The Euro Endgame
Euro of around 2%. Since joining the single currency its deficit has grown from 2% to 9%. So growth must come from household consumption, precisely the sector with an elevated debt burden. This is not going to happen with 77% of Spanish savings invested in property and 85% of the population owning at least one home. Home prices will continue falling (already down over 20%) and with that kind of ownership rate it's no surprise the banks are not taking the losses through fire sales which would only accelerate the fall in home prices. No surprise either that you can’t get a loan for a new home in Spain, even with a 60% down payment as the banking sector is insolvent and has now lost access to the Interbank market. No growth coming from consumption, none from exports (which by the way are already running at full capacity so it's not that they are uncompetitive, it's simply that the sector is too small) and a government pressed to accelerate austerity measures. This spells deflation and contraction and no return to the markets for financing either.As for Belgium, it's simply a basket case of what is going on in the larger Bernstein has run the numbers , which have been picked up by Tyler Durden at Zerohedge. Assuming the Greek Loan facility and EFSM remain in place, the new size of the EFSF to cover GIBIPS government debt rollover until 2013 (an optimistic assumption to say the least) as well as an allowance for bank support at 7% of the banks’ balance sheets would require an additional 1.7 trillion in available funds (including the 20% overcollateralization rule). Given that countries that receive support cannot provide guarantees to themselves, 791bn would fall on the shoulders of Germany or 32% of its GDP (and a near 60% increase in the debt of Finland). Interestingly, that would increase the burden on France by about 31% of its GDP leading to a likely significant rise in its spread over Germany and likely consequent downgrade. If you exclude France from the funding, Germany is left holding the bag for a burden equal to 56% of its entire GDP. In addition, a downgrade of France would lead to a wave of downgrades of most European banks.
