By late Thursday, though, and certainly on Friday, the warning signs were there. Global bond markets, by character more sober and smarter than the excitable equity guys, were voting against the deal. This is alarming. For it is only by selling more bonds that the eurozone's deeply indebted governments can roll-over their enormous liabilities and keep the show on the road.
...
The eurocrats, of course, lack the guts to trim back monetary union to a more manageable size. Too much face would be lost. So "euroquake" fears, once viewed as outlandish, are gaining pace. Despite Thursday's deal, and all the reassurances of a "durable solution", the Italian government on Friday paid 6.06pc for 10-year money, up from just 5.86pc a month ago and a euro-era high. Such borrowing costs are disastrous, given that Rome must roll-over €300bn of its €1,900bn debt in 2012 alone. A default by Italy, the eurozone's third-biggest economy, and the eighth-largest on earth, would make Lehman look like a picnic.
Unrest Grows in Greek Government With Debt Deal in Doubt - AP
Papandreou's decision upended a deal that was the product of months of work by European leaders who were trying, sometimes opposed by their own people, to agree the details of a second bailout for Greece and shore up their own economies in the name of saving the euro, the common currency.
The deal would require banks that hold Greek government bonds to accept 50 percent losses and provide Greece with about $140 billion in rescue loans from European nations and the International Monetary Fund.
But Greeks have been outraged by repeated rounds of tax increases and salary and pension cuts imposed as the government struggles to meet the conditions of a first, $153 billion bailout the country has been relying on since May 2010. With Greece facing a fourth year of recession next year, unions have held frequent strikes, and protests have often degenerated into riots.
...
In New York, the stocks of major banks like Citigroup and JPMorgan Chase were hit hard. The value of the dollar rose, and bond prices jumped so dramatically that analysts said they were stunned.
Analysts said the bond action reflected fears that the turmoil in Greece would tear at the fabric of Europe's financial system and create a crisis that could engulf the entire European Union, which together forms the world's largest economy.
"This brings all of the concerns about Europe back to the front burner," said Scott Brown, chief economist at Raymond James. "If this ends up turning into a financial catastrophe in Europe, then no one will escape it."
