Has The Run On Europe Begun?

Columnist Henry Blodget of Business Insider seems to think so. He makes the case that lenders across the globe are “pulling their money out of Europe.”

As a result, the borrowing costs of many European countries are rising fast. And so are inter-bank lending rates, because the second huge problem with the Euro-train-wreck is that Europe’s banks have Euro debts coming out of their ears.

Last week, Italian borrowing costs soared over 7%, which has been viewed as a sort of Rubicon level. Spanish yields hit nearly 7%. And French “spreads” over German bonds expanded sharply.

The temporary solution that everyone is focused on is for the European Central Bank to step in and buy hundreds of billions of dollars of European sovereign debt to get rates down and keep them down.

Importantly, this solution it would not be easy or problem-free. It also wouldn’t be permanent.  The Germans, and the ECB, are adamant that this solution is not even a possibility. And even the the ECB could marshal the support to start buying, it would have to keep buying, day after day, month after month, and display total resolve in its public statements. It would have to keep buying until the Euro-zone’s problems are sorted out, which could take years. It would have to figure out how to deal with the “moral hazard” of funding the deficits of most European countries and, therefore, removing any incentive for the countries to get their deficits under control. And, eventually, it would have to deal with the extreme inflation this “money printing” would likely produce.

In other words, if the situation continues to deteriorate–and barring some miracle, it will–the only way to stave off disaster looks less like an inevitable move and more like a Hail Mary pass.

“The next few months, as the Chinese might say, are going to be interesting,” concludes Blodget. What will be even more interesting will be the impact Europe’s budget problems have on America.

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