How Much Further Can Europe Fall?

Thursday reiterated the fact that it is not a good time to be a European. More specifically, it is not a good time to be Greek and, more specifically still, it is not a good time to be a Greek politician. For the fifth consecutive day, the euro weakened as stocks fell and commodities declined, with Europe's leaders still divided over what to do with Greece. It has become a situation akin to parents discussing what to do about a teenage child who has managed to rack up a few thousand dollars in credit card debt. You love the kid, but what is the right thing to do? Do you pay the bill and punish them later, or do you teach them a lesson and let them deal with the consequences of high interest and awkward phone calls from collection agencies? According to

, the cost of insuring government debt against default rose to a one-month high. In addition, at 10:05 a.m. in London (5:05 EST), the MSCI All-Country World Index fell 0.7 percent. That wasn't all though. Thursday saw the Stoxx Europe 600 Index fell 0.8 percent, led by banks, while Standard & Poor's 500 Index futures lost 0.4 percent. Meanwhile, the euro dropped under $1.30 for the first time since January 25 and Spanish ten year bonds fell for the third day in a row something that sent the yield 11 basis points higher. Things on the other side of the Atlantic, it would seem, are going from bad to worse. The news doesn't stop there. The Markit iTraxx SovX Western Europe Index of cedit default swaps on 15 governments rose for the seventh successive day, while the S&p GSCI gauge of 24 commodities fell 0.4 percent, with copper at a three-week low. Much like the aforementioned imaginary teenager, there are concerns, naturally, that Greece will miss a debt payment next month, due to the fact that a decision on 130 billion euros ($170 billion) in aid has been postponed until February 20. It is a decision that European leaders are not taking lightly, and why should they? This is a tremendous amount of money, and austerity measures in Greece, as harsh as they admittedly are, are being met with tremendous opposition from the Greek public. So how will Europe ever realistically get the money back? “In the absence of a fresh catalyst, the current rally in equities is looking rather tired,” said John Woods of Citigroup. “The positivity around issues such as Greece is beginning not so much to wane as to sour.” He's not kidding. As if to reiterate his point, nione stocks declined for every stock that rose in the Stoxx 600. According to Bloomberg, “Ratings for UBS AG, Credit Suisse Group AG and Morgan Stanley may be lowered by as many as three levels, while those for Goldman Sachs Group Inc., Deutsche Bank AG, JPMorgan Chase & Co. and Citigroup Inc. may be cut two levels, Moody's said in a statement.”