Eurozone Worries Rising?

There are more news sightings that point to heightened worry about Eurozone sovereign debt/bank woes. A spate from Bloomberg this AM. Normally, when I can come close to doing one-stop shopping on relevant topics on Bloomberg, it’s a sign of anxiety.

The first is “EU Bows to German Call for Permanent Debt Mechanism.” This piece describes how the Germans are successfully pressing for a program to make the Euro-rescue program, which was scheduled to expier in 2013, permanent. This might normally sound like prudent planning, but it comex in the context of widening bond spreads on the countries perceived to be at risk. But some elements that were leaked about the German plan sound less than enticing to bond investors:

Germany’s demands come as bond yields in deficit-strapped Ireland and Portugal inch higher, threatening to reignite concerns about government finances that brought the 16-nation euro to the brink of breaking up six months ago.

EU President Herman Van Rompuy said there was no discussion of a debt-rescheduling facility, leaving the European Commission to propose a structure for the crisis mechanism by December….

“The absence of a crisis mechanism almost brought down the euro,” Van Rompuy said. With the currency up 16 percent against the dollar from June’s four-year low, he said “we won the immediate battle of the euro, but the problems are not completely over yet.” The European currency bought $1.3872 at 9:12 a.m. Brussels time, down 0.4 percent on the day.

Irish bonds declined this week, pushing the extra yield that investors demand to hold the nation’s 10-year debt instead of benchmark German bunds to within two basis points of a euro- era record yesterday. The so-called spread widened 20 basis points in the week to 425 basis points. The Portuguese 10-year spread over bunds widened to as much as 355 basis points yesterday from 339 basis points at the end of last week…

Merkel’s crisis-resolution plan foresees an extension of debt maturities, suspension of interest payments and a waiver on creditors’ claims, Handelsblatt newspaper reported yesterday, citing an unidentified government official.

Next is “Irish, Spanish Banks Failing to Kick ECB Habit: Euro Credit“:

Greek, Irish and Spanish banks are falling behind their counterparts across Europe in reducing their dependence on emergency central bank funding because they can’t find investors willing to buy their bonds.

Lenders from those three nations took 61 percent of the loans supplied by the European Central Bank at the end of September, up from 51 percent the previous month, data from their respective central banks show. Overall, the region’s banks cut their funding to 514.1 billion euros ($716 billion), the least since Lehman Brothers Holdings Inc.’s collapse in September 2008, according to ECB figures.

Deutsche Bank AG, HSBC Holdings Plc and Societe Generale SA have sold new debt since regulators stress-tested 91 of the region’s lenders in a bid to rebuild confidence in their creditworthiness. By contrast, bonds of all lenders in Portugal, Ireland and Greece are trading as though junk rated, as are a third of banks in Spain, according to data compiled by Bank of America Corp. Their struggle to sell debt will make it harder for the ECB to curb loans to banks on Europe’s periphery.

So much for the clean bills of health issued in the recent stress tests.

The next headline is a bit of a headfake: “Greek-German Bond Yield Spread Rises to Highest Since Oct. 1 ” Highest this month? So? But the increase since October 22 has been sharp: from 622 basis points to just over 800.

Now the counter indicator is that the Financial Times, which European readers like to grumble jumps a bit too enthusiastically on the eurozone worrywart bandwagon, has been pretty quiet on this topic. But it has also been devoting a lot of effort to covering the UK budget and the US elections. So its commentators may be a tad distracted. And Ambrose Evans-Pritchard, who is also accused of being unduly alarmist, seems to regard QE2 as the biggest danger on the horizon.


Originally published at naked capitalism and reproduced here with the author’s permission.