“The prime minister of Spain called for European leaders to publicly back the so-called ‘sinner states’ amid fears that contagion from Greece could trigger a highly-anticipated Spanish banking crisis and then a bail-out.
Mr Rajoy told state television there was “a serious risk we will not be able to borrow – or borrow at astronomical prices” unless they succeeded in bringing down the debt levels and regaining market confidence. “All these measures are to get out of the hole we find ourselves in,” he said.”
The “safe level” of debt for a non-sovereign state “financed” by the markets is probably in low double-digits – like 15% or something similar. None of the major Western European countries has the level of debt that low. One may still consider Germany as half-sovereign as they have a lot of influence on ECB. This is not the case for Spain or Italy. Once the bond markets have lost the confidence (a haircut on Greek debt – effectively a tax on bonds – was very helpful in educating investors) there is no was that confidence can be regained within the current framework. The ECB is forced to periodically scoop bonds of some Euro states from the markets or else…
There is no way Spain can regain “access to the markets” – full financing of budget deficits / bonds rollover at reasonable rate by the markets unless its debt held by the private and foreign sectors is driven down to 15% or something similar. This is obviously not feasible.
The iron logic based on interest compounding arithmetic is simple – either ECB “finances” budget deficits or even bond rollover by currency emission (buying up some of the bonds) or this is it – the WHOLE Eurozone is bust in a few months or even weeks time. The bank run in Greece has already started…
The ECB will therefore do what prof Laski and the others have advocated (sorry I have translated only a part of that interview to Warren). They will make Euro a full currency by playing the role of a proper central bank – financing deficit spending when necessary. Europe will wake up as a fiscal union in a Functional Finance world, possibly muddling through the crisis for the next several years due to the consequences of austerity and difficulties in allocating the “spoils” – or the whole monetary and financial system in Europe breaks down with severe real consequences.
This dramatic outcome could have been a secret wish of these who designed the original Euro system but encountered stiff resistance in the late 1990s so they left the project half finished. They wanted a federal Europe.
The question remains in place – if the assumption that bond markers can keep financing Eurozone countries in a low phase of the business cycle is false because the safe level of debt is about 15% not 60% – why the privilege of being financed by currency emission is only given to Italy or Spain but not to Greece?
So the whole country is economically ruined “to punish the dog for pooping on the carpet?”
Why can’t ECB intervene today, right now by buying all Greek bonds at 4% discount? The whole crisis would be solved in a few minutes time.
This is the answer I want to hear. Forget about fiscal “firewalls” made of straw. The ECB guys are doing it anyway – their hands are smelly because they have been picking up poop from other dogs from the carpet since 2009 (or sweeping it under the carpet). Why do they want to punish Greeks in such a perverted way? Just because of the Prussian mentality of Dr. Merkel? Get over it!