$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 about the $15.100.000.000.000 US public debt ?

It has been less than a month since the US public exceeded $15 trillion (a scale pretty hard to imagine without the help of an explanatory diagram). In only 2 short weeks, the figure has been boosted with an additional 100 billion and is not hovering around $15.18 trillion. This amounts to almost 99.5% of the 2010 US Gross Domestic Product and I`m expecting it to reach triple digits by the end of the year. What do you expect: the difference is a measly $70 billion.

Who is still holding toxic Italian debt ?

The Italian yields have cooled-off a bit, revolving around the 6.50%-7.00% area, partially due to the ECB rather frequent interventions and on the news that Mario Monti, a former European Commisioner, will lead the Italian government.  Spanish yields on the 10y benchmark are still high up there at 6.31% after recent weak macroeconomic news and French 10 year bonds rose today to 3.72%. The most solid European country, Germany, which reported today a 0.5% quarterly increase in GDP and its 10 year yields stand at 1.81%. Who is taking this loss ?

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.

Berlusconi is out. European markets applaud.

The Prime Minister of Italy Silvio Berlusconi has resigned today after more than 17 years dominating the political scene. The move comes after losing parliamentary majority and after pushing a new austerity plan designed to shrink the budget deficit from 120% of GDP (only seconded by Greece's budget deficit). Most likely, Mario Monti, a technocrat, will be appointed by President Giorgio Napolitano to lead the new government. Mario Monti, a former European Union Commissioner and pro-euro advocate will start negotiating with the major political parties later this evening. The pattern is becoming more and more obvious: EU is pushing for less national political control in exchange for financial protection. Will this ultimately end up creating the United States or Europe or break it apart ?

Precious metals leap forward as contagion spreads to Italy

  

Now that the waters have cleared for a bit in Greece, where Prime-minister Papandreou is going to form an unprecedented national unity government to push further budget cuts, the European bond vigilantes apparently have started to target the next weakest chain: Italy. The yields on 10 year Italian sovereign debt surged to 6.56% after reaching a record 6.68%. The Italian Prime Minister Silvio Berlusconi will be under-fire tomorrow as the parliament will vote on a state financing bill. His majority within the parliament is weaker by the day and rumors that he would resign hit today's news, only to cause a prompt dismissal.Who is going to bail-out Italy in case it fails? EFSF which receives 140 billion euro in guarantees from Italy ?

European circus continues as Papandreou is rumored to resign

The farce is underway as the newest juicy rumor that hit the press is that the Greek Prime Minister will offer to resign in the next 30 minutes. According to BBC, Pap "will meet the Greek President Karolos Papoulios after the emergency cabinet meting finishes". The new coalition government will supposedly have "former Greek central banker Lucas Papademos at the helm". This comes after the surprising decision of Papandreou to call a referendum on the European Bailout Plan.