I've been following the increasingly rapid collapse of the eurozone on Twitter. It's remarkable how many active tweeters have both views on the future of the European single currency or want to link to people who do. Anyway, I've found Storify to be a useful tool to capture this chatter. See below:
Frank Rumpenhorst/AFP/Getty Images
The European currency Euro logo stands in front of the European Central Bank (ECB) in Frankfurt/M., western Germany on August 4, 2011.
Greek gets a new government. Italy will soon get a government. And still the markets aren't calmed. The Dow flirted with a 400-point drop all day before closing at minus-389. Meanwhile, German Chancellor Angela Merkel and French President Nicolas Sarkozy have finally just come out and said it: There should be two Europes — one run by...Germany and France, with the Euro as its currency; the other limping along with whatever's left in the Franco-German wake.
For critics of the Euro — and there have been plenty since the single currency was introduced in the 1990s — this is an "it's about time" moment. But even relative supporters are yelling surrender. At the Financial Times, Martin Wolf throws up his hands:
Will the eurozone survive? The leaders of France and Germany have now raised this question... If policymakers had understood two decades ago what they know now, they would never have launched the single currency. Only fear of the consequences of a break-up is now keeping it together. The question is whether that will be enough. I suspect the answer is, no.
It's looking more and more like the Euro is toast. It's game over for Greece, and now Italy's bond yields have moved above 7 percent. Why is that such a big deal? Allow CNN to explain:
The 7% level is significant because that was the mark Ireland and Portugal crossed shortly before receiving bailouts from the European Union and International Monetary Fund. Ireland's actually rose above 8%, while Portugal's breached 9%. And yields for Greek bonds touched the 10% mark.
Italy's overall financial picture isn't especially terrible — people there have not borrowed themselves into a personal hole. It's just that the country's public finances are in tatters. And the third largest economy in Europe can't be in tatters. My Twitter feed isn't optimistic, as the Storify grab below demonstrates.
Dan Kitwood/Getty Images
CANNES, FRANCE - NOVEMBER 03: US President Barack Obama is welcomed by the French President Nicolas Sarkozy to the G20 Summit on November 3, 2011 in Cannes, France. World's top economic leaders are attending the G20 summit in Cannes on November 3rd and 4th, and are expected to debate current issues surrounding the global financial system in the hope of fending off a global recession and finding an answer to the Eurozone crisis. (Photo by Dan Kitwood/Getty Images)
Aren't you glad we don't have Greece to worry about anymore? After two years of crisis, the Greek economy is in full meltdown mode and the country's political system is falling apart. It has no hope of paying back its debt. The only question now is whether it will remain the Euro currency union, or whether default and bankruptcy will mean a return to drachma.
We now turn our attention to Italy, number three in economic size, behind German and France. There's enough money sloshing around the euro currency union to deal with Greece and similar small economies, but if Italy can't refinance its 1.9 trillion euros of debt, a bailout isn't currently a realistic option.
Unless maybe the Chinese pitch in. China has more than $3 trillion in foreign currency reserves, which it could pump into Europe. The question is what this would ultimately cost Europe, in terms of various trade-offs (pun intended), not to mention what it would cost China itself. This is Yu Yongding, former member of China’s central bank monetary policy committee, writing recently in the Financial Times:
This is a most vivid evidence I've seen of why everyone is so freaked out about Europe and its debt crisis. As you can see from the chart, 10-year bond yields for European countries marched along in neat lockstep for a decade after the introduction of the Euro. Exactly what you would want from a currency union, if your goal was to present the impression of uniform debt costs acorss member nations. But then, in 2008-2009, it all goes kerflooey. It looks like somebody spilled the colorful spaghetti. Greece isn't even on the chart, probably because you would need another whole chart on top of this one to display a yield in excess of 20 percent for September.