20-Apr (USAGOLD) — Gold is narrowly
confined, despite a softer dollar tone. The euro was boosted by a German Ifo beat and the likely misplaced
hope that the latest G20 meeting, commencing today, will provide some sort of
global solution to the resurgent eurozone debt
crisis.
Along similar lines, the IMF seems
confident it will receive a $400 bln boost to its
firepower, based on commitments from more than a dozen countries. The
However, it’s now
This series of MoneyGame
charts from earlier in the week pretty clearly illustrate the severity of the
problems in
The percentage of
bad loans at Spanish banks continue to rise. Note that while the pace
slowed during last year’s tepid economic recovery, the trend remained
disturbingly positive.
[source]
Exacerbating problems for the Spanish
banks is the good old fashion bank run reflected in this chart. Depositors are
fleeing in droves, forcing the banks to borrow from the Eurosystem
to maintain solvency. It is becoming increasingly clear, that even in the wake
of the massive ECB liquidity operations, Spanish banks may well need to be
bailed out.
[source]
Spain’s IBEX35 stock index is down
nearly 20% this year alone and even with today’s rebound, off about 56% since
the 15,945.70 peak from late-2007. Ouch.
[source]
So what’s the G20 to do? Well the
first thing they’re going to do apparently is to echo the sentiments of the ECB
and tell the European politicians that the responsibility
for the debt crisis lies with them. Not exactly the initial confidence
builder the market was hoping for, and Spanish and Italian bonds in particular
are back under pressure.
With Spain’s economy already getting
crushed by austerity, unemployment on the rise, the banks under severe duress
and its stock market plummeting, I’m wondering what exactly the G20 and the ECB
see as the options available to the Spanish government. Perhaps this is just
further retribution for Prime Minister Mariano Rajoy’s
rejection of the agreed to deficit reduction target. Maybe the not so subtle
message here is get back on the more severe austerity track, or we’ll let you
wither on the vine.
However, as we discussed in
commentary earlier in the week, this is a dangerous game to be playing, as
austerity measures have a tendency to insight civil unrest and the downfall of
governments. On the other hand,
Such a decision would unquestionably
come with its own form of pain, and not necessarily just for