The head of the World Banksaid in the Financial Times that it is time to pull the emergency alarm. He wrote: "while those living in the euro-zone building, especially those on the executive floors, will not want to hear an alarm, they had best read the instructions. Events in Greece could trigger financial fright in Spain, Italy and across the euro zone, pushing Europe into a danger zone."
While the concern about events is hardly new there is an increased urgency about warnings. The stock markets today (June 1st) in the U.S. Canada and Europe have taken notice with big drops. European officials are warning that actions must be taken immediately before events spiral out of control. But that seems to be what is happening in Spain and Greece.
The European Central Bank leader Mario Draghi warned that that the euro structure as it stands is "unsustainable unless further steps are taken" He added that leaders "must clarify what is the vision … what is the euro going to look like a certain number of years from now?"
The Italian PrimeMinister Mario Monti demanded that the European Stability Fund be allowed to directly provide capital to struggling banks. The move is opposed by Germany.
Events in Spain are one important immediate cause for concern. The central bank noted that 97 billion Euros had left Spain in the first three months of 2012 alone. This amount is equivalent to 10 per cent of the Spanish economy. This makes clear that Spaniards have no faith in their own economy or government.
The central government is injecting money it can ill afford to rescue Bankia the third largest Spanish bank. As a result borrowing costs for ten year bonds are climbing to near 7 per cent an interest rate that the government simply cannot afford. For much more see this Der Spiegel article.