The European debt crisis is back in the headlines, and the news is not good. Portugal's prime minister resigned after his austerity plan for the beleaguered nation were rejected by opposition parties in parliament, and Germany's leadership is waffling on funding the huge bailouts needed by debt-burdened countries such as Ireland and Greece, reflecting the deep ambiguity of German voters weary of bailing out their weaker neighbors. Despite the brave talk of a few months ago, it now seems all but inevitable that Portugal will also need a gigantic bailout of at least 70 billion euros, or $99 billion.

Ratings agencies have downgraded Portugal's debt, and investors have responded by pushing the yield on its bonds to more than 8%, roughly 4.5% higher than the yield on German bonds. Yields on Ireland's debt exceed 10%, reflecting the perceived risk of default or renegotiation.

With Europe at risk of stumbling as a result of its austerity measures and the costs of bailouts, investors need to rethink investments in eurozone economies and the euro itself.

Eurozone growth is already anemic: France managed a meager 0.3% gain in the fourth quarter of 2010, and 1.5% for all of 2010, while the U.S. economy expanded 3.1% in late 2010.

The bailouts are not small potatoes. The temporary rescue fund, known as the European Financial Stability Facility, is currently set at 250 billion euros ($353.6 billion) , and European Union officials want to expand it to 440 billion euros ($622.3 billion). The wealthier nations of Europe have already loaned 177 billion euros ($250.3 billion) to bail out Greece and Ireland, and the high yields on those nations bonds and credit default swaps -- insurance against default -- show that investors continue to see a high risk of default.

Spain Also at Risk

While Spain's economy expanded at a modest 0.9% pace last year, its debt situation remains precarious enough that ratings agency Moody's recently downgraded its bonds. The basic problems of Spain will be familiar to Americans: A property bubble drove residential real estate prices to unrealistic heights, and lenders made loans based on those sky-high valuations. Once home prices retreated, banks were left with large quantities of defaults on land and houses.

Analysts are now suggesting Spanish banks will need at least 50 billion euros in additional capital ($70.7 billion) to cover these mounting losses.

As if these losses weren't troubling enough, rising interest rates threaten to further undermine Spain's homeowners. The European Central Bank President Jean-Claude Trichet recently said that the ECB's key interest rate could rise from 1% as early as April. Fully 97% of Spain's home loans are variable-rate: Their payments will rise when interest rates click higher.

Despite an unemployment rate around 20% and its recent debt downgrades, mainstream analysts see Spain as an unlikely candidate for a costly bailout. But Spain is burdened with the costs of bailing out its own banks, and other analysts are not so sanguine, citing a lack of information on the quality of assets held by the banks. In other words, some fear Spanish banks are overstating the value of their real estate holdings to hide the full extent of their losses.

Structural Flaws in the European Union Papered Over

While there is plenty of chatter about bailouts, austerity measures and heavy debt loads, few analysts are speaking to the potentially fatal weakness built into the European Union and its single currency, the euro, a flaw that is now painfully obvious.

While the European Union consolidated power over the shared currency and trade, it left control over trade deficits and budget deficits entirely in the hands of the member states. Lip service was paid to fiscal responsibility via caps on deficit spending, but in the real world, there were no meaningful controls limiting private or state credit expansion, or on sovereign borrowing and spending.

In effect, the importing nations within the union (Ireland, Greece, Portugal and to a degree, Spain and Italy) were given the solid credit ratings and expansive credit limits of their exporting cousins such as Germany, The Netherlands and France. To make a real-world analogy, it's as if a spendthrift younger brother was handed a no-limit credit card with a low interest rate, backed by a guarantee from a sober, cash-rich and credit-averse older sibling.

For awhile, it was highly profitable for the big European and international banks to expand lending to these eager new borrowers. This led to over-consumption by the importing nations and handsome profits for big Eurozone banks. And while the real estate and credit bubble lasted, the citizens of the bubble economies enjoyed the consumerist dream of borrow and spend today, and pay the debts tomorrow.

Tomorrow has arrived, but the foundation of the banks' assets -- the market value of housing -- has eroded to the point that both banks and homeowners face insolvency. The heightened risk of default, both by banks and the governments trying to bail them out, has caused interest rates in the debt-burdened countries to rise. Faced with rising costs of servicing their debts, and spending cuts to bring deficits under control, the citizens of the states such as Portugal are rebelling against austerity measures. On the other side, taxpayers and voters in fiscally sound member states such as Finland and Germany are rebelling about being saddled with the costs of bailing out their weaker neighbors.

This structural imbalance will not be easily addressed, but until it's fixed, the E.U. and the euro, are at risk of a great political and fiscal fracturing.


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Dereck

Major Fraud Alert


The entire Federal Banking System under FirstGov has been "Consumed" and "Levied" by way of a Maryland State Circuit/District Court Ruled “Appropriation and Garnishment” of all Future Earnings prior to and after 2004 against Bank Of America by way of the F.D.I.C. Regulations Prohibiting failing Banks from Merging with other failing Banks between the Dates of 08/04/08 and 10/09/09.

Bank of America violated the 21st Century Act: Final Amendments to Regulation CC Section: http://www.federalreserve.gov/boarddocs/press/bcreg/2004/20040726/attachment.pdf

seeking reimbursement of Credit, Loan, and Finance Balances as a "Bank Entity" and not a "Nonbank Consumer" as specified on Pages 85 and 86.

The person they sued through a LLC. Debt Collection Company and Law Firm was the "World Fortune Owner" who "Counterclaimed" and won.

Now all Contracts of any Corporations (Including Employment) under the "Controlling Interest" of any Investment Bank Worldwide are "Null and Void", and are also under the stipulated Rules and Regulations of an "Closely-held S Corporation rendering all Employed under Legal Actions against “Domination”, and also means that "No Corporation can hold Shares" officially making every Stock Exchange on the Planet a "Ponzi Scheme" by default.

Businesses owned by the States (Public Corporations) are being sold Stock Shares by Corporations also under the Federal Banking System in this Worldwide "Ponzi Scheme". The World Fortune Company Merrick Inc. Sweden is dissolving Millions and Billions of Dollars from "All Levels of Government"in the U.S. of Financing based upon Years of "negligent inaction" involving this case.

The Federal Government has already been forced to discontinue supplying the Financing States use to pay their debts, Persons in Government Offices may want to begin to take their jobs more seriously, these are different times from 10 Years ago and you will not be accepted civil servants here just because you say you are here to do the right thing.

May 29 2011 at 12:25 AM Report abuse rate up rate down Reply
Tony Marganian

http://www.youtube.com/watch?v=kANowb44vGc

March 29 2011 at 12:52 PM Report abuse rate up rate down Reply
inasctg56

In February 2004, the Bush White House, working through the OCC officially preempted national banks from state laws regulating mortgage credit, including state anti-predatory lending laws. State attorney generals and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers. Of the many errors of judgment, and questionable ideological decisions of the Bush administration, this probably has the most significant and damaging effects that led to our housing and economic crisis.

March 29 2011 at 1:51 AM Report abuse rate up rate down Reply
orchidad

Yes, our feerless leader will talk to us tonight. He will go on and on about how we have to spend money on this and that and HIS new war. The real truth is he, our president Obama, has been doing everything possible to spend as much as possible. It is very easy to explain to some (the sheep) in this country that we need to do this for the children, for the poor, for the, for the, for the. So easy to spin it and make it loog good. But our president and the last congress have spent money we as a nation can never pay back. Was this done on purpose, I think so. Was this done to destroy this country, I think so. Get ready because what will happen is starting to happen.

March 28 2011 at 12:05 PM Report abuse +2 rate up rate down Reply
1 reply to orchidad's comment
zip3265

Agree 100%

March 29 2011 at 8:39 PM Report abuse +1 rate up rate down Reply
scottee

what about the US debt...is this okay with everyone????

March 28 2011 at 9:51 AM Report abuse +2 rate up rate down Reply
someoneole

I really like Charles Hugh Smith, he's the most realistic writer on this site.So many others are spin doctors and mouth piece for the Politicians, banksters, and CEOs.

March 28 2011 at 9:11 AM Report abuse +1 rate up rate down Reply
WallOfVoodoo

Money was invented as a way to spend your barter with another person at a later date. You actually had to do something or have something someone else wants to get people to barter with you. What in the heck do all the people on government handouts offer in return for the money they get. If you recieve a freebee and do not have to work or offer your services to get that freebie what kind of people are we creating? The answer: ____________ You fill in the blank.

March 28 2011 at 8:44 AM Report abuse +7 rate up rate down Reply
krazzicraig

The people of this country are being lied to on a grand scale. Japan holds appox. $900 billion in(debt)US bonds and China holds more. Japan will have to sell a large part ,if not all, to cover the cost to rebuild.China has told Washington it will not buy anymore US(debt)bonds. The only group buying US(debt) bonds is the Fed. Reserve Bank in the amount of $600 billion in the past 3 months. The only way the fed. can keep the lid on is to print more money backed by nothing.If the whole truth was known by the people in this country there would be another revolution.You can not borrow money to pay your oblligations,then tax the people to raise money ,while at the same time you are printing more money backed by nothing. If something is not done ,this house of cards will fall.

March 28 2011 at 8:24 AM Report abuse +5 rate up rate down Reply
4 replies to krazzicraig's comment
Barry Connelly

Again, liberal politicians such as Bill Clinton and Carter created the Community Reinvestment Act (CRA) that lowered and redefined the legal lending requirement to include the truely non qualified or be sued! Who sued them, Barak Obama for one as laywer for community organizations. Now they have cost us America's footing as the global currency which will bring more ruin to our people, including the very poor they wanted to give away to for their vote....was it worth it? Thro Obama OUT!

March 28 2011 at 8:21 AM Report abuse +3 rate up rate down Reply
2 replies to Barry Connelly's comment
someoneole

Are you serious????????

March 28 2011 at 9:08 AM Report abuse -1 rate up rate down Reply
CADNR

your fearless leader speaks to you tonight!

March 28 2011 at 8:09 AM Report abuse +1 rate up rate down Reply