The market sees may more Spanish worms crawling out of the financial woodwork. The increasing Spanish - German 10 year bond spread, now 2.28%, is telling us . The Greek spread is nearing 8% which means its not if they default but when. Spain can bring the whole EU edifice tumbling down, Greece cannot, it is too small.
The market talk is of well advanced plans for a €250 bn. support package for Spain. The EU has been trying to kill this story but the German papers are running with citing German sources. There is clear agreement in the market that such a package will be needed if stresses in the Eurozone continue as they certainly will. The problem is the number of Eurozone countries that can fund such a package is now shrinking and what worries the Germans is the political risk to the currency. As Biggles might have said what do you expect with a Portugoose in charge.
The EU initially saw this as a beneficial crisis that would enable them to call for more integration. Barroso is still leading this call for more power presumably so he and his cronies can make a bigger mess. The boy David is in Brussels today and will no doubt roll over for Barroso as he did for Obama over BP. The problem is a cultural one between Club Med and the Protestant work ethos of North West Europe. A group of Italian economists have written an open letter pointing out that given the Dr Frau's guns or butter choice they would like the spread. Their thesis is that faced with the huge destruction of jobs in club Med Merkel's policy entails some countries may opt to leave the EMU.
Mr Hayward, BP's CEO, is due to be ritually humiliated today by a US Congress committee. Shades of Joe McCarthy and his un-American activities committee. My father always used to say that when a smart businessman meets shyster politicians the businessmen always get shafted. Yesterday with Obama, BP's Swedish chairman seemed as much use as a chocolate teapot. Hayward needs political advice quick. The one guy who put the boot on the other foot in a Congressional hearing was Glaswegian hard man George Galloway. He really knows how to kick American ass big time. Get him on board asap Tony!