The debt chickens are coming home to roost in Greece, and the hen house is collapsing. As the hard-pressed Greek parliament convened to vote on an enormously unpopular austerity measure insisted upon by international bankers with the power to prolong Greece’s agony with another bailout, furious mobs set Athens ablaze and fought pitched battles with police. On Monday morning, Greeks surveyed with horror the smoldering rubble of more than 90 buildings across the capital. The popular consensus: this is just the beginning.
A United States of Europe — minus recalcitrant Great Britain — is nearly upon us; thus saith Forbes magazine. “The euro, in its old form, has fallen into crisis and the price European countries have to pay is a large loss of sovereignty,” writes Clem Chambers (left) in the Establishment conservative magazine. Chambers continues:
Investors are bullish on Europe yet again after a two-day summit in Brussels produced a triumphant agreement on the part of the 17 eurozone member nations to get their collective fiscal house in order. The options for Europe going into the conference were stark — at least, according to the doomsday rhetoric emanating from European leaders and media commentators on both side of the Atlantic. Failure to reach the foreordained agreement at Brussels would have been “a luxury we cannot afford” opined French President Nicholas Sarkozy, who added that “maintenance of the eurozone is our duty. We have no other choice.”
The European crisis continues to mushroom, even as Eurocrats meet in Brussels to try to stave off implosion of the eurozone. Tuesday’s sale of Italian debt forced the government of Italy again to accept interest rates or “yields” in excess of seven percent, a level proven by experience to be unsustainable. Thursday will be another bellwether day, as Spain and Belgium — both of whose bonds are commanding steep yields — auction off debt of their own. But at the rate interests on government debt are rising across the eurozone, a few more weeks could write the epitaph for the once-touted international currency.
By every appearance, we are entering the final, calamitous act of the European debt crisis, a sprawling, slow-motion debacle that is about to engulf the world in financial turmoil more acute than the American meltdown of 2008. For roughly two years, European authorities have struggled to keep the debt crisis from spinning out of control, doling out bailouts to small, heavily indebted nations such as Ireland, Portugal, and Greece. “Contagion” — the notion that a sovereign default in, say, Athens, might trigger a cascade of woes elsewhere — has been and remains the watchword.
Europe’s crisis took a dramatic turn for the worse with the sudden awareness, reflected by a steep increase in government bond yields, that the Italian economy may soon be on the financial chopping block alongside those of Greece, Portugal, and Ireland.
Europe’s slow-motion economic collapse continues apace as Eurozone governments and banks continue to wring their hands over what to do to postpone the inevitable Greek default. And now there’s a new wrinkle: Italy, whose level of sovereign indebtedness relative to GDP is second only to that of Greece, has suddenly appeared on investors’ radar screens. If Italy — the second largest economy in the Eurozone — goes the way of Greece, Ireland, and Portugal, there will not be enough money in Europe’s rapidly-dwindling rescue fund (the European Financial Stability Facility or EFSF) to effect a bailout.
The walls are closing in on the eurozone, as options for resolving the European debt crisis are about to narrow dramatically. After many months of drama and handwringing, the sovereign debt bailout express is about to run off the rails, leaving the European central bank, and probably a number of megabanks across Europe, in financial ruins, and most likely spelling the demise of the euro and of the entire eurozone experiment.
In defiance of all logic, the eurozone weathered a week of harrowing instability this past week, with Portugal, Spain, and Italy managing to persuade the bond markets that their sovereign debt is still worth the risk. Portugal was the primary focus of concern in this latest iteration of European economic upheaval, with speculation rife that the Iberian nation would be forced to accept an international bailout along the lines of what Greece and Ireland have already received. The Portuguese government spent the week leading up to last Wednesday’s successful auction of government bonds denying that Portugal needed outside assistance to solve its debt problem, and Wednesday’s results appeared to vindicate those claims.
The topic of the14th Amendment of the United States Constitution is continuing to stir debate in Washington, with those who favor increasing the debt limit at any cost raising the specter of President Obama simply overruling Congress and authorizing the issuance of new debt without the consent of lawmakers. According to this storyline, the president need only invoke Section 4 of the 14th Amendment, which states that “the validity of the public debt of the United States, authorized by law … shall not be questioned.” If Congress refuses to abide by its constitutional obligation to ensure government debts are paid, argue certain of Obama’s supporters, then the president would be justified in simply imposing his will on Congress to ensure that the 14th Amendment’s prohibition of government default is honored.