comes hot on the heels of reports of widespread withdrawals from ATM’s across Spain and Greece in the last few days – estimates suggest that up to £2 billion has been removed from banks in the last three days,” said Jason Gaywood, director at currency specialist HiFX.
“The danger now is that panic will set in as the population races to get their money out resulting in the self-fulfilling prophecy of ‘a run on the banks’. We witnessed this situation here in the UK back in 2008 when people queued for hours to withdraw cash from the doomed Northern Rock. The difference now is that a large number of banks and nations are affected and the risk of ‘contagion’ is acute.”