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Euro Sovereign Debt Crisis Expands

Jan. 29, 2010 (EIRNS)—A leading story in Germany's Spiegel Online, datelined from Davos, Switzerland, site of the ongoing economic summit, carries the alarming headline, "Economists Warn of Domino Crash." It's report begins: "Greece is on the verge of a crash, and Europe fears for the Euro."

The debt crisis in Greece, with Spain not far behind, is breaking out as a threat in Europe at the same time as the drastic crisis precipitated by Obama's downfall in the United States.

Despite the safety net organized by private banks to buy Greek bonds Jan. 25, the Greek (and Euro) financial crisis is worsening, with Greek spreads yesterday climbing to 405 points, to settle back at 390, still higher than the day before. Secondly, Spain is now in the line of fire, with Spanish spreads for the first time higher than Italian spreads. Italian three-years bonds yesterday suffered, with the government deciding to sell a little bit less than scheduled in order not to pay penalties. And Moody's has put Portugal under watch.

It is evident that a wave of speculation is taking place, with hedge funds and others shorting state bonds. This is typic—recall the scandal when Goldman Sachs was caught shorting those same assets they were selling to customers.

However, Greek Prime Minister George Papandreou yesterday in Davos pointed the finger at "enemies of the Euro," saying that Greece is being singled out by anti-Euro forces as the weak link to attack Europe. To whom he is referring is not clear. Some point to the London Financial Times leak on the negotiations with the Chinese, but Ambrose Evans-Pritchard (who is back on the British Telegraph website today, after an article he authored was pulled last week) reports that this very leak helped Greece channel investors' money into Greek bonds the next day.

France's Le Monde yesterday reported that France and Germany are preparing a bail-out loan to Greece, and various formal options are being discussed. The report has been denied by the two governments, but according to sources in Italian daily Corriere della Sera today, not only is the report true, but Germany is considering the idea to attach IMF-like conditions as a "guarantee" that taxpayers' money is not "wasted." This would mean that the EU Commission would be puting the country under an IMF-like supervision.