The Eurozone is starting to go

[MadHound]

We've heard about the troubles of Greece, Italy, Portugal, Spain, etc. But yesterday saw something even worse. Germany, the rock of the EU, couldn't sell all of the bonds it put up for sale.
"The German debt agency could not find buyers for almost half a bond sale of 6 billion euros. That pushed the cost of borrowing over 10 years for the bloc's paymaster above those for the United States for the first time since October.

"It is a complete and utter disaster," said Marc Ostwald, strategist at Monument Securities in London.

The new bond promised to pay out a 2.0 percent interest rate - the lowest ever on an issue of German 10-year Bunds. The auction's average yield was 1.98 percent, down from 2.09 percent for the previous benchmark in October."
<http://uk.finance.yahoo.com/news/-Disastrous-bond-sale-shakes-reuters_molt-378273453.html?x=0>

The implications for this are huge and the options aren't pretty. Germany can no longer be the rock of the Eurozone without bringing its own economy crashing down. Which means that the stability of weaker country's, Italy, Spain, even France, is in danger. There are speculations about a breakup of the EU, a smaller EU, Germany simply going its own way, and the complete collapse of the EU.

If there are serious problems with the EU, they will spill over and effect not just the US, but countries around the world. The joy of the global economy, we are no longer insulated from the economic troubles of others.

[Selatius]

1. Maybe we're witnessing the beginning of the end of the Euro as a currency? nt

[MadHound]

3. Possibly,

The EU might become a smaller institution, with financially unstable countries kicked out. The EU might just implode altogether, collapsing as Germany leaves for its own good. Who knows, but the outlook simply isn't good.

[Betty Karlson]

13. The split, rather.

There is growing speculation that Germany, the Netherlands, and Finland would create a Northern Euro (based on their rock solid economies) and leave the Euro to the Mediterranians that France insisted should join. The Euro would then be free to devaluate, quantitively ease, and take other measures to prevent the frightening austerity now asked of Greece and Spain, while the Northern countries would be able to trust the common currency again (they never liked the Goldman Sachs method of accountancy so beloved by the Greeks).

If you speak Dutch, the disscussions are particularly funny to follow. This has to do with the Dutch abbreviations for Northern Euro (Neuro; which also means neurotic) and for Southern Euro (Zeuro; or whiner).

[banned from Kos]

2. We're beginning to see liquidity dry up - which is very ominous

Germany is AAA credit.

Portugal today got downgraded to junk status. Soon, the PIGS will be shut off from credit and REAL social unrest will begin. Only the ECB can save Europe from vast turmoil.

[MadHound]

7. How can the ECB save Europe?

By printing more money? Inflation, inflation, inflation, a prospect that Germany vehemently abhors. If the ECB takes that route, then we could very well see Germany drop out of the EU, which would then collapse due to lack of a solid support.

Issue EU bonds? Not only does Germany oppose this as well, but who is going to buy all of them? Germany's bonds were just rejected, what makes you think that EU bonds will fair any better.

The fact of the matter is that this signals what very well could be an unsolvable problem. Germany is now presented with the stark fact that its ongoing participation in the EU is causing damage to its country, its people. The reasons for it to remain in the EU are growing ever more tenuous. But if it bolts the EU, the rest of the EU will blow up and we'll all be screwed.

What happens in this situation depends more upon what Germany does than what the ECB does.

[banned from Kos]

8. You provide a great synopsis of their dilemma.

The ECB has a funds rate of 1.5% which reflects their paranoia of inflation.

The EFSF will be exhausted and then its up to the ECB. Tough problem.

[RickFromMN]

4. Perhaps the EU will wish to punish the financial people responsible for this nightmare...jail time?

[banned from Kos]

6. The "real" culprits are the politicians -- if that is what you mean by responsible

And none will be doing jail time.

If SocGen (French bank) loans Italy $50 billion how is SocGen responsible?

[tsuki]

11. No. They have replaced elected officials in the government. nt

[xchrom]

5. Europe stocks extend gains after German Ifo data

http://www.marketwatch.com/story/europe-stocks-edge-up-raiffeisen-arkema-gain-2011-11-24

MADRID (MarketWatch) — European stocks sought to break from several days of losses on Thursday, helped by an unexpected rise in a measure of German business confidence and taking in stride news that Fitch Ratings had downgraded Portugal’s debt rating to junk status.

Extending earlier gains, the Stoxx Europe 600 index /quotes/zigman/2380150 XX:SXXP +0.65% rose 0.8% to 221.17. The index closed down 1.3% on Wednesday, its fifth consecutive loss following a disappointing German bond auction and a weak Chinese manufacturing survey.

U.S. markets are closed for the Thanksgiving Day holiday, placing even more of an emphasis on news out of Europe.

The Ifo Institute said its November index of German business confidence rose to 106.6 from 106.4 in October, against economists’ expectations for a fall to 105.1.

[Odin2005]

9. This is bad, REALLY bad!

:scared:

[dixiegrrrrl]

10. yes. and heading our way soon.

[DCBob]

12. Merkel Rejects Euro Bonds Again

from Bloomberg..

German Chancellor Angela Merkel again ruled out joint euro-area borrowing and an expanded role for the European Central Bank in fighting the debt crisis.

Euro bonds are “not needed and not appropriate,” Merkel said today at a press conference with Italian Prime Minister Mario Monti and French President Nicolas Sarkozy in Strasbourg, France. She said euro bonds would “level the difference” in euro-region interest rates. “It would be a completely wrong signal to ignore those diverging interest rates because they’re an indicator of where work still needs to be done.”

http://www.bloomberg.com/news/2011-11-24/germany-rejects-euro-bonds-after-failed-auction-wake-up-call-.html

This is just another indication that Germany wants to further separate itself from the rest of the EU. This might be good for Germany but not for the other weak members of the EU and clearly its not good for the EU as a whole or the Euro.

[burrowowl]

14. K&R