The Eurogroup takes note of the provisional results of the Greek elections on 17th June, which should allow for the formation of a government that will carry the support of the electorate to bring Greece back on a path of sustainable growth.

The Eurogroup acknowledges the considerable efforts already made by the Greek citizens and is convinced that continued fiscal and structural reforms are Greece’s best guarantee to overcome the current economic and social challenges and for a more prosperous future of Greece in the euro area.

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Greece’s conservative New Democracy party eked out a slim victory in Sunday’s elections and will seek to form a pro-austerity coalition government with other parties to take the immediate steps needed to comply with strict financial targets set by its international lenders.

The outcome is likely to ease fears””at least temporarily””of a Greek exit from the 17-nation euro zone, but political uncertainty is likely to continue as parties embark on contentious coalition talks, which, even if successful, may not result in a lasting government.

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After spending yesterday in Berlin, I can tell you the German government is mightily fed up with all this speculation – and fed up with getting blamed for everything bad happening in the global economy (last week’s cover of the Economist, for example).

I interviewed the Deputy Finance Minister – Secretary of State Steffen Kampeter – after the German chancellor’s strident speech to the Reichstag.

He made clear that on one major point – eurobonds – the speculation about what Germany might be willing to accept in time for the summit was simply wrong.

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The mainstream parties “looted Greece, and afterward they took the Greek flag and they offered it to Angela Merkel,” the German chancellor, Mr. [Alexis] Tsipras said in a campaign rally in Athens Thursday.

Though Syriza’s message has caught on, not all of the disaffected are ready to embrace the party. Anna Konstantoulaki, a third-year Spanish-literature student at the University of Athens, voted in May for a tiny party. She doesn’t know what to do now. She is upset with mainstream parties but not sure Mr. Tsipras is capable of running the country.

“I am very confused,” she says. “The last few days, I can’t stop thinking about what is going to happen.” She adds: “I’m scared, actually.”

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For one thing, such a bailout is illegal under the Maastricht Treaty, which governs the euro zone. Because the treaty is law in each member state, a bailout would be rejected by Germany’s Constitutional Court.

Moreover, a bailout doesn’t make economic sense, and would likely make the situation worse. Such schemes violate the liability principle, one of the constituting principles of a market economy, which holds that it is the creditors’ responsibility to choose their debtors. If debtors cannot repay, creditors should bear the losses.

If we give up the liability principle, the European market economy will lose its most important allocative virtue: the careful selection of investment opportunities by creditors. We would then waste part of the capital generated by the arduous savings of earlier generations. I am surprised that the president of the world’s most successful capitalist nation would overlook this.

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After clinching Spain’s €100 billion bank bailout, Prime Minister Mariano Rajoy flew to Poland on Sunday for the Spanish team’s soccer match, declaring “this matter is now resolved.”

Not so fast, prime minister.

On Tuesday, Spain’s long-term borrowing costs soared to their highest level since the country joined the euro zone. Investors have apparently concluded that the rescue is potentially a much better deal for the banks and their shareholders than for the government, its taxpayers and bondholders.

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…there are too many unanswered questions. How much capital will actually be provided? Which banks will need to be recapitalized? How will the process be managed? The answers won’t be known until two independent valuation experts have reported at the end of June. The International Monetary Fund assessment estimates €37 billion was needed to ensure all banks had a 7% core Tier 1 ratio on a phased-in Basel III basis. But the market will probably demand at least 9% on a fully loaded Basel III basis after substantial new write-downs, suggesting a number much closer to the full €100 billion.

One key unknown is where the bailout money will come from. Will it be from the old euro-zone bailout fund, the European Financial Stability Facility, or the new European Stabilization Mechanism, due to come into existence in July? If it comes from the ESM, existing government bondholders will be subordinated””no small concern given €100 billion is more than 10% of Spanish government debt outstanding. That could affect the willingness of bond markets to keep funding the government.

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Europe may have sidestepped its latest catastrophe, at least for the moment, by hammering out a €100 billion bailout plan for Spain’s failing banks over the weekend.

But the intervention will do little to address the problem that continues to plague the Continent’s increasingly vulnerable financial institutions. Namely: a longstanding addiction to the borrowed money that provides the day-to-day financing that they need to survive.

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Spain’s banking crisis did not come out of the blue.

In the 1990s, the Spanish suffered a bout of collective madness. Interest rates fell from 14 per cent (with the peseta) to 4 per cent (with the euro) in a matter of weeks.

In 1998, the centre-right government passed a law that increased the amount of land for development. Developers got rich, selling the idea that property would always go up in value. You could buy a flat on the Mediterranean for $156,000 and sell it the next day for $234,000; by the end of the month it would be worth $390,000…..

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Europe is to offer Spain a bailout package of up to €100 billion ($125 billion) to help rescue the country’s banks and keep the 17-country eurozone from breaking apart.

After months of fierce denials, Spain admitted it would tap the fund as it moved faster than expected to stem the economic crisis that has ravaged Europe for two years.

Spain becomes the fourth – and largest – European economy to ask for help and its admission of help comes after months of market concern about its ability to pay its way. In recent weeks investors have demanded higher and higher costs to lend to Spain, and it became clear it would be just too expensive for the country to borrow the money necessary for a bank rescue from the markets.

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Although they have rented it out to a restaurant for the past five years, the owners of one building in Aspe have never paid property tax. Nor have they ever paid tax on the apartments that house two of their employees. But that may be about to change. Last week, the city’s government voted to partially rescind the exemption that the Catholic Church, landlord of those three properties and another eight more in town, has long enjoyed. And thanks to the crisis that threatens to upend Spain’s economy, it’s not the only place demanding change.

Three different laws, including a 1979 agreement with the Vatican, exempt the Catholic Church from paying property tax in Spain. The same provision holds for other recognized religions and non-profit organizations like the Red Cross, yet because Catholicism is the dominant religion in Spain, and because the Church’s holdings there are so vast (España Laica, a pro-secularism group, estimates that were it not for the exemption, the church would annually owe 2.5 to 3 billion euros in property taxes), critics have long argued that the arrangement is part of the preferential treatment granted the Catholic Church. It’s only now, however, with austerity measures bearing down and a European bailout looming, that anyone has thought to put that criticism into action. Economic pressure, in other words, may well accomplish what 33 years of democracy have not.

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From manufacturers in the Midwest to upscale retail shops in Manhattan, a wide variety of American companies are feeling the pinch of Europe’s economic contraction, helping to hold back recovery in the United States.

Ford, the iconic U.S. car company, says that Europeans are not only buying fewer cars, but are replacing fewer parts. Kraft Foods, which is behind such brands as Swedish Fish and Dentyne, says sales of candy and gum in Europe are lagging. And jeweler Tiffany & Co. says fewer European tourists are shopping at its flagship Fifth Avenue store.

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The eurozone sovereign debt emergency showed no signs of abating yesterday as the Spanish government desperately haggled over the terms of its expected bailout and the European Central Bank refused to ease monetary policy for the currency bloc, despite signs of stricken European economies sinking still deeper into recession.

Madrid’s Economy Minister, Luis de Guindos, insisted once again he was not making any plans to follow Greece, Portugal and Ireland in requesting a bailout from the European Union and the International Monetary Fund. But, behind the scenes, Spanish ministers accept that an external rescue of the country’s beleaguered banking sector is now necessary. Spain is trying to persuade its European partners to allow the European bailout fund to inject capital directly into its banks, rather than diverting the money through the state. Madrid fears that a full-blown national bailout would be accompanied by an onerous EU/IMF inspection system.

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An essential element of Greece’s recovery plan has been to collect more taxes from a population that has long engaged in tax avoidance. The government is owed 45 billion euros in back taxes, tax officials in Athens said, only a fraction of which will ever be recovered.

To understand the difficulty, just talk to Nikos Maitos, a longtime official in Greece’s financial crimes investigation unit.

When he and a team of inspectors recently prowled the recession-hit island of Naxos for tax evaders, a local radio station broadcast his license plate number to warn residents.

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“Germany should reflect quickly but deeply, and act,” Italian Prime Minister Mario Monti said late last week.

Few Germans, however, share that sense of urgency. With German unemployment at a 20-year low and falling, and the country’s economy continuing to grow despite the debt crisis, not many Germans see the crisis as a threat to their way of life.

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Europe is at the abyss ”” again. Its turmoil is rattling global stock markets and stoking fear and bewilderment. The obvious question is, what’s the solution? The answer is, there is no solution. Europe faces choices, some bad and others worse. Unfortunately, it’s unclear which are which. The best that can be imagined is that Europe lurches from crisis to crisis and that its slumping economy weakens the already fragile global recovery. The worst is a massive flight from the euro and an economic free fall that resurrects the dark days of 2008 and 2009.

Can anyone doubt that the euro’s creation in 1999 was a huge blunder? It aimed to promote European prosperity and unity, but it’s doing just the opposite. The very belief in its early success reduced interest rates in Europe’s periphery (Greece, Portugal, Spain, Ireland, Italy). Low rates fed credit booms and housing bubbles that, once burst, caused recessions and swollen budget deficits.

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Euro-zone governments have around three months to ensure the survival of the single currency, billionaire investor George Soros said in a speech on Saturday.

“We are at an inflection point. After the expiration of the three months’ window, the markets will continue to demand more but the authorities will not be able to meet their demands,” he warned in a speech at the Festival of Economics in Trento, Italy. (Read the text of his speech.)

The European Union is “like a bubble” ”“ not a financial bubble but a political bubble — that could pop as a result of the euro -zone crisis, Soros said.

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On consecutive days last week, two of the most powerful figures in Europe ”” Mario Draghi, president of the European Central Bank, and Olli Rehn, the most senior economic official in Brussels ”” warned that the future of the euro zone was in doubt. In the words of Mr. Rehn, the union might well disintegrate unless policy makers took steps to bind the euro’s 17 nations closer together.

Coming as they did from two men at the very soul of the European project, the reprimands were a stark reminder of just how much the Spanish financial meltdown had shaken the confidence of the European brain trust, to say nothing of investors from New York to Beijing.

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The euro faces ‘disintegration’ unless European governments do much more to work together, the European Commission has warned.

Olli Rehn, the economics commissioner, gave the warning as Mario Draghi, the head of the European Central Bank, criticised national leaders for a “lack of action” to help the single currency out of its crisis.

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The euro crisis drags on and on. Spanish yields on ten-year debt hit 6.6% on May 30th, just ten basis points lower than last November’s nadir, as the costs of sorting out Spain’s banks sink in. With ten-year US Treasuries now at a 60-year low, investors are heading across the Atlantic for the perceived safety of the world’s second-largest debt market. According to The Economist’s credit-crunch index, credit is now tighter in the euro area than it was at the height of the financial crisis

Read it all and make sure to see that chart on the top left.

Two of the world’s biggest trade credit insurers have stopped providing cover for exporters to Greece in highly unusual moves reflecting their concern the country might leave the eurozone.

Brokers said the decisions by Euler Hermes and Coface were the only instances they could recall of trade credit insurers pulling out altogether from a European country.

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All eyes were fixed Wednesday on Spain, as the country’s borrowing costs showed no signs of slowing their climb amid nervousness about the health of the banking sector and the possibility of the crisis spreading to other euro countries.

Europe’s economic stagnation and continuing financial turmoil in the euro zone have weighed on confidence, the European Commission said Wednesday. The commission’s indicator of business sentiment in the 17-nation euro zone fell in May to 90.6 from April’s revised 92.9. The decline, it said, “was driven by falling confidence in all business sectors, especially in industry and retail trade.”

Jonathan Loynes, an economist in London with Capital Economics, noted that the sentiment data showed “acute weakness across the peripheral economies,” but that the Dutch, French and Germans were also less optimistic. He described it as “overall, an unambiguously weak picture which only looks likely to get worse as the debt crisis continues,” and predicted that euro zone gross domestic product would decline by 1 percent this year, with 2013 “likely to be much worse.”

Read it all. Also, if you want a single picture to keep an eye on, it is the Spanish German 10 year spread which you may see there (yes, that is correct, it is at all all time high).

The crisis has exposed sharp differences between some Europeans. Germany is the most admired nation in the EU and its leader the most respected. The Germans are judged to be Europe’s most hardworking people. And the Germans are the strongest supporters of both European economic integration and the European Union.

Greece is the polar opposite. None of its fellow EU members surveyed see it in a positive light. In turn, Greeks are among the most disparaging of European economic integration and the harshest critics of the European Union. And they see themselves as Europe’s most hardworking people.

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What will become of the European Union? One road leads to the full break-up of the euro, with all its economic and political repercussions. The other involves an unprecedented transfer of wealth across Europe’s borders and, in return, a corresponding surrender of sovereignty. Separate or superstate: those seem to be the alternatives now.

For two crisis-plagued years Europe’s leaders have run away from this choice. They say that they want to keep the euro intact””except, perhaps, for Greece. But northern European creditors, led by Germany, will not pay out enough to assure the euro’s survival, and southern European debtors increasingly resent foreigners telling them how to run their lives.

This has become a test of over 60 years of European integration….

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The basic problem is that many people won’t keep their euros in a Greek bank, and perhaps not in a Spanish bank, either, when those euros can be moved to Germany or some other haven.

Yet German citizens do not appear ready to guarantee Spanish banks or, by extension, the whole credit system of Spain and the other periphery nations. Guarantees of that scope are probably impossible and may also require constitutional changes in some nations.

We thus face the danger that the euro, the world’s No. 2 reserve currency, could implode. Such an event wouldn’t be just another depreciation or collapse of a currency peg; instead, it would mean that one of the world’s major economic units doesn’t work as currently constituted.

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…while this might come as a surprise to Greeks suffering under extreme austerity, some say Lagarde’s approach to the eurozone is less draconian than the IMF’s traditional policy towards developing world economies. Is it easier to impose harsh demands upon small economies, but much harder to tell difficult truths to the big ones ”“ particularly fellow Europeans? “No,” she says firmly. “No, it’s not harder. No. Because it’s the mission of the fund, and it’s my job to say the truth, whoever it is across the table. And I tell you something: it’s sometimes harder to tell the government of low-income countries, where people live on $3,000, $4,000 or $5,000 per capita per year, to actually strengthen the budget and reduce the deficit. Because I know what it means in terms of welfare programmes and support for the poor. It has much bigger ramifications.”

So when she studies the Greek balance sheet and demands measures she knows may mean women won’t have access to a midwife when they give birth, and patients won’t get life-saving drugs, and the elderly will die alone for lack of care ”“ does she block all of that out and just look at the sums?

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Ángel de la Peña, a Spanish government worker, is seriously considering the once unthinkable: converting some of his savings from euros to British pounds.

Alvaro Saavedra Lopez, a senior executive for I.B.M. in Spain, says many of his corporate counterparts across the country are similarly looking for safer havens by transferring their spare cash to stronger euro zone countries like Germany “on a daily basis.”

It is only a trickle so far, and not nearly enough to constitute a classic bank run. But these growing transfers of deposits out of troubled Spanish banks reflect a broader fear that the country’s problems could make it hard for Spaniards to get to their money if banks fail and cannot be supported by the government. In a worst case, some even worry their money will be worth substantially less if Spain is forced to leave the euro currency zone and re-adopt its old currency, the peseta.

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With Greece’s membership in the euro zone teetering, fears of bank insolvency rising and Europe’s leaders bickering about what to do, the euro crisis is once again intensifying and threatening to undermine fragile growth globally.

At a summit meeting in Brussels on Wednesday, regional leaders failed to signal any significant new steps to stimulate the sputtering regional economy or resolve the competing agendas of President François Hollande of France, who favors stronger action to spur growth, and his German counterpart, Chancellor Angela Merkel, who has opposed aggressive moves to ease the pressure on Europe’s weakest economies.

Yet, the urgency for a solution to the region’s debt crisis, now in its third year, may never have been greater.

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The 17-country eurozone risks falling into a “severe recession,” the Organization for Economic Cooperation and Development warned on Tuesday, as it called on governments and Europe’s central bank to act quickly to keep the slowdown from dragging down the global economy.

OECD Chief Economist Pier Carlo Padoan warned the eurozone economy could contract by as much as 2% this year, a figure that the Paris-based organization had laid out as its worst-case scenario in November.

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