EU crackdown or crackup

Most likely the former followed by the latter. The EU leaders can blather about the sanctity of the euro and inviolate nature of the Union all they like, but neither threats nor promises can salvage the situation. Their problem is that they can’t keep the Fourth ReichUnion together while continuing to drain the masses dry in order to bail out the bankers. To put the situation in context, imagine the various U.S. states had had the option to opt out of participating in TARP. Why would people in Texas ever choose to materially reduce their standard of living so that Washington could prop up Goldman Sachs and Bank of America and keep them in business? As usual, the bond yields tell a more informative story:

Greece 2-year 92.980% One year ago: 9.784%
Portugal 2-year 19.112% One year ago: 3.521%
Italy 2-year 5.455% One year ago: 1.966%
Spain 2-year 3.872 One year ago: 2.069%

In other words, the Greek default is certain regardless of what happens with the “bailout” or the proposed referendum. Portugal will probably default too, sooner or later. Italy is looking increasingly problematic, while Spain actually appears to be doing relatively well.