…The euro catches cold.
But the Greek debt crisis is not the only headache the eurozone is facing. Spain’s real estate crisis was even worse than its American counterpart, and as a result the Spanish banking system is severely under-capitalized. There are also major problems elsewhere among countries utilizing the euro — including Portugal, Latvia, and Hungary — with chains of shaky debt obligations that lead back to major banks in Austria, Germany, and France.
You can tell the financial system is in crisis when a prime minister blames its problems on “speculators” — as if there were any inherent problem with investors who look for “short-term earnings”. Why shouldn’t an investor do exactly that? Capital will flow to whatever enterprises yield the largest returns. Investments that bring long- or medium-term earnings will be traded as futures based on their discounted expected value. If a short-term euro-based investment is the vehicle of choice, shouldn’t we assume that the market sees a bleak long-term future?
“Speculators” who do whatever the system permits within the limits of the law deserve no criticism. The problem is the system itself, which is built on fiat money, fractional reserves, deliberately inflated real estate bubbles, state interference and regulation, old-boy networks, and unsustainable levels of debt. It will collapse eventually; a crash is unavoidable. And the differential rates of collapse in different sectors and currencies will allow savvy (or lucky) traders to make a bundle before the system hits bottom.
Prime Minister Zapatero is right to freak out: the future of the euro does not look good. Here’s the story from ANSAmed:
Zapatero Accuses Speculators for Market Decline
(ANSAmed) — MADRID, FEBRUARY 5 — Spanish Premier José Luis Rodriguez Zapatero attributed yesterday’s stock market decline to “speculative movements” by investors who “are looking for short-term earnings”, reported economic daily Expansion today, citing statements made yesterday by Zapatero before leaving for Washington to return to Madrid.
The decline of 6% on the stock market index yesterday in Madrid, due to fears about the debt in Spain, Greece and Portugal, which are also putting pressure on the stock markets, were provoked, according to the Spanish premier, by a push to sell by speculators on variable gains. Today at the opening, the stock markets registered a wave of panic selling for their third consecutive session, with a decline of over 2%.
In a meeting yesterday in Washington with the members of the business world part of the Atlantic council, the Spanish presidency defended itself from “unfounded” criticism advanced against his government and confirmed Spain’s solid economic foundations: “We know where we want to go and the reforms that we want,” assured the premier, cited today by the media.
Yesterday, disinvestments burned 22.4 billion euros in capitalisation on the Spanish Ibex stock index. Construction and bank shares led the decline, which was double compared to the rest of Europe.
Stock Market: Panic Selling Due to Spanish, Greek Deficits
(ANSAmed) — MILAN — Fears about the deficits of Greece, Portugal and Spain are putting pressure on the stock markets for the third consecutive session and traders on the floor report a wave of panic selling. Benchmark stock indexes in Europe have declined further and losses have increased to over 2%, while the American futures market is down in anticipation of the release of January unemployment data. Bank shares and financial institutions have been hit the hardest. ICAP’s share price has plummeted 17%, while other heavily hit companies on the market include
Bank of Ireland -5.49% EFG Eurobank Ergasias -4.9% Lloyd -5.3% Banco Espirito Santo -4.97% Pireus Bank -4.82% National Bank of Greece -4.51% Banco mercial Prtuguese -4.47% Credit Agricole -4.28% Bnp Paribas -3.62%.
Mining and oil company shares are also down, with Bhp Billiton in decline by 1.5% and Bg group dropping by 3.4%. In the auto industry, losses include Renault (-2.9%) and Fiat (-3.89%). The following are the European stock market indexes:
Athens -3.8% London -1.88% Paris -2.43% Frankfurt -1.58% Madrid -2.54% Milan -2.66% Amsterdam -2.57% Stockholm -1.25% Zurich -2.19%
Hat tip: Insubria.