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Global equity markets are falling, with the Dow Jones Industrial
Average down around 250pts. A benchmark 10-year Italian government bond
is yielding 7.4%. Every country whose sovereign debt went over the
7%-mark has required a bailout. I was in Italy a month ago, and the
yield was under 6% (still pricey for a developed country).
A bailout of a country Italy’s size would be a gargantuan task —
probably a larger effort than heretofore. It is beyond the capacity of
the EU. Italy’s debt is just too large. I doubt China would purchase any
real assets until labor-market reforms and pension reforms were
enacted. China actually wants a return on its investments.
If the IMF gets involved, it would require massive new funds for
which the US taxpayer would be on the hook for around 18%. I wonder how
that would go over in the US House or even the Senate? That doesn’t mean
the Obama administration won’t try to organize a rescue. The Fed has
been backstopping the EU banks for some time.
Will the Euro survive? Will the global financial system survive?
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