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Earlier this week, Mario Monti said the European crisis was “almost over.” What Monti certainly knows and what this week’s events have reminded us is that almost over is not the same as over. For example: Spain. (The very same country where more than 50 percent of young people are unemployed.)
Some 1.7 million Spanish citizens went on strike as the government released a budget with $36 billion in cuts and tax increases. Spain’s yields rose, and Madrid streets became increasingly disorderly, with pockets of violence amid the widespread protest:
The main streets of central Madrid were lined with trash containers and strewn with garbage on Thursday, with sanitation workers among those absent. There was no shortage of police, with picketers and policeman facing off and confrontations at Madrid’s main bus depot. A Molotov cocktail was thrown at a police car in Murcia and burning-tire barricades blocked some roads in Barcelona, according to reports.
The protests come at a time when the euro zone is building something of a rainy-day fund in case Italy or Spain needs cash. The ESFS-ESM announced that it would increase the size of its lending firewall to $1.1 trillion. In typical European Union fashion, the content of the statement was undercut by the bumbled logistics. Eurogroup head Jean-Claude Juncker canceled the press conference as a result of leaks from Austria’s finance minister.
Even contract law is up in the air in Europe; the ISDA is considering a rewrite of sovereign CDS contracts. A host of experts, IFR reports, warn that “sovereign credit default swaps are no longer fit for purpose and are in need of an overhaul if they are to remain a valid risk management product.”
Europe’s prolonged crisis makes the U.S. banking system’s latest troubles seem comparatively minor. There are now concerns about the creditworthiness of three huge banks, with Bank of America, Citigroup and Morgan Stanley each reportedly preparing for fresh downgrades. While many clients and lenders may have already discounted these potential credit-rating cuts into their business with the three banks, downgrades could be a boon for highly rated competitors JPMorgan and Goldman Sachs.
And on to today’s links: