Forget the bailout: the euro rate rise could finish off southern Europe

[CHIMO]

Forget the bailout: the euro rate rise could finish off southern Europe

Portugal's request for a bailout from its European partners may have been the most visible symptom of the crisis in the eurozone, but the decision taken in Frankfurt to press ahead with an interest rate rise could have a far more corrosive impact on the euro's long-term future.

Analysis by City consultancy Fathom, obtained exclusively by the Observer, shows that because the interest rates on the bailouts provided to Greece and Ireland track the European Central Bank's lending rate, a series of increases could push these countries – and Portugal – into default.

"If the ECB continues to tighten policy, the impact is clear: default is more or less inevitable," says Fathom director Danny Gabay. "Greece is clearly on an unsustainable path."

Fathom also warns that Spain remains vulnerable, despite Madrid insisting last week that its economy is much healthier than Portugal's and its debts are much more manageable. Spanish banks must roll over debts worth more than 5% of GDP this year, and more than 9% in 2012, in addition to the government's financing needs. A two-point increase in the interest Madrid pays in the bond markets – much of which could come from the ECB, even without a further loss of confidence from bond investors – would, on Fathom's calculations, force Spain into a fiscal crisis.

http://www.guardian.co.uk/business/2011/apr/10/ecb-bailout-interest-rate-rise

[Turbineguy]

1. The strategy then

is to improve the US dollar by making the Euro worth less.

It's like a 7th grader explaining a D-.

[lib2DaBone]

4. Eggs Actly. You hit it. Begger thy neighbor..

Someone..somewhere.. has to wake up to the massive financial manipualtion...we are screwed.. basically...

[Po_d Mainiac]

8. Higher interest rates in the Euro Zone will lower the U$D/EUR

I see this as more of a stare down to the bernank. "Go ahead USA keep printing. When oil tops $150/Bbl in your junk fiat currency, we'll see how you like widespread riots"

[Hawkowl]

10. Exactly

It looks like the Europeans are demonstrating they are more responsible, and thus the Euro may be a better reserve currency than the dollar. All the other major foreign banks have stopped buying Bernake's bullshit treasury bonds. The Chinese have been actively trading their dollars for real assets such as copper and iron mines throughout the world.

Raising interest rates puts the brakes on inflation and curbs speculation by making it less profitable. The US is doing the opposite. We are truly heading the route of the Wiemar Republic. We are getting set up by the corporations to embrace the dictator who will follow Obama.

[WatsonT]

2. I wonder if the EU will survive this

things are looking . . . interesting right now.

[MrTriumph]

3. Cowards... No nation will challenge China's currency manipulation.

Our politicians are either cowards or pawns of those who make huge profits importing artificially cheap foreign goods. Either way working Americans, like working people in other developed countries, get the shaft.

Same ol' bad Clinton, Bush policies. No change here from Pres. Obama.

[upi402]

5. So true. Reagan through Obama

All hail the UNIPARTY!
:bounce:

[Taitertots]

6. The big EU nations are throwing the PIGS under the bus because they won't accept any loses

The only reason the PIGS nations are having problems is because the ECB work to devalue the Euro. They are creating the problem and offering economic subjugation as the solution.

[bemildred]

7. And so the disagreement as to who will get left holding the bag continues ... nt

[Art_from_Ark]

9. That's about it, in a nutshell