Interest rates on Spain’s 10 year bond rose to 6.6% today, close to the 7% seen as a tipping point. Rates on Italy’s equivalent bond rose above 6%.
Meanwhile, it was reported that the Spanish economy shrank again in the 1Q, unemployment is at 25% and talk continues about how to bail out Spain’s badly ailing banks that have not been required to write down their huge losses on the Spanish real estate collapse.
The European Commission, the European Union’s executive arm recommended today that a potential solution would be for the 17 EU countries to form a banking union that would take over failing banks (WSJ).
Remember that Spain is the 12th largest economy in the world, too big to be bailed out Greek-style. I say that as it appears the Greeek bailout is not working. Lenders say austerity measure must be enforced and Greeks say their country is collapsing under the weight of austerity and greatly resent it. A new election June 17 will help clarify things.
CNBC reported today that the vast majority of the money given by the EU to bail out Greece has actually only gone to pay interest payments back to the EU banks. Little has been allocated to boosting the Greek economy and almost none of that implemented so far.
Another article detailed how young Greeks faced with a 50% youth unemployment rate are flocking to Germany which badly needs workers. Some companies there are advertising a paid two-month language course and guaranteed starting pay of $4,500/month. Meanwhile, Greeks continue to withdraw money from Greek banks as they are afraid that if Greece withdraws from the EU their money would be converted to Greek drachmas worth far less .
US Markets are set to open nearly 1% lower today on the poor batch of European news.