In France, President Hollande got a very nice Fathers Day present from his people in the form of a solid Socialist Party victory in Parliamentary elections. This election could very well have more implications than the Greek elections. It will make Hollande much less agreeable to Chancellor Merkel's approach; it will strengthen the Club Med nations' push to use the ECB as the primary tool to deal with the crisis. It appears that France has decided to align itself with it's Latin cousins and against their German neighbors. Unfortunately for France, this election will result in policies which are certain to hamstring France's economy. Amongst them are measures to punish companies that fire workers, reducing the retirement age, hiring 60,000 teachers and punishing companies that sell factories. These will certainly result in fewer companies starting up in France and a rush of firings before the new law comes into effect. Oh well.. once again Socialists must learn that simply passing laws does not mean that the finances needed for their laws will automatically materialize or that companies will keep their doors open.
Thanks to the elections in Greece, the markets were expected to have a good day, and indeed started this way. But the Pain in Spain reared it's ugly head in the form of roaring interest rates on their ten year bond-- a sign from the market that the recent bailout is not nearly enough, and they're right. Spain's ten year bond reached 7.28%, though it did finish the day at 7.15%. Most market commentators know that when a nation reaches 7%, the end has come financially. To be sure, Spain reached this plateau months ago and wrestled it down-- and might be able to do so again. My make here is that at some point if this continues, certainly before it reaches 8%, the ECB will have to step in and begin purchases in order to buy time for a reformed bailout. I give it three weeks maximum before the ECB is forced to act. Here's Ambrose's take: http://www.telegraph.co.uk/finance/financialcrisis/9340073/Spain-pleads-for-ECB-rescue-as-bond-markets-slam-shut.html
Update Tues 6/19 5am: Spain just held a bond auction, and the results were brutal. A month ago, investors charged Spain 2.98% for 18 month loan. Today it went up to 5.074% for the same loan. That's really bad folks. Thursday Spain is going to sell longer termed debt and I suspect the result will be the same. It appears Spain has hit the wall and is essentially unable to borrow in private markets. A bigger bailout is needed.