$125 billion bailout for the Spanish banking sector

After Ireland, Portugal and Greece, the financial contagion has finally spread to Spain, as the Southern-European country asked on Sunday for a bailout worth as much as $125 billion dollars. The money will most likely come from the European Financial Stability Facility and the yet-to-be ratified European Stability Mechanism and are supposed to go towards the recapitalization of Spanish liquidity stripped banks. If the EU does not start taking bolder steps towards more integration Italy may go next.

Greece has to stay in!

The Greek may not be the hardest-working fellows in Europe, as they like to think of themselves as, they may not be the tax-loving people that Christine Lagarde wants them to be, they may have one of the biggest average salaries in the European Union, but these are not good enough economic arguments to allow for their eviction from the EU. It is not about Greece anymore, Greece is a symptom of a bigger problem: should the European Union push for more integration ?

What does FED's zero interest rate for the foreseable future mean ?

Despite that bond yields in Europe are imploding, and Italy becoming the newest member of the elitist 7% club, among countries like Greece, Portugal, Ireland, all seems to be running well in the US wonderland. The cost of borrowing, as measured by US T-bills, has reached the lowest level since the beginning of the financial crisis. The demand of short term bills, namely 3 weeks, which are yielding 0%, and 13 weeks which are yielding 0.005%, is still extremely high as the bid/cover ratio stood at 3.41 in the most recent Treasury Auction.

Is the EFSF going to save Greece ?

The yields on peripheral countries are getting higher and higher, reflecting worries about the high levels of debt and fiscal deficit within these countries (Portugal, Ireland, Greece and Spain). The 1 year Greek yield reached an apex of 188%. Just a year ago the yield on a 1 year Greek bonds was only 5%. The same goes for Portugal where the 1 year yields 18%, from 3.2% the 2010 figure. Ireland was partially saved by bond purchases and the yield stabilized to 8% after peaking at 22%. Will the EFSF cool-off the European debt crisis ?