Could Spain and France be next? Greece may have been the least of the worry. Italy wonders what now that presumably the embarrassment of Berlusconi is gone. More Chaos? The rates on Italian and Spanish sovereign debt are now reaching what is considered unsustainable levels (7% on 10 years terms). The rates on French debt are also rapidly rising, and it is expected that France will soon lose its AAA rating. The EFSF (European Financial Stability Fund) own borrowing rate spreads with respect to German Bunds are expanding, perhaps now reflecting a lack of confidence in the EFSF and the Eurozone beyond the “troubled” economies. The Germans and Dutch on the other hand are becoming frustrated or flustered – take your choice. There is more than ever consideration that the solution may be dissolution of the Eurozone – or at least a few countries dropping out. Does it sound like chaos? It is, and now the IMF is trying to instill some order. More than the EFSF, it appears that the IMF is counted upon as the methodology of rescuing troubled Eurozone economies. IMF Chief appears to have had a more successful fundraising tour of China, (Photo Above), Russia and Asia, (where commitment to EFSF funding had been less forthcoming. Read – “Like Flat CHAMPAGNE after G-20 in FRANCE” - diplomaticallyincorrect.org/films/blog_post/like-flat-champagne-after-g-20-in-france-by-ambassador-mo/39983). Italy: IMF's David Hawley, Deputy Director, External Relations expressed that: "The creation of a new government with a new program creates political clarity which is a positive development." However, the financial markets do not appear to be significantly differentiating between the new situation from the one before Berlusconi’s resignation. (Read – “Berlusconi Pimple on Financial Markets” -http://diplomaticallyincorrect.org/films/blog_post/berlusconi-pimple-on-financial-markets-by-ambassador-mo/41748). Greece: Athens is less critical to the Eurozone, but the new coalition agreement is drawing less confidence as well. "We welcome the agreement on a national unity government in Greece as a step to greater political certainty and stability. It's important that the unity government now shows its commitment to the implementation of the economic program and the October 27 agreement so that Greece can return to path of growth, job creation, and sustainable public finances." Nonetheless, Mr. Hawley did not extend unconditional support: "We stand ready to work with the coalition and once broad political support for the measures under Greece's economic program is assured, we can proceed with completion of the fifth review and the release of the sixth tranche. In this context, we support the European Commission in seeking assurances from the coalition that they are fully committed to the program." Uncertainty & Euro Weakness - Best Result May be Downsizing of Eurozone: The real test though is just to begin as Spain and more likely than not France move toward further uncertainty. At such point, not even Germany can salvage the current Eurozone structure. The IMF will find itself in an unprecedented situation as some of its key members are not the rescuers but the floundering. The Euro will suffer as combination of uncertainty and austerity undermine confidence and growth. To be fair, the ECB (European Central Bank) is becoming more affirmative in its response under its new Chief Mario Draghi, but many see it as too late and perhaps not enough. It does not even matter any more what reality is - perception becomes the new reality and especially if profit is to be realized by speculators driving a new fear. The best thing that could actually happen is for the weaker economies to drop out of the Euro – thus removing uncertainty and probably enhancing the Eurozone’s growth potential. See FILM REPORT - "@ the G-20" - diplomaticallyincorrect.org/films/movie/the-g-20/29058 By Ambassador Muhamed Sacirbey Facebook – Become a Fan at “Diplomatically Incorrect”

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