http://www.foreignpolicy.com/articles/2 ... _thing_off
As an economist, I have always argued that the common currency was a mistake. I am a "euro" skeptic, but not a "Euroskeptic," and I think it important that people outside Europe understand that this distinction exists. There is no doubt that the euro, like Dr. Stangelove's doomsday machine, is an infernal device destined to blow up one day, but also so designed that any attempt to dismantle it simply detonates the bomb. This is why, tired as they may be, those who live on Europe's southern fringe have little appetite for leaving or taking part in yet another experimental new currency order. Better put, they have little appetite for leaving in a disorderly fashion. And disorderly the leaving would have to be, since if core Europe has little appetite for assuming the cost of keeping the eurozone together, it will surely have even less for paying the much larger bill associated with exit and default.
The real question is what happens next. Spain, like the euro itself, is both too big to rescue and too big to fail. Spain's banks need capital from the government, but the government itself can't finance them. Foreign investors are leaving in droves, but no matter how many liquidity offers they get from the ECB, the country's banks simply can't buy all the debt. So the country needs European (read: German) money. The problem is that if this takes the form of an injection of bank equity, then Germany could end up all but owning Spain's banks, which would expose German taxpayers to considerable potential losses should the situation deteriorate further. At this point Berlin could firmly put its foot down, and we will have another impasse.
At the end of June, Europe will face what many consider to be a perfect storm: results of the Greek elections and details of the new, independent, Spanish bank valuations, which are sure to find that significantly more money will be needed for recapitalization. This will undoubtedly be a make-or-break moment in the ongoing debt crisis, and, if things were to spiral hopelessly out of control, a Spexit could become a real possibility. My advice to all those external well-wishers would be: Be careful what you ask for, since you might not like what you finally get.
My bold - this wouldn't be an "impasse". It would be the point a disorderly default begins, because the moment it becomes clear that the Germans are not going to bail out the Spanish banks, the bank run becomes a tsunami. Which is why it still isn't clear what they are going to do. They are being forced to choose between two paths, both of which lead to some sort of catastrophe. If they bail out the Spanish banks and everybody will know we are heading towards euro hyperinflation, rather than mass default. But if they refuse to hand over any more money (or issue eurobonds, which amounts to the same thing), and it will trigger the biggest wave of credit defaults in human history.
http://www.guardian.co.uk/business/nils ... sfeed=true
Spain banking crisis – German U-turn on eurozone bailout pot seems a fair bet
Bankia et al can't wait. With a backdoor bailout closed, it is time for Germany to show what it is prepared to do to save the euro
Is Germany prepared to take the historic step of throwing its financial muscle decisively behind the eurozone? As ever, the answer hinges on several impossible-to-measure factors. For example: would German voters' instinctive resistance to bailouts and eurobonds crumble in the face of a full-on market panic that might develop if the Spanish crisis remains unresolved much longer?