STOCK MARKET WATCH -- Friday, 13 January 2012

[Demeter]

72. For Europe, Few Options in a Vicious Cycle of Debt

http://dealbook.nytimes.com/2012/01/11/for-europe-few-options-in-a-vicious-cycle-of-debt/?hp

Europe has a $1 trillion problem.

As difficult as the last two years have been for Europe, 2012 could be even tougher. Each week, countries will need to sell billions of dollars’ worth of bonds — a staggering $1 trillion in total — to replace existing debt and cover their current budget deficits. At any point, should banks, pensions and other big investors balk, anxiety could course through the markets, making government officials feel like they are stuck in a scary financial remake of “Groundhog Day.” Even if governments attract investors at reasonable interest rates one month, they will have to repeat the process again the next month — and signs of skittish buyers could make each sale harder to manage than the previous one.

...Given this vicious cycle, policy makers and investors are closely watching the debt auctions for potential weakness. On Thursday, Spain is set to sell as much as 5 billion euros ($6.3 billion) of government bonds. Italy follows on Friday with an auction of more than $9 billion.

The current challenge for Europe is to keep Italy and Spain from ending up like Greece and Portugal, whose borrowing costs rose so high last year that it signaled real likelihood of default, making it impossible for the governments to find buyers for their debt. Since then, Greece and Portugal have been reliant on the financial backing of the European Union and the International Monetary Fund.

The intense focus on the sovereign debt auctions — and their importance to the broader economy — starkly underscores the difference between European and American responses to their crises....MORE