On Friday and over the weekend, hope reemerged for progress in Europe's sovereign debt crisis as new governments swept to power in Italy and Greece. But reality set in again on Monday as Italy was forced to pay yields of 6.29% on a 5-year, $4.1 billion debt offering, the highest yield since 1997. The euro and European averages fell in reaction, with notable weakness again in bank stocks.
"Europe is in one of its toughest, perhaps the toughest hour since World War Two," Germany chancellor Angela Merkel said Monday. "If the euro fails then Europe fails, and we want to prevent and we will prevent this, this is what we are working for, because it is such a huge historical project."
The 10-year Spanish government bond yield broke the six-per-cent barrier overnight. This has now sparked concerns that Spain could be next in the eurozone debt crisis firing line. The Deflation Genie is already out of the bottle.
The EU is about to fall apart and there is little that anyone can do to prevent it. But removing countries from the eurozone is like trying to remove milk from coffee. It can’t be done without ruining the coffee and making it bitter.
