The eurozone debt crisis is spreading across Europe. The latest Irish bailout is not quelling the fear factor. Now, all eyes are turned to Spain, Portugal and Italy.
What has happened is that banking systems are freezing up, the Financial Times explains. One Spanish banker told the paper, "The bond and credit markets are completely closed."
In Portugal, the central bank said no bank had succeeded in making an international debt issue since April. Meanwhile, net bond issues by banks in the first nine months of 2010 were negative, which is insufficient to offset bonds maturing in the same period. Across Europe, there has been just one issue by a bank or company this week, according to Dealogic, the FT adds.
Hedge funds are jumping in selling the euro instead of selling sovereign bonds because the euro is more liquid. In today's trading the euro fell to $1.30.
The situation is not likely to improve. Eurozone countries must refinance their debt this year and next. If the markets are freezing up, refinancing becomes more difficult. If peripheral countries cannot refinance, the crisis gets worse as each day passes. The only solution is for the ECB to flood the markets with liquidity. This, however, flies in the face of Europe's current austerity policies.