Euro crisis deepens amidst concerns over Germany and the Netherlands.

Summer is Europe’s vacation period, with August traditionally being a month when it is almost impossible to get anything done. This year may be different for Europe’s politicians, however, as the euro crisis appears to have lurched downward in the past few days causing near panic amongst bankers and government officials alike. It appears inevitable that at least some politicians will be cancelling vacations in the next few weeks in order to deal with the widening crisis.

The basic problem is this: Spain, like Italy, Greece, Ireland and Portugal, is a mess. The next page in this saga was turned when it recently came to light that the Spanish and Italian sub-regions or provinces are in bad….very bad shape. Sicily’s government, for example, has had to admit that it is on the verge of insolvency. This means that in addition to the national debt, which is already crippling these countries, their governments will have to find further money to rescue the provinces. This news has led to a general market realization that Spain will likely require a direct bail out for its governmental finances from its EU partners, and possibly Italy as well, because they are unable to shoulder this burden on their own. While it has been speculated for some time that this might happen, the recent spat of bad news highlighting the depth of the crisis has caused the financial markets to raise the level of borrowing cost for Rome and Madrid, further compounding the problem.

That southern Europe is an economic disaster is nothing new since it has been covered in the news for over three years. But this week’s bad news included an announcement by Moody’s, the international credit rating agency, that Germany and the Netherlands may have their credit worthiness downgraded in the near future. The main reason for Moody’s warning is its view that the crisis in Spain and the rest of southern Europe may well cause the Germans and Dutch to absorb some of their EU partners’ debt in order to save the euro. But there is a real question as to whether these countries have the financial wherewithal to do that without pushing their own finances off a cliff. Here is a short clip from BBC News explaining the importance of the recent warning from Moody’s:

The key issue now is whether Germany will act to save Spain and Italy from the crisis, and if so, where will it find the money to do it. One thing seems for certain though, if Germany is expected to risk its own credit worthiness and economy to save its EU partners, it will certainly require deep political concessions. Continue to visit as we follow the political and prophetic ramifications of the euro crisis.

WWT Radio: Germany and Europe in prophecy.

Eye on Europe

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