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Yes, Spanish Crisis Has Triggered the Euro's Endgame

This article is more than 10 years old.

Euros (Photo credit: Images_of_Money)

Activity across Europe today looks like it is softening up the Euro area for the Euro's official demise. Italy's borrowing costs are being drawn north by Spain's, which today exceeded the psychologically important 7% barrier. But perhaps more importantly Angela Merkel has begun to show signs of wear and tear. Today she warned the political world that Germany probably can't take much more and tried to turn the spotlight on the USA.

"Don't overestimate Germany's ability to save the euro... The debt crisis will be the main issue at the [G20] summit. Our country will be the center of attention - it's a fact, all eyes are on Germany because we are the biggest European economy and a major exporter."

Outside the euro zone, there is an under-appreciation of how much debt Germany will have to bear to support the Euro. Germany stands head and shoulders above every other country in the euro zone, in terms of its responsibilities. Earlier this month, however, KfW reported that German industrial confidence took a serious dive in April, decreasing well beyond what Germany's export record suggests is reasonable. The German industrial engine is now suffering, at least at the level of morale.

Bloomberg adds:

“There is a greater awareness now that the outcome of this crisis could well be quite painful for the German economy,” said Ciaran O’Hagan, a strategist at Societe Generale SA in Paris. “The contingent liability on Germany is rising."

Today Merkel called on the USA to help by reducing its deficit, which is like saying to the markets, look around you. The euro zone is by no means the only offender.

Meanwhile this week IMF leader Christine Lagarde warned that critical action is necessary well within the three months limit that George Soros believes remains to save the Euro.

At the same time Credit Suisse reports that the EU can just about manage a departure from the Euro of Greece but no more than that:

Even if the single currency remains intact some €1.3tn of credit could be sucked out of the system as banks retrench to their home markets, unwinding years of financial integration, the Credit Suisse analysis warns. his represents as much as 10% of the credit in the financial system.

"We find that a Greek exit could be manageable ... but in a peripheral exit, few of the large listed eurozone banks would be left standing," the Credit Suisse report said.

Will that lead to greater collaboration between politicians and the markets? There's been no evidence of that so far.