First it was Greece. Now Ireland is being bailed out, to the tune of €85 billion. Other European countries are in financial trouble.
How much longer can the European Financial Stability Facility (Europe's bailout fund) keep coming to the rescue?
And will there soon come a time when a European nation will actually be allowed to default? The June 2010 European Financial Forecast spoke to this question:
"Today, the crisis...has seeped into the most marginal sovereign nations. It won’t stop there... The ugly truth is that the only thing separating [other European] countries from Greece is the fragile confidence that they are, indeed, distinct. That confidence will erode as markets descend. Before the storm is over, at least one, but more likely several, G8 nations will capsize."
A major sign of eroding confidence is the recent cost of sovereign credit default swaps. Think of this as the cost of "insurance against" a European nation defaulting. The cost of this insurance has been rising, which indicates further deterioration in the already "fragile confidence."
"The most important thing to observe is that even core European countries like France and Germany exhibit spiking default insurance premiums, too. These countries are the largest contributors to the €440 billion Facility, the same one that backstops the rest of Europe."
European Financial Forecast, December 2010
And several European financial markets have already started to descend, including Italy and Spain. The Euro Stoxx 50 has also been trending lower. Great Britain and Germany are two prominent holdouts.
And speaking of Germany, the nation has already forked over huge sums for bailouts. According to the UK Telegraph (11/26), a German academic explains the psychological effect the bailouts are having on Germans themselves:
"'Germany cannot keep paying for bail-outs without going bankrupt itself,' said Professor Wilhelm Hankel, of Frankfurt University. 'This is frightening people. You cannot find a bank safe deposit box in Germany because every single one has already been taken and stuffed with gold and silver. It is like an underground Switzerland within our borders. People have terrible memories of 1948 and 1923 when they lost their savings.'
"Adjusted for demographics, Germany is already one of the most indebted nations in the world."
The New York Times recently reported (12/5) that European finance ministers are talking about increasing the size of the European bailout fund -- perhaps doubling it if more European countries require a bailout:
"So far Germany has resisted any such measures. As the E.U.’s biggest economy, Germany would provide the biggest contribution to any bailout, and the country’s voters are increasingly restive about suggestions they will pick up the tab for other euro-zone nations."
And Reuters reports (12/6): "Credit rating agency Moody's cut Hungary's sovereign rating by two notches, to just above "junk" grade...and said it may cut further if the government fails to put public finances on a sustainable footing."
As you read it, you'll discover:
- Which country EFF editor Brian Whitmer believes is the next in line for a bailout
- Whitmer's forecast for the ultimate fate of the European Financial Stability Facility itself
- Elliott wave analysis of key European financial markets
- Major signs of deflation in Great Britain
- The latest on Europe's "open door policy"