A new EU report warns that economic conditions in Portugal and Spain could "result in a high `snowball' effect on the government debt."
  French financial group AXA says "there is a fatal flaw in the system and no clear way out." They are predicting the Eurozone to break in half or completely disintegrate in the next 18 months.
  Over 13% of Europe's investors are betting on a Black Monday-style collapse in stock prices (think 1987).

• gjohnsit's diary :: ::

 The latest source of these fears is a renewed liquidity crunch among Europe's banking sector, which is expected to write off another 195 billion euros in losses in the near future.

  The central bank is preventing a crisis by providing banks with unprecedented funding. In substituting long-term money with shorter-maturity ECB cash, policymakers are making it harder to wean banks off life support as well as the short-term financing that regulators blame for the credit crisis.
  Banks are still struggling to borrow even from one another and loans with a maturity of more than one month are "rare and expensive," making them depend more on ECB funding, Brice Vandamme, a London-based analyst at Deutsche Bank AG, wrote in a note to clients on June 9.

The source of all this distress is the banks of France and Germany, who lent enormous amounts of money to Greece, Portugal, and Spain.

 All told, Spain, Ireland, Portugal and Greece owe nearly $1.6 trillion to banks in the 16-country euro zone, either in the form of government debt or credit to companies and individuals in the four countries, the report said. Credit from French and German banks accounted for 61 percent of that total.

 These huge liabilities on the balance sheets of the strongest banks in Europe are the reason why the EU decided on a trillion dollar bailout of its southern members rather than the more logical restructuring of debt that is badly needed.
  Or to put it another way, the politicians in Brussels decided to kick the problem down the road by a year or two, hoping that the citizens of Greece, Portugal, and Spain would accept abject poverty without complaint, rather than have to face a catastrophic collapse in major European banks who made stupid loans.