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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

June 5, 2012 at 10:15 AM

End game in the eurozone?

And maybe what they say is true

Of war and war’s alarms,

But O, that I were young again

And held her in my arms

— William Butler Yeats

We’ve heard alarms before about the eurozone but today’s news that Spain is losing access to credit markets sounds much more serious than before. Kicking the can down the road can only be done so long.

Spain was ground zero for a real-estate bubble that collapsed. And during the good times, it benefited from capital flows with the euro, including speculators buying sovereign debt. When it all blew up in the Great Recession, the government was forced to bail out its banks, even while facing the higher costs of the downturn and an uncompetitive economy. Now, after using $24 billion to prop up Bankia, Spain is facing yields of its 10-year bonds above 6 percent, vs. 1.2 percent for German bonds.

Today there are the continuing rumors about an emergency stabilization injection by the European Central Bank and some kind of bending out of Berlin on eurobonds to bundle and stabilize the debt. It all sounds too little, too late. The apocalyptic James Howard Kunstler got it about right when he wrote Monday, “Their debt problems are insoluble and they’re out of accounting tricks. Events are running way ahead of institutions and personalities.” He went on:

The world is waiting to re-learn an old lesson: that untruth and reality exist in an adversarial relationship. Sad to say, there isn’t enough legal infrastructure in the world, nor enough time, to pass judgment on all the lies and misrepresentations that burden the current edition of what passes for civilization. This goes especially for money matters, where currencies, certificates, and contracts actually have to represent what they purport to stand for. When those relationships fail, as they have been doing for some years now, everything falls apart.

Reagan administration official Clyde Prestowitz, the smartest guy commenting on trade, said the only answer is for Germany to leave the eurozone. Yes. But Berlin won’t do it. So things will fall apart messy. It’s only a question of when. For now, the alarms have never been louder.

And Don’t Miss: Is global financial reform possible? || Paul Volcker

Today’s Econ Haiku:

G-7 looks on

As Spain burns down, Greece in ash

What a fire brigade

Comments | More in Eurozone

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