The world market panic that started the week looked all too familiar: an alarming reminder of last summer’s financial storm brought on by the eurozone debt crisis.
And much like last year, European leaders hold few tools to stem the chaos in a swift and convincing fashion. “The problem is about the same as last year, except the situation is much more serious,” a European diplomat told AFP.
Almost exactly a year ago, eurozone leaders called an emergency summit where they hastily cobbled together a second bailout for Greece that included new loans and a massive writedown of Greek debt held by private investors.
But lacking in details, instead of offering a reprieve the measures heightened fears of contagion sending borrowing prices for core eurozone countries such as Italy and Spain soaring.
A year later, Greece’s survival in the eurozone remains very
much in doubt.
And now Spain, the eurozone’s fourth biggest economy, is also in danger: mired in recession, its banks are on the brink of collapse after a decade-long real estate bubble popped.
The European Union and International Monetary Fund have agreed to put as much as 100 billion euros into rescuing Spain’s troubled banks, but most investors now believe that will not be enough. They fear that Spain now needs a full rescue as handed to Greece, Ireland and Portugal is now needed. It is that fear that is driving the stock markets and the euro itself sharply downward.
“Contagion fears have battered European equity markets” as a “perfect storm of fears about an imminent Greek exit, and the solvency of Spanish and Italian regions has seen markets drop sharply,” said Michael Hewson, Senior Market Analyst at CMC Markets UK.
But despite the explosive situation, Italian Prime Minister Mario Monti said Monday there was no need to call eurozone leaders together at the height of summer in a repeat of last year.
