With each passing day, the banking crisis in Europe escalates. European banks are having their credit ratings downgraded in waves, bond yields are soaring and billions of euros are being pulled out of banks all across the eurozone. The situation in Europe is rapidly going from bad to worse. It is almost like watching air being let out of a balloon. The key to any financial system is confidence, and right now confidence in banks in Greece, Italy, Spain and Portugal is declining at an alarming rate. When things hit the fan in Europe, it is going to be much safer to have your money in Swiss banks or German banks than in Greek banks, Spanish banks or Italian banks. Millions of people in Europe are starting to realize that a “euro” is not necessarily always going to be a “euro” and they are starting to panic. The Greek banking system is already on the verge of total collapse, and at this rate it is only a matter of time before we see some major Spanish and Italian banks start to fail. In fact it has already been announced that the fourth largest bank in Spain, Bankia, will be getting bailed out by the Spanish government. It is only a matter of time before we hear more announcements like this. Right now, events are moving so quickly in Europe that it is hard to keep up with them all. But this is what usually happens in the financial world. When things go well, it tends to happen over an extended period of time. When things fall apart, it tends to happen very rapidly.
And at the moment, things across the pond are moving at a pace that is absolutely breathtaking.
The following are 18 signs that the banking crisis in Europe has just gone from bad to worse….
#1 Moody’s has announced that it has downgraded the credit ratings of 16 Spanish banks. Included was Banco Santander, the largest bank in the eurozone.
#2 Shares of the fourth largest bank in Spain, Bankia, dropped 14 percent on Thursday.
#3 Overall, shares of Bankia have declined by 61 percent since last July.
#4 Shares of the largest bank in Italy, Unicredit, dropped by about 6 percent on Thursday.
#5 According to CNBC, a Spanish bond auction on Thursday went very poorly….
The Spanish Treasury had to pay around 5 percent to attract buyers of three- and four-year bonds. The longer-dated paper sold with a yield of 5.106 percent, way above the 3.374 percent the last time it was auctioned.
#6 The yield on 10 year Spanish bonds is back above 6 percent.
#7 In recent days, about eight times more money than usual has been pulled out of Greek banks.
#8 Fitch has slashed the long-term credit rating for Greece from B- to CCC.
#9 The European Central Bank has cut off direct lending to at least 4 Greek banks.
#10 According to a recent German documentary, financial records at the Ministry of Finance in Athens are being stored in garbage bags and shopping carts.
#11 The euro hit a 4 month low against the U.S. dollar on Thursday.
#12 It has been announced that the Spanish economy and the Italian economy are officially in recession.
#13 The Spanish government is becoming increasingly concerned about the bad loans that are mounting at major Spanish banks. The following is from a recent Bloomberg article….
The government has asked lenders to increase provisions for bad debt by 54 billion euros ($70 billion) to 166 billion euros. That’s enough to cover losses of about 50 percent on loans to property developers and construction firms, according to the Bank of Spain. There wouldn’t be anything left for defaults on more than 1.4 trillion euros of home loans and corporate debt.
Taking those into account, banks would need to increase provisions by as much as five times what the government says, or 270 billion euros, according to estimates by the Centre for European Policy Studies, a Brussels-based research group. Plugging that hole would increase Spain’s public debt by almost 50 percent or force it to seek a bailout, following in the footsteps of Ireland, Greece and Portugal.
#14 Civil unrest is rising to dangerous levels in Italy. The Italian government has assigned bodyguards to 550 individuals and has increased security at about 14,000 locations in response to recent violence related to the economic crisis.
#15 Governments all over Europe are rapidly making preparations for a Greek exit from the euro. The following is from a recent article in the Guardian….
The British government is making urgent preparations to cope with the fallout of a possible Greek exit from the single currency, after the governor of the Bank of England, Sir Mervyn King, warned that Europe was “tearing itself apart”.
#16 According to CNBC, the banking crisis in Europe is beginning to affect global trade….
The euro zone debt crisis is affecting trade as companies shy away from dealing with firms and banks in countries deemed at risk of contagion, a senior banker said on Thursday.
#17 Moody’s downgraded the credit ratings of 26 Italian banks on Monday.
#18 Moody’s has announced that it is reviewing the credit ratings of 114 more European financial institutions.
Newspapers all over the globe are speaking breathlessly of a potential Greek exit from the euro, but it is very unlikely to happen before the next Greek election on June 17th.
The rest of Europe is going to continue to financially support Greece until a new government takes power.
If the new government is willing to accept the previous bailout agreements, then financial support for Greece will continue.
If the new government is not willing to accept the previous bailout agreements, then financial support for Greece will stop.
If that happens, the bank runs in Europe will likely become a lot worse.
But for now, Greece almost certainly has at least one more month in the euro.
Beyond that, there is no telling what is going to happen.
Greece is the first domino. If Greece falls, you can count on others to eventually start tumbling as well.
The second half of 2012 is going to be fascinating to watch.
Hopefully things will not be as bad as many of us now fear they may be.
Will Financial Problems In Portugal Cause The European Debt Crisis To Spiral Out Of Control?
The Prime Minister of Portugal, Jose Socrates, resigned on Wednesday after the major opposition parties banded together to vote down the austerity measures that he was requesting. The package of budget cuts and tax increases was intended to get Portugal’s horrible debt crisis under control. Prior to the vote, the prime minister warned that he would no longer be able to run the country if the austerity package was not passed.
Now there are all kinds of questions about what is going to happen to Portugal. At this point most financial authorities in Europe seem to be assuming that Portugal is going to need a bailout.
Today, Standard & Poor’s reduced the credit rating of long-term Portuguese government debt from “A-” to “BBB”. Standard & Poor’s is also warning that the credit rating may be cut further if negotiations for a bailout do not go well.
Without a bailout, it seems almost certain that Portugal will default.
Interest rates on Portuguese government debt have risen to unsustainable levels. The yield on 10-year Portuguese bonds hit 7.78% on Friday. That was the highest it has been since Portugal joined the euro.
Authorities in Portugal are publicly saying that they simply cannot afford to pay that kind of interest. Unfortunately for them, it appears that Portugal is going to be forced to issue more bonds by June at the very latest.
So how much would a bailout of Portugal cost?
Well, according to one estimate, it would probably be in the neighborhood of 70 billion euros.
That isn’t going to sink Europe.
However, the concern is that the crisis in Portugal could have a domino effect.
There is increasing worry in Europe that Portugal’s neighbor, Spain, could also need a bailout. But a bailout of Spain would potentially be so large that it would cause a financial nightmare for Europe.
The following is how a recent article in the Wall Street Journal sized up the problem….
The truth is that the rest of Europe simply does not have the kind of financial muscle necessary to continue putting together huge bailouts indefinitely. If Spain does go down, it is going to put a massive amount of strain on the rest of the continent.
There are other financial problems simmering in Europe right now as well.
According to a recent Business Insider article, the financial problems in Ireland are also creating a lot of concern at the moment….
Ireland is a financial basket case right about now. Confidence in Irish debt is rapidly evaporating. In fact, the yield on 10-year Irish bonds recently hit 10.12%.
Ouch!
But that is nothing compared to what Greece is being forced to pay.
The yield on 10-year Greek bonds recently reached an astounding 12.58%.
There are persistent rumors that Greece is going to need yet another bailout. The truth is that Germany and the other European nations that are coming up with the cash for these bailouts are just pouring their money into financial black holes.
Nations like Greece and Ireland are just money pits at this point.
As I have written about previously, the financial collapse of Europe has basically become inevitable. The EU can keep coming up with bailout plan after bailout plan, but they are only putting off the crash for a while.
Eventually a point will come when all of the balls simply cannot be kept up in the air anymore.
So what is going to happen once that point is reached?
Well, many believe that we could actually see the end of the euro and potentially even the break up of the European Union.
Of course top politicians in Europe will fight tooth and nail to keep that from happening, but the truth is that at some point we are going to see some incredibly challenging financial problems in Europe. How the EU responds to the crisis is going to be extremely interesting to watch.
So many people talk about the death of the U.S. dollar, but the truth is that we could very easily see a financial collapse and a major currency crisis in Europe prior to the collapse of the dollar. Europe is in really, really bad shape right now.
Of course it doesn’t help that the entire world is so incredibly unstable right now. The disaster in Japan, the war in Libya, the revolutions across the Middle East and the surging price of oil all threaten to throw the global economy into turmoil.
As I discussed in a previous article, people need to start preparing for economic disaster. The entire global financial system is coming apart. The U.S. economy is crumbling, Europe is dealing with an unprecedented debt crisis and Japan has just been struck with the worst economic disaster that it has seen since World War 2.
Most Americans don’t pay much attention to what is going on in Portugal (or in the rest of Europe for that matter), but they should. The world is more interconnected than ever, and if Europe experiences a financial meltdown it will have dramatic consequences for the United States as well.
The financial crash of 2008 swept the entire globe and virtually every nation on earth was deeply affected. The next wave of the financial crisis is also going to be felt globally.
We live in one of the most interesting times in the history of the world.
Are you prepared for what is about to happen?