This, from Business Insider, is the scariest chart in the world today:
That's Spanish bond yields. And they're going up. Way up.
Spanish bond yields are probably the key indicator for the future of the euro. Think of the euro zone as a single political body afflicted by a cancer. Greek bond yields are where the cancer began: It's bad, and if the cancer can't be beaten into submission, the euro zone might have to amputate Greece. That would be painful and horrible, but it can be done. Spanish bond yields are where we see whether the cancer has metastasized into the vital organs: If the cancer overtakes Spain, then the euro is done. There's no path to saving the euro zone that doesn't include saving Spain.
And the reason Spanish bond yields are spiking, as Brad wrote on Friday, is that the treatment the isn't working. Spain has announced its recession will now be deeper and longer than originally thought. Its financial institutions will need more aid than other countries in the euro zone are willing to give. Some of its regions, like Valencia, are now begging for assistance. And on that graph, you can see the market delivering its verdict: Continued austerity will kill Spain, and in killing Spain, kill the euro zone.
Spain, it should be said, isn't under any illusions about this. Spanish officials have said, correctly, that at this point, the only institution clearly capable of saving the euro is the European Central Bank. But that would require the ECB to reverse its position on buying government debt, and perhaps even announce that it would be willing to tolerate some level of inflation. But as of yet, there's no evidence that the ECB is willing to do that. And so investors are panicking, and the cancer is spreading.