AS problems mount in the euro zone, it’s increasingly evident that we’ve been witnessing an institutional failure of monumental proportions.
… The continuing crisis has sapped confidence in banks not only in Greece, but also in Spain, Italy, Portugal and Ireland, though to varying degrees. Unless there are explicit guarantees to these banks soon, the market will likely take a further turn for the worse.
An absence of guarantees could prompt a broader chain reaction of capital flight and bank collapses across several countries.
The basic problem is that many people won’t keep their euros in a Greek bank, and perhaps not in a Spanish bank, either, when those euros can be moved to Germany or some other haven.
Yet German citizens do not appear ready to guarantee Spanish banks or, by extension, the whole credit system of Spain and the other periphery nations…
We thus face the danger that the euro, the world’s No. 2 reserve currency, could implode.