Europe on the Brink of Collapse

Actually, it's Greece in the headline at Telegraph UK, "Greece on brink of collapse." But as Greece goes, so goes the European project:

Europe’s financial crisis lurched into a perilous new phase as dire predictions emerged of a collapse in Greece’s economy, with a run on its banks bringing an inevitable end to its membership of the euro.

As leaders in Athens accepted the need for a new general election to end a national stalemate, the International Monetary Fund said Europe’s leaders should prepare for the possibility of a Greek departure from the single currency.

Christine Lagarde, head of the IMF, warned she was “technically prepared for anything” and said the utmost effort must be made to ensure any Greek exit was orderly. The effect was likely to be “quite messy” with risks to growth, trade and financial markets. “It is something that would be extremely expensive and would pose great risks but it is part of options that we must technically consider,” she said.

Raising tensions still further, Germany warned Greek voters that the wrong result in next month’s election will force their country out of the single currency.

Greece’s president warned, perhaps most alarmingly, that its banks risk running out of money, posing a “threat to our national existence”.

The escalating turmoil sharpened fears in financial markets, with European shares and the euro itself falling again. On the stock markets, the Eurostoxx 600 fell 0.7 per cent to a year-low; Germany’s Dax dropped 0.8 per cent and Spain’s Ibex was down 1.6 per cent. In London the FTSE100 slid 0.5 per cent. Following this month’s inconclusive election, Greek parties yesterday failed again to agree a new government. A new election, most likely to be held in mid-June, could see more gains for parties that want to reject the austerity measures that are a condition of international efforts to bail out the debt-crippled state.

More at the link. And about that video up top, "Francois Hollande: we want to work together for the good of Europe." The guy was just sworn in today and you'd think his most important constituent is Angela Merkel!

And from this morning's Wall Street Journal, "Contagion Fears Hit Markets" (via Google):

LONDON — Investors battered European stocks, dumped the bonds of Spain and Italy, and bid the euro down against the dollar Monday after the collapse of weekend coalition talks in Greece edged that country closer to an exit from the euro zone.

The sweeping market action dealt a blow to hopes that the damage of a Greek exit, should it occur, could be comfortably contained.

In the market carnage, Greek stocks fell to two-decade lows, and Spanish bond yields leapt to levels not seen since the panic of last November. Shares of a big Spanish lender dropped 8.9% on the Madrid bourse, pulling the benchmark index down 2.7%. The Italian market also fell 2.7%, and the euro slid to $1.2845 late Monday in London, its lowest level in four months.

The troubles in Greece come at a perilous time for the rest of the currency union. Its policy of restoring financial-market credibility and international competitiveness through tough fiscal austerity is running aground. The grand "firewall" of funds meant to insulate precarious countries from their sinking peers is still modest relative to the potential needs. The vast cleanup of the troubled corners of the banking system has hardly begun. The central bank is reaching the limits of its desire to step in and help—and its injection of €1 trillion ($1.3 trillion) into the banking system seems to have bought only a small measure of calm for its very big price.

"We are more or less in a vacuum," says Jens Nordvig of Nomura in New York. "We are entering a very dangerous phase."

The situation is compounded by a dismal economic picture, which tightens the strains on fraying societies and makes the task of generating growth to repay debts ever harder. Fresh data Monday showed industrial production in the 17-nation euro zone falling 2.2% in March from a year earlier....

For much of the past two years, European officials insisted that a country's departure from the euro zone would be inconceivable. In recent weeks and months, however, that tone has changed to acknowledge the possibility of an exit—with some leaders suggesting it could be withstood by the nations that remain.

Patrick Honohan, Ireland's central bank governor, said at a conference Saturday that a Greek divorce wouldn't necessarily be "fatal" for the currency union and could "technically" be managed. Dutch Finance Minister Jan Kees de Jager said Monday ahead of a meeting of euro-zone finance ministers in Brussels that the "contagion risk would be far, far smaller than one-and-a-half years ago."

Yet German Finance Minister Wolfgang Schäuble acknowledged "the price would be very high" if Greece left the euro, both for the country and for the broader euro zone.

Actually, it's an utter disaster any way you look at it. The system won't work. Greece will go and then the next weakest member will succumb to the markets as well. Spain? Italy? Who knows. It's not as if the European economies are picking up or anything. And Berlin doesn't look in the mood to serve as lender as last resort in any case. Things need to continue to shake out on their own and that will put further strain on the grandest plans of Eurozone planners in Brussels. It's an amazing time to be watching this. And don't forget: The collapse of Europe casts fresh aspersion on the progressive left's statist project here at home. That's why President Obama told Hollande not to fulfill his campaign pledges to soak the rich and stroke the public workers unions. If France falls further, the socialist brand will bear the brunt of popular recrimination.