Spain’s Prime Minister Mariano Rajoy unveiled his much anticipated 2013 budget that was quickly billed a crisis budget to lift the country from crisis.  The Euro gained some strength based on what appears to be severe budget cuts and far less severe tax increases than expected.

Spain’s 2013 budget relies heavily on an increased Value Added Tax (VAT) to increase revenues.  The budget has 43 moving parts that will make today’s distressed economy looks like a comfort zone by the end of 2013.  The 43 new reform laws will be introduced over the next six months. The budget includes mandated reforms to the labor market, public administrations, energy services and telecommunications sectors.  The most immediate question is how Spain can expect to reach a positive growth rate. This budget projects a 0.5 percent recession year.  That would be a dramatic reversal of form.

The manufacturing sector is down, housing values are down as much as 60% in some areas. There is large scale social unrest throughout the country.  There appears no hope for improvement of the 25% unemployment rate and this budget may very well expand that figure.

Under the Prime Minister’s plan, the central government will reduce spending or €13bn next year.  Spending, not including Social Security and interest payments, will be down 7.3%.  Revenues will increase 4% based on approval of a 15% increase in the country’s VAT.

Prime Minister Rajoy has come under fire from euro zone members because he has resisted applying for bailout funding.  However, in the tenuous political position the Prime Minister finds himself, the formal application may well lead to his immediate ouster.  Spain appears determined to grind out some form of recovery based on seemingly whimsical hopes of foreign investment.  Whether it is a matter of convenience or from some source of unannounced insight, Germany believes that Spain does not need assistance.

However, on Friday a report on the state of the country’s banking system will be released. Analysts project a minimum of 60 billion euros will be needed to stabilize the country’s banking and financial industry.

Two big concerns from the European Commission are how Spain will handle its pensions and what it will do about the retirement age.  Treasury minister Cristobal Montoro said pensions will increase by 1% in 2013.  He refused to answer questions as to whether the government would pay a rate of inflation on previous pension payments.  The possibility seems doubtful as it would add another six billion euros to the national debt.

The budget is based on a 0.5% recession rate for the upcoming year.  This, in itself, would be a major financial and economic turnaround.  The immediate response to the new budget was positive as the euro rebounded from two-week lows.  Any gains could well be overshadowed by tomorrow’s bank stress test results.

Expected tax increases were not included on the revenue side. This may ease some of the tension in Madrid streets but will certainly cause concern with foreign investors.

Ministry expenditures will be cut 8.9% across the board.  The budget will pressure provincial governments to increase their income according to preset limits.  This is very likely to cause a spike in unemployment during 2013.

Spain’s frustrated workforce may have expected even deeper cuts and higher taxes.  In order to qualify for bailout funding, Spain must formally apply for help.  The precursor to receipt of the money will impose the same limitations placed on Greece, Ireland and Portugal.  At this time, the euro zones fourth largest economy is trying to keep its independence and appease both frustrated euro zone neighbors and a hostile electorate.  While the Prime Minister’s budget will make progress, a lack of growth will only lead to more unemployment and more hostile protests.  Spain’s Prime Minister is in no-win situation.  Tomorrow’s bank stress test results may well be the final blow to Rajoy’s hopes for financial independence.

Momentum from Mario Draghi’s announcement regarding the ECB’s upcoming bond buying spree helped take the euro to four month highs against the dollar. A weaker than expected Non-Farm Payroll Report neutralized US equities and sent the dollar lower. The Labor Department’s report fell far short of ADP data submitted Thursday and below analyst expectations.

The economy generated 96,000 new private sector jobs in August. The projected number of new jobs was 125,000.  ADP had indicated the addition of 225,000 jobs by the private sector in August. Number of hours worked was also down. New claims for weekly benefits fell to the lowest level in a month.

The upbeat focus yesterday was dimmed on Friday but many investors feel the most recent job report gives credence to the need for QE3. The Federal Open Market Committee will hold a two-day meeting starting on Wednesday. The likelihood of new stimulus will be the featured topic. Investors believe that the program could be announced as early as Thursday.  QE3 is a highly controversial package.  The stimulus will weaken the dollar, boost equity markets and may not have enough clout to influence the overall economy.

The euro climbed to $1.2806 before settling at $1.2782 at midday. The USD fell to 80.263 against a basket of currencies. European equities continued to rise as the FTSEurofirst 300 rose to 1105.73. Yield on the 10-year US bond was up the 1.6215 percent.

In the wake of Draghi’s announcement, both the yields on Spanish and Italian debt hit 4-month lows as gold futures climbed to $1,737.30, another four-month high.

In the euro zone, a critical decision from Germany’s high court regarding the legality of the Bailout funds for euro zone members will be announced next week. Experts predict the court will vote to support the release of much needed funds but it is remain a hot topic of debate in the homeland. Germany was the lone dissenting nation in the ECB’s vote for unlimited bond buying.

In response to data suggesting a global slowdown, the Bank of England, the People’s Bank of China and the European Central Bank made conventional moves to attempt to breathe life into staggering markets.  The People’s Bank lowered its interest rate by 31 basis points to 6 percent.  The ECB trimmed rates to 0.75 percent, a historic low. The Bank of England left its interest rate at 0.50 percent but announced, the bank would begin another round of quantitative easing.

Britain is expected to print 50 billion pounds and use the funds to purchase distressed assets.  Previously, the Bank of England used quantitative easing to flood the market with 325 billion pounds.  Flooded with negative economic data, the ECB vowed to maintain their interest rate but stopped short of investing in upcoming bond markets or putting any cohesive remedies on the table.

ECB president Mario Draghi has continually stressed the need for a comprehensive overhaul of the euro zone debt crisis. Draghi appeared to be delivering a call to unified action to euro zone members. At this time, the ECB has no plans to revisit national bond markets.

Draghi’s frustration with the euro zone’s unwillingness to put a long-term program in place has come to a head.  On Thursday, Draghi told the media that new information pointed to deepening financial difficulties in the region. “We see now a weakening basically of growth in the whole of the euro zone including the country or the countries that had not experienced that before.”

Draghi emphasized that it is not just the southern tier of the euro zone that has economies fighting recession. The euro zone economies are no longer growing.  Most of the countries are either in recession or are headed there. Draghi appears to favor a combination of growth and more reasonable terms for floundering euro zone members.

The central banks of England and Europe were expected to act but China’s rate-cut surprised analysts.  The People’s Bank lowered rates last month, but in anticipation of next week’s data, the bank acted. It has been projected that China will suffer a six consecutive month of sliding growth.  It is believed that China’s second quarter will show the lowest growth since the collapse of Lehman Brothers.

Bank lending in China has experienced very little demand.  The interest rate decrease is intended to inspire businesses to grow.  The central bank previously lowered the reserve requirement ratio (RRR) to 20 percent.  This move freed more than 1.2 trillion yuan for new lending.  The bank is expected to lower the RRR to 19 percent before year’s end. However, analysts were quick to say that the central bank’s willingness to cut deposit and lending rates is more incentive than the RRR changes.

The People’s Bank launched a massive 4 trillion yuan spending bill in late 2009.  The spending policy has caused large volumes of bad debt that the country’s banks are struggling to retire.  However, it is believed that a continuation of poor economic data will spark some form of quantitative easing, which China has the resources to manage.

For its leadership role in the region, Germany has received much criticism from other euro zone members and the international investment community.  At the same time, Chancellor Angela Merkel is walking a political tightrope while facing a strong challenge to hold a majority coalition in Parliament. Meanwhile, German taxpayers are not feeling the pain of the other euro zone nations and do not support financial assistance to irresponsible EZ members. Accordingly, Merkel has been confrontational about austerity demands and addressing growth through increasing or at least not reducing sovereign debt.

For many months, finance ministers and political leaders have nervously observed what will happen with Greece, Ireland, Portugal, Spain and Italy.  The urgency about Greece is the belief that a default would ignite a series of triggers that would have investors withdrawing from Spain, Portugal, Italy, Ireland and eventually France. This has led to questions about the dissolution of the euro zone.  It has never led to questions about a euro zone without Germany.  At this week’s summit, Merkel’s intransigency has led to speculation that this is a possibility.

This possibility seems to be gaining traction and serves Merkel well as she addresses stiff political pressure from a nation of taxpayers who do not think the euro zone crisis is their problem.  Germany’s economy is not what it was before the Lehman crash, but factories are busy and the economy is strong enough that taxpayers all received a bonus earlier in the year.

In its current structure, common practice dictates that all euro zone initiatives have to clear the paymaster, Germany. The current composition of the 17-member alliance pits Greece, Spain, Portugal, Spain, Italy and a number of other EZ members who are supported by the IMF, the US, the European Commission and the ECB against Germany. As these countries share similar economic symptoms, they have common, growth oriented strategies.  While Merkel has presented a positive spin to the media, when push comes to shove, she rejects economic revival plans that are not austerity- based.  With a wavering majority in the parliament, Merkel’s hands are tied.

All along, the premise has been that if Greece falters, contagion will spread, picking off one defaulting country after another. However, what would happen if Germany left or were ousted from the Euro Zone?  Surprisingly, there might well be real advantages for other members and very real problems for Germany.  Firstly, the struggling nations would work together to create a series of stability initiatives. Secondly, these at-risk economies would be capable of drafting longer-term austerity and growth strategies. Thirdly, the Euro Zone would present a brave, unified voice.

Most importantly, with Germany out of the way, the coalition of nations with common challenges could launch several initiatives, the countries have put on the table.

• The ECB would be empowered to follow the strategies of quantitative easing that other Central Banks have implemented.

• The euro zone could issue euro bonds.

• Deposits up to 250,000 euros could be secured by the central bank and encourage domestic and foreign investors to keep money in the banking system.

Without Germany, the ability of the stressed euro zone members to right the ship increases significantly. Without the euro zone, Germany would revert to the mark.  The mark would be a strong currency that would hamper the nation’s export trade. German banks would need recapitalization and the Bundesbank’s recapitalization would dwarf the recapitalization of any American bank.

Unquestionably, a euro zone without Germany would hurt Germany and help the struggle economies in other member nations. Unless there is a dramatic shift in Germany’s policy, it will not be long before troubled euro zone nations unify and bump Germany.

The week began with optimism as the euro zone committed to lending 100 billion euros to Spain to capitalize the country’s troubled banks.  Aided by a confluence of events, optimism has turned to caution as the world awaits the results of Sunday’s election in Greece and the upcoming G20 meeting. By Tuesday, investors expressed concern that while a plan for Spain’s banks was on the table, there were no specifics as to how the funding would be provided. This week, Spain’s 10-year bonds were forced to yield a record high and unsustainable 6.86 percent

The first surprise came from Spain where it became clear that 100 billion euros would only capitalize the country’s banks for a short term. Yesterday, Moody’s downgraded Spain’s debt by 3 notches to Baa3, one level above junk status. Spain was forced to pay more than 7 percent, a historic landmark, on its 10-year notes.  These three developments halted a surging rally for the euro, leaving the currency at $1.255 USD.

Speaking to her Parliament, German Chancellor Angela Merkel was forced to explain the country’s position. Clearly frustrated by Spain’s insistence that it does not need international aid and then saying it needed more capital than originally thought put Merkel in a difficult position at home. Merkel told Parliament that she was opposed to “miracle solutions,” including the creation of euro bonds or creating a euro zone deposit guarantee program.  Italy’s Mario Monti and France’s Francois Hollande favor these actions.

One generic remedy offered by Merkel is that the euro zone members work more closely than in the past. In theory, the formation of a euro zone central government would enable the euro zone to act swiftly without needing approval of its 17 member parliaments.  Outsiders have reacted positively to this possibility but there is a lot of national pride at stake.  Yet, all solutions for the region’s distressed economies go through Germany.

Another initiative promoted by Germany’s Council of Economic Advisors would call for all debt in euro zone economies that exceeds 60 percent of GDP would be pooled and amortized over 20-years. Merkel has not endorsed this possibility but it would provide a long-term solution, which is what is needed.

After last week’s announcement that Spain had applied for and would receive the 100 billion euros, the euro zone seemed on the surface to be on the same page.  But, as has happened numerous times in the past two years, things began to fall apart once the markets opened and the region’s finance ministers had to account to their taxpayers.

Italy Enters Stage Right  

Italy’s interim ruler, technocrat Mari Monti, has seen his popularity suffer since implementing strong austerity cuts. This week, Monti struck favorable terms with Merkel and Germany when the Prime Minister announced Italy was selling some of the country’s assets but would not be able to implement any further austerity cuts. German Finance Minister, Wolfgang Schauble not only approved Monti’s program but encouraged Italians to support the Prime Minister’s plan.

Italy now has about 1.9 trillion euro or 120 percent of GDP as public debt, closer to Greece’s debt-GDP ratio than any other member of the euro zone. Monti Has gained favor with Germany because he has stuck with his original plan.  He has passed legislation to install pension and labor reform and now he is liquidating some assets.  This is the formula than Germany likes.  However, on Thursday, Italy’s one-year bonds will yield 4 percent.  Just six months ago, Italy’s one-year bond had a yield of 2.34 percent.

Greece Elections On Sunday   

Recent polls indicate that Sunday’s election will go down to the wire.  The majority of elder Greeks favor staying in the euro zone and negotiating for some relief with euro zone members. This is the position of the New Democracy, the conservative party. Younger Greeks favor the anti-austerity position provided by the liberal SYRIZA party.

As encouragement to Greek voters, the euro zone nations announced today that if Greece stays in the euro zone, terms could be renegotiated with the new government. The elections in Greece will have far-reaching repercussions for many international economies and this offer is clearly designed to sway independents to the New Democracy.

Greeks are withdrawing billions of euros from its banks and are stocking up on food and necessities in advance of Sunday’s election. No matter which party wins, there is bound to be public demonstrations. Surprisingly, Greece’s equity markets enjoyed a sharp upward turn.  This was promoted by release of an unofficial poll showing the two parties to be in a virtual deadlock.  The poll also noted that 16 percent of the population as not decided how to vote.  Much of the Greek population as taken to the countryside.

Germany and Greece have had a troubled relationship since Greece applied for bailout funding. There are 300,000 Greeks residing in Germany.  Greece is the most popular vacation destination for Germans.  Ten percent of Greeks has visited Germany. Yet, there is no political love lost between the two countries.

On deck is a G20 meeting and a euro zone meeting at the end of the month. For now, all eyes are on Greece. Whichever way the elections go, be prepared for more volatility.

After receiving calls from leaders of most of the global community, the euro zone nations agreed to lend Spain up to 100 billion euros to be used to capitalize the country’s struggling banking sector and build adequate reserves. A 2.5 hour conference call between the 17 euro zone member nations was reported to be heated at times. However, Spain’s application for assistance was met with strong support and euro zone members were quick to state their intentions to help Spain.

A statement from the euro group said, “The loan amount must cover estimated capital requirements with an additional safety margin, estimated as summing up to 100 billion euros in total.” This is the type rescue plan the global economy needed to see.  A banking failure in Spain would lead to euro zone contagion on a much wider scale.  With most countries on the continent in recession, one failure could devastate the euro economy.

In the tense and fragile global economic environment all nations are now feeling the economic pain.  The world’s largest economy, the US, is struggling with political dysfunction and a thread bare recovery so delicate that Fed Chairman Ben Bernanke appealed to Congress to reserve severe austerity trimming until the economy has an upward trend. Bernanke would like to see additional investments in growth and employment, a message echoed by the President on Friday.  The President called upon Europe to take swift and decisive action to remedy the regions multiple debt crises.

Spain has been hesitant to request assistance because of a sense of national pride and because the austerity programs required by the euro zone were too stringent. With its back to the wall, Spain opted to request the aid.  The amount will be determined by an audit that was scheduled to be released Monday but will now be released June 21, 4 days after Greece votes for a new government.

Spain insisted that the IMF not provide any assistance. Spain’s Economy Minister Luis de Guindos announced that “The Spanish government declares its intention to request European financing for its recapitalization of the Spanish banks that need it.”

While the IMF funding will not occur, the IMF and EU institutions will participate in monitoring Spain’s economic and banking activity. While euro zone embers preferred that a specific amount be requested, Spain chose to wait until the completed audits were presented. The region would like to have finances in place before the Greek elections which could lead to a withdrawal of Greece from the euro zone and a fiscal collapse.

In an interesting report provided by the BBC, the youths of Spain and the youths of Greece have a common pursuit. Disillusioned by city life and high unemployment, youths are migrating to the country to attempt to make use of farming land.

While the promise of funds for Spain’s banks is encouraging, markets will be only moderately settled until specifics of where the funds will come from are described. Funds could come from the EFSF or the more permanent ESM which goes live next month.

To satisfactorily capitalize itself with acceptable reserves, Bankia will need 23.5 billion euros.  Bankia was nationalized last year and now consists of the original entity plus seven community banks. Moody’s had pared Spain’s credit rating by three notches to BBB.  The reason for the downgrade is the banking sector’s exposure to bad real estate loans and a slumping marketplace. Last week, Spain was extended another year to get its sovereign debt down to 3 percent of GDP.

The next two fire alarms in the euro zone will be the Greek elections and the fate of Italy’s banks. It will be interesting to see what the credit agencies think of this plan and what its effect on stronger euro zone nations will be.

Germany’s normally conservative Finance Minister, Wolfgang Schaeuble, threw his support behind Spain’s request. “Spain has taken big steps to get its economic and financial problems under control. It has launched profound structural reforms and that is what all international institutions are saying.”

Greece is dangerous, but Spain is the toxic poison that could end the single currency. On Tuesday, the euro gave more ground settling at $1.2487USD, down 0.41 percent. Investors are jittery about Greece, but are in fear of a collapse of Spain’s fragile banking system.

Financial leaders and politicians are scrambling to create a long-term solution. The 17-member euro zone seems resigned to the failure of Greece. While some nations have suggested that Greece be given more time to get their political and financial houses in order,  Germany and Chancellor Angela Merkel appear to have drawn a line in the sand believing that Greece will default at some time, sooner or later.

Greece’s four largest banks received 18 billion euros from the country’s bailout fund last week. Along with Spain, Greece is in jeopardy of the depositor panic, already manifested in Ireland.  As the likelihood of a euro failure, Greeks and Spaniards are withdrawing more than is being deposited.  In Spain, the crisis is so bad that banks will not lend between themselves unless the proceeds have collateral.

If Greece and/or Spain fails, the money on deposit will be converted to the national currency, which will be severely devalued.  The populations are realizing this is a strong possibility and are clearing out savings and deposit account leaving the banks in terrible shape.  Most are unable to meet daily expenses.

Investors believe a default by Greece would be bad but manageable.  Not so for Spain.  If Spain defaults the euro zone will be all in.

Mario Draghi, the President of the European Central Bank (ECB), has stepped up his message. The ECB has infused more than 1 trillion euros into 3-year, low interest loans or Long Term Repayment Operations (LTRO) since December. The perception is that euro zone members will do everything possible to cover the possibility of a run on Greece’s banks. But, the euro zone paymaster is Germany and Chancellor Merkel is in the most delicate of political situations.  Germans do not support further funding to Greece, who is unable to commit to a repayment plan.

Euro zone members are not optimistic about Greece, who has gone one bridge too far with its repayment commitments.  Draghi has kept the pressure up on the euro zone members to construct a serious failure protection mechanism. Recently, Ireland’s banks came under pressure as depositors started withdrawing as much as they could.  When the government stepped in to meet the bank’s obligations, the government was insolvent. The IMF and the European Union came to the rescue but the scenario is likely to happen.

ECB policymaker, Joerg Asmussen explained the region’s biggest fear. “The recapitalization of a troubled bank by its government may lead to a deterioration of the government’s fiscal position.” Draghi has said the regional countries must come up with a failsafe in the event a run on the bank in one country spreads to others.

One strategy which Draghi supports is increasing the euro zone’s guarantee for depositors, which is now.  The US has said that increasing the insurance on deposits could generate as much as $2 trillion in liquidity. This may be a regulatory change the euro zone can accept. Failure to enact some policy change will end the single currency.

This week’s meeting of euro zone members in Brussels was another unproductive dance around the sticky issues of Greece, Portugal, Spain, Italy, Ireland, growth and austerity. There is a certain air of defiance in the euro zone as supporters of growth, led by France, square off against Germany and its austerity policy. In the front and center stage of the euro zone crisis stands Greece, a nation conflicted by heavy debt, massive unemployment, no central government, 5 years of recession and riots in the street.

In mid-morning Friday, the word from Brussels was to prepare for Greece leaving the euro zone and returning to its own currency. This possibility gained traction because of Germany’s resistance to euro bonds and because Greece is on the verge of defaulting on all its obligations, including agreements to repay bailout funding.  Both the IMF and Germany are adamant about Greece living up to its obligations.

By midday, the euro was at $1.2511 USD and trending below the $1.25 resistance level. The euro is at its 20year low. Many Forex advisers believe that if Greece is out of the euro zone, the euro will fall to the $1.23 level and finish the second quarter at $1.20 falling to $1.15 in quarter 3, 2012.

Euro uncertainty has boosted the dollar as a safe haven. Against a basket of currencies, the dollar held firm at 82.411, the highest level since 2010.

The euro zone unrest will affect US exports.  19 percent of US exports are delivered to members of the 27-nation European Union. Euro zone exports account for 13 percent of total exports. Euro zone members.

Deutsche Bank issued a statement indicating that in 2010, Europe comprises 25 percent of world trade. The continent is a major importer for both the US and China.

If Greece puts a government in place in June, it is very possible the country will default on everything. The country will run out of money and will have to print its own currency.  The country will be in internal chaos.

What did emerge from Brussels is a variety of ideas about surviving the exit and default of Greece. Contingency plans are already in the works.  The member nations are trying to shield Portugal and Spain.

However, the biggest challenge facing the region is investor confidence. Greece is in a vulnerable position.  The country has little leverage and a history of breached agreements. The country accounts for about 2 percent of the region’s GDP. The exit of Greece would have minor consequences for the US but larger ones for Germany, France and its allies.  If other nations follow Greece’s example, the euro zone could disintegrate. That would be a serious problem.

Today, CNBC reported that a large concern in the euro zone is the scarcity of investors. There is no confidence that the members can negotiate a balanced remedy involving both austerity and growth.

When it rains it pours. S&P downgraded five Spanish banks on Friday. At the same time, Banksia, a conglomeration of failing banks assembled by the government, said it needed 15 billion euros to stay afloat. A failure in Spain carries much more serious consequences than the failure of Greece and would most likely trigger a series of international defaults.

A crash of the European Union banks would cause a crisis larger than the fall of Lehman Bros.

In a long past due scenario, the euro zone members are weighing the German policy of austerity against GDP growth.  The controversy jeopardizes the euro as a single currency and even the survival of the euro zone.  The weekend did not produce the results that the IMF’s leader, Christine Lagarde, had hoped to accomplish in her fund raising initiative.  Compounded with weekend activities in the region, the euro zone looks to be on tenuous footing.

 Dutch Prime Minister, Mark Rutte, resigned as the Dutch Coalition submitted their collective resignations to Queen Beatrix.  The resignations are the result of a split with the populist Freedom Party, which had supported the coalition until the recent austerity legislation.  Queen Beatrix has requested that the coalition continue to serve until such time as new elections can be held.  That may not be occluded until late Summer.

The Dutch crisis preceded the results of the first round of French presidential voting.  The biggest winner in the surprising elections was not the winner, Socialist Francois Holland, or incumbent Nicolas Sarkozy, but Maine Le Pen, the far right activist who succeeded her father as head of the National Front. Le Pen capture a sunning 19 percent of the popular vote.  Although the margin was not enough to qualify for the two-way runoff in the next round, it assured the Front Line of a significant voice in the upcoming second round.

It is projected that Sarkosy, the first incumbent to not win the first round of elections, would be the more significant benefactor of the Le Pen followers.  However, Le Pen has repeatedly attacked Sarkosy for enabling the euro zone crisis to affect the country’s economic stability. 

Both Le Pen and Holland have been critical of Sarkosy’s willingness to implement severe austerity cuts to meet the euro zone’s budget restrictions.  LE Pen is well positioned to increase her coalition’s influence.  Her platform stresses returning a national currency and terminating France’s subscription to the euro zone.

The magnitude of the Le Pen, Holland vote is emblematic of the anti-establishment posture that is sweeping across the euro zone.  This sentiment clearly jeopardizes the investors in the Greece bailout.  With Greek elections scheduled for May 6^th, there is real concern that the new government will not comply with the terms of the bailout.

As other euro zone countries have discovered, the austerity cuts are too large and too quick.  Most nations implementing these restraints will be unable to grow economically.  Although not strictly a quantitative easing mechanism, the participation of the ECB comes about as close as possible to quantitative easing. 

To further underscore the euro zone crisis, Spain has rejected further austerity cuts.  Instead, the government has sided with its populace that is opposed to further constraints.

The news does not get any better.  In addition to all the negativism about the euro zone austerity and lack of growth, Germany reported its lowest manufacturing data in three years.  The euro zone paymaster looks to be a big loser if the Dutch, Greece, Spain and France reject austerity programs.

The biggest political loser could well be Germen Chancellor Angela Merkel, the driving force behind the euro zone negotiates to date.  The Dutch are a favored trading partner with Germany.  As one of the few euro zone members with a triple A credit rating, the economic differences ion the Netherlands could well result in a lowering of The country’s credit rating.

In early trading, the euro gave away some ground to the dollar, settling at $1.3129, down 7 percent over the weekend.  ING projects that the euro will fall to $1.20 by the end of the second quarter. That marks some serious volatility.

To cut to the chase, the continuation of the euro zone is going to boil down to which nations are willing to comply with the budget cuts necessary to contain spending to 3 percent of GDP.  It is growth versus austerity and while the politicians may talk the talk, the people have the power and they seem poised to act at the polls.

On the surface, it appears the euro zone concluded a tumultuous week with a bit of uncommon harmony.  The zone’s finance ministers agreed to increase their emergency firewall to 700 billion euros.  The move comes at a fortuitous time, just ahead of the upcoming G20 Summit in Mexico.

In essence, the increase amounts to a 200 billion euro increase.  The remaining 500 billion euros has already been pledged to two separate bailout mechanisms.  The newest strategy will combine resources in the European Financial Stability Facility (EFSF) with resources in the European Stability Mechanism (ESM) and include 200 billion euros pledged by the 17 members.

One must question the timing of the latest release.  The newfound cooperative spirit does not accurately reflect the existing euro zone culture. The European Commission has pushed for an increase to 940 billion euros but Germany, who bears the bulk of the funding, would not commit to the recommended increase.

Combining this unenthusiastic response to the European Commission with a position announced by the Netherlands does not soothe international request for assistance. In a surprising and telling statement, the Netherlands declared that it would not release the funds they have committed to help Greece unless Athens completely complied with the IMF requirements.

There is speculation that the new regime in Athens, to be elected later this month, is not committed to the austerity cuts imposed by their fellow euro zone members.  The political, social and economic climate in Greece is rowdy and volatile.  If the new government shows any signs of wavering, Greece will be out of business in the blink of an eye.

From here, the most recent gesture by the euro zone financial ministers appears to be little more than an effort to sway the G20 participants to bolster the IMF so that the bank can provide further assistance to the troubled region.  This sentiment was confirmed by EU Economic and Monetary Affairs spokesperson Olli Rehn, “The euro area has responded to calls from our global partners, the G20 and the BRIC countries.  I trust today’s decision will pave the way for an IMF decision at the spring meetings.”

If the euro zone has been consistent in any decision, it has been in its pursuit of outside help for the flailing economies, most of which are mired in recession r entering their third recession in the past 6 years. 

Both Washington and IMF Chairperson, Christine Lagarde, expressed approval of this long-awaited, perfectly timed verbal representation.  In the past, Washington, the IMF, China, Brazil and Britain have been unwilling to boost the IMF fund until the euro zone has demonstrated the willingness to increase the bailout funds.

In an election year, the likelihood of Washington sending more money to help the euro zone seems dim. The economic tension in the euro zone has shifted from Greece to Portugal, Spain, Italy and Ireland.  Most recently the desperate economies of Portugal and Spain have moved center stage.  

Amazingly, the euro gained traction Friday based on an announcement that the country was enacting a plan including austerity cuts and revenue increases from delinquent taxpayers.  The revenue component is similar to a tax amnesty opportunity.   It is believed that Spain has approximately 25 billion euros of uncollected taxes.  The new plan would offer tax violators a dramatic savings.  Spain projects that delinquent taxpayers will be able to settle at 10 percent as long as they remain current in the future.

The expected return of 2.5 billion euro seems trivial and has come under fire from conservative factions. Euro zone partners have imposed a goal on the ailing economy.  Spain is to trim debt level to 3.2 percent of GDP by 2013.  To get there, Spain must reduce debt to 5.7 percent this year, an unlikely outcome.

There are only two options for the euro zone’s 4^th largest economy.  Spain will either have to request amnesty in the form of an extension or implement a sever tax hike which could well lead to violence and cripple the nation’s economy.

Meanwhile strikes and violent protests are taking on the familiar face of the Greek protests.  The country appears to have launched an aggressive marketing campaign to entice tourists.  However, tourists cannot be overly enthusiastic about visiting a country that is setting fires in the streets and strikes that hamper airports and trams. 

The euro zone continues to shy away from the stark reality that the region has no growth and little chance of growth in the next two or three years.  Until that time, the euro zone is on the dole and the possibility of a failing single currency is very real.