Tuesday, August 02, 2011

Europe is Still Screwed

Kevin Drum says markets tanked today because yet another European kick the can exercise seems to be failing.

Spanish and Italian politicians rushed to formulate a fresh response to the debt crisis engulfing their two countries as their borrowing costs hit new euro-era highs on Tuesday....The flurry of activity came against the backdrop of another big sell-off in markets. Yields on benchmark 10-year Spanish and Italian bonds peaked at 6.45 per cent and 6.25 per cent, respectively. The premiums Madrid and Rome pay to borrow over Germany also reached new euro-era highs of 404 and 384 basis points.

....Analysts said it was difficult to see what could stop Spanish and Italian rates continuing to climb, particularly in light summer trading. “What can be announced to really break that? It is difficult to see,” said Laurent Fransolet, head of European fixed income research at Barclays Capital

And Krugman:

But I still wonder, looking at news coverage, why our disaster is dominating the headlines to the apparent exclusion of European woes. It’s there if you look for it carefully, and especially if you’re keeping track of the market spreads, but a casual reader might not even realize that the whole eurozone thing is coming apart at the seams.

I really don’t know how this is going to play out; Italy and Spain are too big for extend and pretend, and they’re also too big to save. But this is huge, and just as worrying in its own way as the US crisis of governance.

The human race, or at least the European descended branch, may be too stupid to save.