With almost no media coverage, one might think the euro crisis has died down. Unfortunately, this is just the calm before the storm.
Ireland, Spain, Italy, Greece and Hungary all have the capacity to light the fuse that would detonate the eurobomb at any time.
Today “officials” from the “Troika” (IMF, European Central Bank, EU) are visiting Dublin to discuss a lending program for Ireland.
As part of the visit, the delegation will review Ireland's fiscal position and see how the country has responded to the Troika's austerity demands. They will also outline the hurdles Ireland must overcome over the next three months.
Ireland is struggling to get by because, while it can borrow from the Troika at 3% interest, the bond market will not lend at rates below 8%, well above the nominal “unsustainable” 7% threshold.
Meanwhile, in Italy, unelected dictator Mario Monti is also faced with the reality of having to borrow from the market at interest rates above the 7% threshold. Unfortunately for him, the Troika does not have the financial muscle to offer him similar terms to Ireland. Or, as Ireland is finding out, it may not be, as borrowing money from the Troika tends to be more painful.
Spain, along with Italy, is due to hold a bond auction this week and while they could extract a relatively cheap 5.6% yield, new Prime Minister Mariano Rayoi has just announced an austerity package that is set to see Spain's unemployment rate rise to nearly 24% this year – and that's just the official adjusted figure.
Meanwhile, Hungary is being punished for daring to pass a bill that would give the state a degree of control over its central bank. The IMF is now refusing to even discuss further loans until the bill is withdrawn. IMF's Christine Lagarde said over the weekend:
We are looking into this, I know the European Commission is looking into this, and I certainly hope that the Hungarian authorities will work very hard to ensure that their laws comply with European regulations, particularly with regard to central bank independence.
Hungary has indicated it is willing to “amend” the new law and will meet with IMF representatives today to further discuss the situation, where it will no doubt be clear what Hungary has to do.
What a mess.
