Spain’s 10-year bond yields are up this morning, triggering a new wave of EURO-CRISIS headlines. Yields have now surged through 6% (chart from ForexPros).
Photo: Forex Pros
The immediate problem, as Joe Weisenthal explains here, is a funding stalemate in which Europe is waiting for Spain to ask for a bailout, but Spain doesn’t want to ask for a bailout because that would mean a loss of some autonomy. Meanwhile, new protests are breaking out in Spain as the government prepares to enact harsh new spending cuts.
In the broader context, though, yields are still down sharply from last summer, when European Central Bank president Mario Draghi ended what was at that moment truly an immediate crisis by saying he would do anything to keep the Euro together.
Subsequently, Draghi announced a bond-buying plan designed to ensure that troubled countries like Spain and Italy would not be shut out of the debt markets. The markets cheered that plan, and yields have come down.
On an even broader level, though, no bond-buying plan will fix the structural problems that doom the Eurozone to continued stress–namely, weaker periphery countries (Italy, Spain, et al) having to compete with more efficient “core” countries (Germany, France) under the same currency.
The only two options for fixing that problem are 1) breaking up the Eurozone, or 2) fully integrating the Eurozone, so taxpayers in the rich countries fund deficits in the poorer ones. And it is the failure to make much headway on the latter solution that explains why, over the longer time frame, bond yields continue to rise.
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