HOW LONG CAN THIS GO ON? – AT 9:58 A.M. ET: The European financial crisis is deepening. It is happening very rapidly. Inevitably, this will affect us here, if only psychologically at first. It is not good news for President Obama. From WaPo:
LONDON — Two and half years after the start of Europe’s debt crisis, Spain on Saturday became the fourth and by far the largest euro-zone nation to seek an international bailout, with financial leaders from the currency bloc declaring a deal that could inject as much $125 billion into the country’s ailing banks.
The humbling request — by a nation of 47 million that sought to fend off the embarrassment of a bailout for months — came as Madrid faced mounting international pressure to cave in and ask for cash. Global leaders, including President Obama and German Chancellor Angela Merkel, had strongly hinted in recent days that the risks of Spanish inaction were mounting, leading to fears that it could result in a full-blown financial crisis, endanger the euro currency union and spark a fresh bout of turmoil on global markets.
The lifeline for Spain also was seen as an essential buffer to calm investors ahead of a key vote in Greece on June 17. The elections there could bring to power a new government opposed to the terms of Greece’s bailout, potentially putting that nation’s future in the euro zone in question and becoming a trigger for an escalation of the region’s woes. By inoculating Spain with a bailout, European financial leaders were trying to limit the possible fallout.
COMMENT: The problem is that these bailouts never solve the fundamental financial crisis of Europe: You can't run welfare states on hopes, dreams, and fumes. And with all this financial pressure, the temptation in Europe will be to reduce defense budgets even further below their current, embarrassing levels – just at the time when Russia is rebuilding its military, dangerous regimes are emerging in the Mideast, and the U.S. is under an ineffective, drifting leadership.
Welcome to the era of hope and change.
June 10, 2012