- Will Monday Bring One, Two, or Three Systemic Explosions of the Euro System?
A panicked Spanish Foreign Minister, Jose Manuel Garcia-Margallo, stated late Thursday that “the future of the European Union will be played out in the next few days, perhaps in the coming hours.”
He’s right about that.
Garcia-Margallo was reacting to the fact that on June 13 Moody’s downgraded Spanish sovereign debt to near junk-bond status, and that 10-year government bonds today soared into the stratosphere of 6.99% yields—which means that Spain’s sovereign debt cannot be refinanced, and that the major capital flight already occuring from Spain is likely to escalate to flood proportions in very short order.
The irony is that Spain’s descent into the maelstrom occurred within days of their announcement of an 100 billion euro bailout of Spanish banks by the European EFSF, which was supposedly designed to put out the Spanish fire. But the fact of the matter is that the latest Moody’s downgrade and soaring bond yields didn’t occur despite the 100 billion bailout, but rather because of it. As Moody’s put it bluntly, they downgraded Spain because the 100 billion package will add considerably to the government’s already unpayable debt burden. So, just as LaRouche warned, every attempted bailout of the system at this point simply aggravates the problem and accelerates the process of disintegration.
The British Empire’s actual intent in ramming through the 100 billion bailout package earlier this week, was not to try to actually salvage the Spanish banking sytem—that would require some 600-700 billion euros, for starters—but rather to just keep Spain from blowing apart until at least after this Sunday’s Greek elections, which could signal the end of Greece’s membership in the EU, and of the EU itself. The British didn’t think they could handle two simultaneous systemic crises, but now they are looking at the very real possibility of three such crises all hitting at once early next week: Greece, Spain, and possibly Italy as well.
As Spanish bond yields soared today, so did Italy’s, with rates on their 5-year bonds jumping by more than a third, from 3.9% to 5.3%. Italy may soon join Spain in being locked out of international capital markets.