Funding fears, political gridlock and plunging stocks have pulled the eurozone deeper into crisis, CounterPunch.org reported in a commentary. On Friday, the gauges of market stress continued to widen signalling more turbulence in the days ahead. Libor –the rate at which London-based banks borrow from each other–increased for the eleventh straight day, while the Libor-OIS spread, (which indicates the reluctance of banks to lend to each other) soared to levels not seen since Lehman Brothers blew up in 2008. And the VIX–better known as the “fear gauge”–has been surging for more than a week.
What does it all mean?
It means the eurozone is in the throes of a vicious credit crunch, but its leaders are frozen in the headlights. That’s a recipe for disaster.
This is from a report by the ECB: “Greatly increased fiscal imbalances in the euro area as a whole and the dire situation in individual member countries risk undermining stability, growth and employment, as well as the sustainability of EMU (Economic and Monetary Union) itself.” (“Warnings mount on euro crisis, credit crunch”, Reuters)
The risks of a disorderly breakup of the eurozone are now greater than ever. Greece is bankrupt and headed for default, but finance ministers can’t agree on a way to ringfence the teetering country to stop the contagion. Indecision and foot-dragging have roiled global equities and cleared the way for more carnage. Last week’s downgrades of two French banks have increased worries about the solvency of the EU banking system. Read more.
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