The European Union has made a long way during the 2 years of debt crisis. Learn what's behind and what's ahead on the road by reading the articles and interviews that the FXstreet.com team wrote as part of the special content The European Debt Crisis Chronicles.
The breakthrough follows news that Valencia is to tap the the recently created emergency-loan fund seeking for as mush as €2 billion, event resulting in panic selling thru Spanish assets last Friday, with many reports dubbing the day as "Black Friday.
As a reminder, Spain has setup a national rescue mechanism worth 18 billion-euro ($23 billion) to help cash-strapped regions. Funny enough, growing evidence suggests that Spain will be running out of money as soon as next September as access to financial markets narrow.
As revealed by El Pais, the Minister of Economy from Murcia, Juan Bernal, asked the media for "calm" to avoid "hysteria." But what Bernal defined as "hysteria" had its origin in a statement of the president of the community, Ramón Luis Valcárcel, which recognises that Murcia will also need financial assistance from the Government.
The Balearic Islands, Catalonia, Castilla-La-Mancha, the Canary Islands and possibly Andalusia are also among the most vulnerable regions that may be needing immediate financial assistance from the central government.
The magnitude of the problem is starting to get so disproportional that the Spanish Foreign Minister Jose Manuel Garcia, indirectly quoted the ECB as an "underground bank" that does nothing to extinguish the debt firestorm. He demanded that Europe should replace the ECB by a much stronger bank, sounding rather desperate. Mr. Garcia added that the Euro area will break apart before long if the gap between German and Spanish risk premium kept the same dynamics.
As Ambrose Evans-Pritchard from the Telegraph reports: "The financial credibility of Spain is close to zero. Fiscal credibility is zero. Political credibility is zero. The new government of Mariano Rajoy has squandered the advantages of its absolute majority in a matter of months, and completely lost the confidence of Europe's institutions. That is the verdict of unnamed EU officials and sources in Brussels cited by El Pais, following the twin crash of the Madrid bourse and the Spanish bond market on `Black Friday'."
Greece is in a 'Great Depression' - Greek PM
Greece Prime Minister Antonis Samaras told former U.S. President Bill Clinton on Sunday the country has sunk in what he calls a "Great Depression" similar to the American one in the 1930s. "You had the Great Depression in the United States. This is exactly what we're going through in Greece - it's our version of the Great Depression" Samaras told Clinton.
Meanwhile, adding fuel to the fire, the German news magazine Spiegel has spooked the market again by reporting the IMF will provide no additional funds for Greece, leading to fears that Greece could file for bankruptcy later this year. Spiegel cited unnamed senior European Union sources in Brussels.
Spanish borrowing costs at record high
The Spanish risk premium surged to a record high of 600 basis points on Friday, upon the news that the region of Valencia applied for government aid. The Finnish and German parliaments' support for the Spanish bank bailout as well as the Eurogroup's final approval of the rescue for Spain failed to calm the markets.
Valencia asked for rescue funds as it is unable to pay off the 1.5 billion euro debt which comes due in the upcoming months. The funds would be allotted from a 18 billion euro liquidity fund, set up by the Spanish government last week.
After the news was released, the country's risk premium hit an all time high of 600 basis points and the yield on 10-year bonds reached 7.2%.
