Money or Sovereignty?

• Posted by Robert Sinn
• on June 26th, 2012

The question that the euro crisis continues to revolve around is one of money or sovereignty, particularly for the troubled behemoth core eurozone members Italy and Spain. Countries with hundreds of billions of debt needing to be refinanced over the coming months certainly cannot afford to refinance at 7%+ interest rates; therefore, something certainly needs to be done in order to compress spreads throughout the eurozone and generally to reduce funding costs for financially troubled member states. The two charts below help to vividly illustrate some of the problems facing Spain:

 

Italian President Monti says he is willing to work into Sunday evening at this week’s EU Summit in order to “improve mechanisms to control market tensions”. However, as German Finance Minister Schäuble pointed out yesterday:

“So far, member states have almost always had the final say in Europe. This cannot continue. In key political areas, we have to transfer more powers to Brussels, so that each nation state cannot block decisions.“

With Italy 10-year yields spiking well north of 6% and Spanish yields threatening the ultra dangerous 7% territory this morning – we’ve already learned that troubled eurozone members can’t have their cake and eat it too. So what will it be at this week’s EU Summit, money or sovereignty?

Business Insider: Citi’s Buiter says Spain and Italy will need sovereign bailouts

 

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