Euro Crisis : Germany and Spain at war!

Be afraid, very afraid.

Zero Hedge on those German leaks to force greater Spanish austerity, and the Spanish retailation to force the publication of Euro banks stress testing.

One of the more ominous news of the day came from Reuters, which reported that the previously disclosed rumor that Spain was seeking a €250 billion bail out package, had in fact originated from high-placed German officials. The move, which will could easily set off an intraeuropean cold war, was prompted by the increasing schism between Europe’s (so far) solvent core and the insolvent Club Med, and was intended “for Spain to take tougher austerity measures to cut its huge budget deficit.” Instead, the tsunami of denial that resulted, only exacerbated matters and made it seems like Spain is truly on the brink. Compounding this animosity, was the disclosure that Spain’s direct counterattack took the form of the El Pais story that “quoted Spanish government officials as saying Madrid wanted to publish the results of stress tests being conducted on its banks to reassure markets” a move which has been opposed by Germany and especially by Austria, which believes that publishing the true deplorable state of affairs of its Erste and Raiffeisen Bank would cause yet another bank run. At the end of the day, none of this helped either unlock Spain’s frozen interbank or money markets, or encourage a sense of credibility in the euro (turns out that was only courtesy of the biggest short squeeze in Euro history). In fact, if such political low blows are to be expected, it is only a matter of time before all investors completely desert Europe and let it deal with its escalating vendettas on its own.

, , , , ,

  • Munsterview

    ‘…… it is only a matter of time before all investors completely desert Europe and let it deal with its escalating vendettas on its own.’

    To what other currency : the dollar for example ?

    The Euro may have problems and internal contradictions but judged against all other major world countries currencies bar China’s it is not as unhealthy as those with sterling area interests in mind, try to make it out to be.

  • Lina

    Please do not write such shallow headlines. Germany is a great country and a fellow state in the EU and it has overcome terrible difficulties and challenges during the XXth Century, and it has come out a winner. We Spaniards know all this and we appreciate and respect Germans. It’s only these greedy financial operators who don’t know where to stop and would stick a knife in their mother’s throat for a dime.

  • Lina

    Er … this said, Krugman nailed these anal phase ‘operators’ in http://www.nytimes.com/2010/06/18/opinion/18krugman.html
    Anyway I don’t expect Germany would put our currency and EU quality of life in danger just to win the export price battle. Or would it?

  • Alias

    Klugman (with apologies to whomever) should take a close look at the condition of the German banks (the most over leveraged and under capitalized banks in the world) and then ask himself if Merkel knows something he doesn’t. In addition, the German and French banks have the highest levels of exposure to debt in Southern Europe (the UN’s definition of it) so that includes Spain and Greece (and of course a lot of other near-bankrupt countries that folks think of as being in Eastern Europe). It’s soon to be tits-up for a few of the German banks, and Ms Merkel is simply trying to reassure markets in advance of the event that Germany is prepared and able to bail them out.