Is the Euro well and truly buggered?

ROME/MADRID (Reuters) - Italy's borrowing costs soared to their highest levels since Rome joined the euro on Friday, piling pressure on the newly installed government of Mario Monti at the end of a week in which the euro zone crisis tainted even safe haven Germany.
A punishing bond sale, in which Italy was forced to pay a record 6.5 percent for six months paper, came after a disastrous German bond auction earlier in the week and the leaders of France, Germany and Italy failed to make headway in tackling the growing debt crisis.

Belgium’s credit rating was cut one step by Standard & Poor’s, which said bank guarantees, political instability and slowing economic growth will make it difficult to reduce the nation’s debt load.

The rating was lowered one step to AA, the third-highest investment grade, with a negative outlook, S&P said today in a statement. The action by S&P is the first downgrade for Belgium in almost 13 years and puts its credit ranking on a par with Abu Dhabi, Kuwait and Qatar.

“Renewed funding and market risk pressures are increasing the likelihood that the Belgian financial sector will require more sovereign support,” S&P said in the statement. “The crystallization of these financial sector contingent liabilities would lead to further increase in government debt.”


Belgium’s borrowing costs have surged to the highest level in 11 years in the past two months after the nation’s government agreed to buy Dexia SA’s Belgian bank unit and guarantee part of the crisis-hit lender’s liabilities for 10 years. Investors continued a selloff in Belgian bonds after six-party coalition talks ran aground this week as Liberals and Socialists clashed over how to cut the budget deficit.

Belgium follows Slovenia, Spain, Italy, Ireland, Portugal, Cyprus and Greece as euro-area countries having their credit rating cut this year.

Very far from going kaputt the long bond auction was a masterstroke by the German Fincnce Agency - their short-term bonds yield close to zero, so it's hardly a funding shortfall - taking pressure off their chancellor and off the ECB simultaneously, while not overburdening the Finanzagentur with inventory.

Quote:

....The Finanzagentur issued only 3.9bln cash. They gave 3.9bln bunds to the market and kept 2.1bln bonds on their books. In the future they can sell this retention amount into the secondary market, raising cash....

http://www.economist.com/blogs/freeexchange/2011/11/german-bunds
Brilliant logistical execution by Wolfgang S.

The problem with your argument is that there is no possibility of reducing long term deficits without significasnt entitlement reform

I will repeat; adjustments to social benefit programs must be adjusted in addition to increase in taxes; both are necessary

Contrary to the "end the world" scenario, I still have faith in the US economy;

. . . the dead hand of growing regulation.

According to the latest media reports, this year's Black Friday exceeded last year's sales by the first four hours.

During the Great Recession, median household income dropped by 3.2 percent, but during the “recovery” it has decreased by 6.7 percent. The recession may technically be over, but Americans’ personal financial crises remain all too real. While there have been some small positive month-to-month improvements in disposable income through 2011, overall levels have declined to those of early 2010.
Federal data reveal that between October of 2010 and October of 2011, real average weekly earnings fell by almost 2 percent, even as workers collectively put in more hours. The problem is that 70 percent of the economy depends on consumer spending, but 80 percent of families are experiencing declining wages. We aren’t suffering from some mass hysteria or lack of confidence; we’re broke.

There are pockets in our country where many are still living pretty well; they're still driving luxury cars, and eating at expensive restaurants. Santa Row is San Jose is a good example of this "living well" economy..
Our ZIP Code is still selling homes for over $1 million

What's wrong with debt? Most people have debt, and almost all governments have debt. If they are willing to pay the interest on their debt, who are you to determine their spending habits?

Many observers seem to think such market pressure means Angela Merkel will “relent”. With Berlin’s own credit-worthiness being openly questioned, the German chancellor is now apparently more likely to launch a massive “bail-out” fund for the eurozone laggards, while sanctioning overt QE “money-printing” by the European Central Bank.
I’d venture a different view. However much one particular branch of the German elite wants “the European project” to succeed, the vast majority of the German public are appalled at the idea of financing the rest of Europe. They resent not only the cost, but also (rightly) worry that one eurozone bail-out inevitably leads to another.
I reckon that surging bund yields make it less likely that Germany will agree to fund a bail-out, while letting the ECB let rip. German voters, and the country’s powerful parliament, will see rising borrowing costs as further proof of the harm the euro, in its current form, is doing. Merkel must answer to both.
Germany stood by and watched back in the 1990s, as the Exchange Rate Mechanism collapsed under the weight of its own incoherence. Since then, life has become much tougher for the big industrialised Western economies. While still head and shoulders above the rest of Europe, even Germany is now on the back foot. The country’s bellwether manufacturing PMI Index fell from 49.1 to 47.9 this month, indicating a sharp economic contraction. Germany would be unlikely to entertain money-printing and paying for a eurozone bail-out at the best of times. Under current circumstances, the chances are even slimmer.
I also think that those foreseeing “fiscal union” are also deeply misguided. We’re told that this is what Germany will insist upon as a quid pro quo for financially backstopping Europe’s southern states. Really? Merkel last week blasted the European Commission’s proposed eurobond, the issuing of sovereign debt in the name of all eurozone members but ultimately backed by Germany, labelling the idea “extremely worrying and inappropriate”.
There is clearly no hope of Germany stumping up any more bail-out cash without tighter controls on the “Club Med” countries’ purse strings. Such controls may be put in place. But that’s not “fiscal union”. The only way a single currency can work in the long term is by pooling a large share of total tax revenues and having intra-regional fiscal transfers, as in the US. Yet that will never happen in Western Europe.