“We are at an inflection point. After the expiration of the three months’ window, the markets will continue to demand more but the authorities will not be able to meet their demands,” George Soros warned in a speech at the Festival of Economics in Trento, Italy. The progressive Billionaire investor is very much in favor of the European Union and is trying to light the fire under its country’s leaders to resolve their debt/economic crisis. See Soros’ complete speech here
From my vantage point, things don’t look very good for many of the major countries in Europe. Countries like Greece, Spain, and Italy are swimming in debt, with countires like Germany and France footing the bill. I believe that if Greece bows out of the European Union, it will open the door to Spain doing the same that will domino across the rest of the countries, and perhaps leaving German and France alone.
Over the weekend, leaders of two of Europe’s most vulnerable countries rallied to the cry of more unification. Mario Monti of Italy called for using euro bonds to create a quicker path to common debt for Europe. And Mariano Rajoy of Spain floated the idea of a common fiscal authority in Europe to synchronize budgets and manage debts.
German policy makers have said that kind of deeper budget integration and supervision is a prerequisite before any sort of euro bonds could be issued. Chancellor Angela Merkel of Germany called last week for a plan to give more power and competencies to the European Commission in Brussels, but through treaty changes as part of a five- or even 10-year process.
Ms. Merkel is trying to remake the Continent’s economy after Germany’s own, with less-regulated labor markets and higher retirement ages at the top of the list. She would like to see strict deficit controls enforced across the euro zone by the European Court of Justice, as part of the broader ceding of national power at the heart of her vision for more centralization.
But as global economic gloom deepens, there is a risk that such lofty talk could be too little, too late for investors, especially with Spain seeming on the brink of a banking collapse.
Spain is sitting on an estimated 220 billion euros, or about $273 billion, in failed real estate loans alone — a number that surpasses the entire output of the Greek economy. And with the fourth-largest euro zone economy — behind Germany, France and Italy — there is little doubt that Spain is too big to fail. Or, more precisely, to be allowed to fail.
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