Crunch Time in Europe

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What is Europe’s problem? Well, Greece, of course. But no! Greece is actually kinda small. It’s really Spain! That’s serious business. But no no no. It’s actually Italy that’s in trouble! That’s even worse! Contagion is nigh!

So what’s next on the hit parade? What’s bigger than Italy? Felix Salmon provides the play-by-play:

It’s looking increasingly as though the proximate cause of the next big global crisis is going to be a liquidity crunch at French banks, rather than a European sovereign default….BNP Paribas started July trading at €55 per share; it’s now at €27, and there’s no bottom in sight. And that’s making lenders very nervous, according to Nicolas Lecaussin:

“We can no longer borrow dollars. U.S. money-market funds are not lending to us anymore,” a bank executive for BNP Paribas, who declines to be named, told me last week. “Since we don’t have access to dollars anymore, we’re creating a market in euros. This is a first. . . . we hope it will work, otherwise the downward spiral will be hell.”

….The market has good reason to be worried about the French banks. They own $57 billion in Greek sovereign and private debt — more than all German and British banks combined. And they have well over half a trillion euros in Spanish and Italian debt, most of which is trading at a substantial discount to par, if it trades at all.

As a result, the only way for the French banks to be able to project a credible degree of solvency is for the Eurozone to inject a huge amount of money somewhere. Either it goes into the countries the French banks have lent to, and will then be used to pay back the French banks what they’re owed, or else it just goes into the French banks directly — the TARP solution. But if the EFSF isn’t beefed up and deployed very soon, we could see some extremely big French banks either collapse or get nationalized in very short order. And nobody wants to see where the chain reaction from that would lead.

Hang on tight. The next few weeks could well be make or break time for Europe. And for the rest of us.

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"It's that we're screwed with or without him if we can't show the public that what we do matters for the long term," writes Mother Jones CEO Monika Bauerlein as she kicks off our drive to raise $350,000 in donations from readers by July 17.

This is a big one for us. So, as we ask you to consider supporting our team's journalism, we thought we'd slow down and check in about where Mother Jones is and where we're going after the chaotic last several years. This comparatively slow moment is also an urgent one for Mother Jones: You can read more in "Slow News Is Good News," and if you're able to, please support our team's hard-hitting journalism and help us reach our big $350,000 goal with a donation today.

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