EU Summit Faces Political Deadlock, Cyprus Seeks Bailout

Political impasse at the EU, amidst a global economic slowdown, continues to hound the markets…

From Bloomberg,

Chancellor Angela Merkel hardened her resistance to euro- area debt sharing, setting Germany on a collision course with its allies at a summit starting on June 28.

In signs the debt crisis is worsening, Cyprus said it will seek a financial lifeline from the euro area’s firewall funds, and Greek Prime Minister Antonis Samaras consented to the resignation of his finance minister, Vassilios Rapanos.

Moody’s Investors Service downgraded 28 Spanish banks, citing the country’s sovereign debt and rising losses on real- estate loans. The lenders’ long-term debt and deposit ratings were cut by one to four notches, Moody’s said yesterday in a statement. The New York-based rating company also downgraded 16 Spanish banks on May 17.

Italy and Spain will sell debt today amid concern Europe’s fiscal crisis is infecting bigger economies.

The EU crisis adds a new victim: Cyprus. This only translates to the worsening of the crisis in the face of internecine political squabbling.

Political stalemate has also been a scourge to China and the US.

I have been saying that political pledges will eventually yield to the law of diminishing returns and that financial markets will eventually DEMAND real action.

It appears that financial markets are beginning to see through the façade of political fables or seems to have initiated the discounting of these phony promises.

Be careful out there.