A European Time is running out

By Paola Pecora

"The European financial crisis has entered a new and more dangerous phase," says Larry Summers from the Financial Times. For today, the fear of falling either country in default and results in terms of European integration and economic recovery before we tranquilizábamos global.Cuando ... Greece? What can influence the fall in default of Greece on the global financial system or have an impact on stock markets in the U.S.? The effects are zero, we said. Now save the eurozone is to save more than Europe.

The Economist Intelligence Unit is the business information unit of The Economist Group, publisher of The Economist and forms a global network of 500 analysts continually analyze the political, economic and business conditions in over 200 countries, predicts that the rate of Eurozone growth will fall from 2% growth this year to 1.4% in 2012, then maintained between 1.7% and 1.8% and 1.8% in the next 3 years. Extrapolate too much long-term issue is too sensitive and surprising is the European financial crisis scenario today. However, referring to the Italian situation is overwhelming, "fears about the sustainability of Italian debt is focused on its low growth rate. The high require structural changes and the current political system seems unable to do so" . Goldman Sachs feared consequences if global financial meltdown in Spain or Italy: "The interconnection between the Italian and Spanish sovereign debt, its banks and the European financial system is such that the perception of long-term instability can reach more extreme consequences beyond national borders ". This means that the 17 euro countries share the same boat, which will throw overboard Italian and Spanish if the countries can not take money to sustainable rates.

According to the Wall Street Journal, these countries are "too big to save."

Increasingly rise more voices calling for radical reform in the governance of the eurozone and its financial structure. "In one way or another, preserving the euro will require massive transfers of money from the north to the south-read first Germany-a process already set." There are some signs that politicians and the electorate are prepared to support reforms necessary to consolidate the euro structurally and through the introduction of fiscal transfers between states stronger and weaker. "This leads to three choices: staggering from crisis to crisis, allow defaults, or to say goodbye to Club Med in the euro area, "says the Wall Street Journal.

The European project does not work because it seems that from the beginning has not understood its essence, which is the homogeneity within the heterogeneity of its members. A common project can not work if the differences are not addressed. And if it sought to unify European realities, expectations, behaviors very different. The euro project was a failure before, in 1999. It took a domestic crisis for 11 years after many of its members understand it. It is expected that the euro project does not end with serious social unrest in many European countries who refuse to set aside the welfare state, such as Italy or France and they fire from spreading over the continent. To the extent that they have to put debt markets, the wheel keep on turning, but what happens when these markets increasingly disbelieve? Will trigger further returns to investors will be willing to take sovereign debt with social unrest can be transformed into an explosive cocktail, remember Argentina in 2001. But Greece is in a position of weakness than of Argentina at that time. Greece can not devalue its currency and Greece has no exports as it does Argentina.

America is in a more comfortable position: it is a more flexible and has more space and tools to support their imbalances, for now.

Yesterday, while Europe finished digesting the results of stress tests of European banks and doubts among investors have made these results (released after the close of European markets on Friday that 5 Spanish banks, two Greeks and an Austrian failed the test when it was expected that more banks failing and which ultimately got more capital), and indecisiveness of the European leaders on the second Greek bailout, the Wall Street stock indexes failed to overcome the red of the session. Of course, the most mortified was the banks, with investors demanding higher yields on government bonds of countries in the eurozone. And so, the euro hit a record low against the Swiss franc (book value) at 1.1405, while the Gold hit new highs ($ 1,608 per ounce). In Europe, the Stoxx Europe 600 bank index fell 2%. The French and German banks, which have a heavy exposure to Greek debt, were among the biggest decliners in the sector: Deutsche Bank (-3.45%), Commerzbank (-4.64%), BNP Paribas (-3 , 64%), Société Générale (-5.48%). The Milan Stock Exchange lost 3.06% on fears about the solvency shot in Italy last week.

The yields of Spanish and Italian bonds reached new highs in the spread against German bonds in the euro era. Fears had more to do with the systemic risk that country-specific fundamentals.

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