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An increasing portion of Spain's 663 billion euros, or $876 billion, in home mortgages is likely to default. As unemployment rises and unemployment benefits run out for the unemployed more people are likely to default under the burden of large debt. Some of the largest Spanish banks are likely to need a bailout. Analysts estimate a bailout of Spain to be at least 200 billion euros or $264 billon. The large increase in the IMF Fund recently completed by IMF head Christine Lagarde may be designed to handle such a crisis.

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Berkshire Hathaway's deal in Nov. 2012 to pay $780 million for claiming the future cash flows of life insurance portfolio of Caixabank in Spain. Caixabank will claim a pretax profit of $680 million which it will use to increase reserves.

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Moody's downgrades the credit ratings of 26 Italian banks in May 2012. Italy's largest retail bank Intesa Sanpaolo SpA, showed net profit of 804 million euros, up 22% from the prior year. Of this 183 million euros was from capital gains made using the ECB low cost loans under special ECB financing to buy government debt. The ECB financing was through the Long Term Refinancing Operation launched by the ECB in December 2011, which benefitted Italian and Spanish banks.

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This editorial in the NYT says Russian president Putin is ending up with the very situation he has sought to avoid- NATO forces right next to Russia's borders. Not something the western alliance intended but a result of aggressive moves by Mr. Putin in the Ukraine crisis, and NATO's response of having a rapid deployment force in Eastern Europe and the Baltic states. It says this is not in the best interest of Russia or the western alliance.

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The borrowing costs of Italy declined sharply as 9 billion euros of Italy's government bonds were auctioned at a yield of 3.25 percent on Dec. 28, 2011, compared to 6.50 percent at a prior auction in November 2011. The rate on 1.7 billion euros of two year bonds auctioned declined to 4.85 percent from 7.81 percent in November. This follows action by the ECB providing a large infusion of low cost funds to European banks charging only 1 percent on three year loans.

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Russian planes fly very close to a U.S. destroyer in the Baltic Sea in 2016, sources say about 30 feet. The. U.S. protests the incident and this is discussed at a NATO-Russia Council meeting to avoid accidental flareup of tensions. Russia sees higher U.S. military presence near its borders as a threat. Russian response is to upgrade its nuclear submarine fleet and operate in the Baltic Sea, North Sea, Atlantic and Mediterranean. Russian intervention in Ukraine led to increased U.S. presence to protect the Baltic Republics and Poland, members of the NATO alliance. The U.S. and NATO is conducting Operation Atlantic Resolve to deter any Russian action. Chancellor Merkel called for a "persistent NATO presence in the Baltic States" during the Ukraine war in 2014, in a visit to Latvia. Germany led an early version of a Rapid Response Force of 5000 troops deployable in 48 hours setup in 2015.

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The agreement reached Dec. 12, 2012 to setup a single supervisory authority for large banks in the eurozone is a major and historic step. The ECB takes up this role after parliaments in the eurozone countries ratify the agreement by March 2013.

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The wounds left behind in S. Korea from the 1997 Asian financial crisis when the IMF imposed conditions for $21 billion in loans as part of a $60 billion loan package to prevent a sovereign debt default. The conditionality imposed for loans led to layoffs and economic hardship for the working class. S. Koreans remember the crisis as the "IMF crisis." It also has a particular stigma in S. Korea which the IMF is now trying hard to erase. One laid off employee from an automobile plant describes the period as a hard hitting IMF typhoon. So struck are S. Koreans with the term that it has become synonymous with financial hardship. In the 12 years since the crisis the IMF itself has changed. It is now trying to provide help to countries on better terms and is conscious of the problems of austerity policies. During the 2008 financial crisis Seoul stayed away from the IMF. Seoul is host to the G-20 in 2010 and now has a participatory role in international meetings. The IMF has created a emergency loan facility that could be useful for Asian countries and wants to change the perception of the IMF in Asia....

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Paul de Grauwe, a economist at the London School of Economics points to two problems with the June 28, 2012 EU deal that allows the EU rescue fund to buy Spanish and Italian bonds and provide capital aid directly to Spanish banks. One is the limited funds of the rescue fund, European Financial Stability Facility or by its other name European Stability Mechanism. The EFSF or ESM lacks credibility because it lacks resources, it has only 248 billion euros, and has to first raise money in the bond markets. A better approach would be for the ECB to buy Spanish and Italian bonds aggressively, allowing a smaller spread between these bonds and the German bonds, says Grauewe. Germany is the largest shareholder at the ECB and opposes this move as a form of mutualizing of debt in the EU. Grauwe's recent paper shows that the depressed bond conditions for Spain and Italy are driven largely by a psychology of fear and not hard true economic numbers. Christopher Marks, global head of debt capital markets at BNP Paribas, says it is important to create the confidence to get longer term core investors such as pension funds, sovereign wealth funds and insurance companies back into this market for Spanish and Italian bonds by reducing volatility and yield. These longer term investors have left the market creating a severe problem. The shorter term investors, who came into this market in the last 1-2 years, are now the loudest voice saying Spain and Italy are likely to fail. These shorter term investors are either selling these bonds short or getting credit default swaps. A big problem coming out of the June 28, 2012 agreement, is that it is short on details. The details of how the rescue fund will operate, its funding, and the conditions for making making direct loans for stakes in banks or buying government bonds are still to be clarified. Germany's Constitutional Court also will rule on how this would be conducted and the Merkel government would continue tough negotiations on the details creating added uncertainty. ...