Europe continues to bleed

After the US did its unfortunate part to slow global economic activity with a terrible jobs report on Friday, Europe continues to bleed. This week a lot comes to a head with the austerity debate in the Italian Senate today, a meeting today of Germany, Finland and Netherlands officials to discuss collateral issues with Greece and tomorrow the German Supreme Court decides on the constitutionality of Germany’s contribution to the EFSF. We still await the day though when Europe finally realizes that the only way to save Greece is to let them go, go into a full fledged debt restructuring that is. A machete needs to be used to attack their debt and instead Europe is using a plastic knife. The Greek 1 yr yield rose yesterday by 1000 bps for a 2nd straight day and today yields 83.5%. Italy and Spain are obvious concerns too but they have many more levers to pull, however with politics being the main impediment. An index of European bank stocks are at the lowest since Mar ’09 and the 3 month euro basis swap and Euribor/OIS spread are at levels last seen in Dec ’08.

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