The optimistic hype and media campaign surrounding the recent European bank stress tests were a bungled attempt at reassuring investors that the European banking system is sound. We peel back a few layers of the onion to find that these very same European banks are fully loaded on the rotting sovereign debt of virtually bankrupt nations Portugal, Italy, Greece and Spain.

These banks would have been in panic mode last night as credit spreads on sovereign debt blew out across the board. The 10 year Portuguese bond jumped to a whopping 355 basis points over the German Bund, the widest on record since Bloomberg began collecting the data. The German – Irish spread reached 377 basis points, pushing Ireland’s borrowing costs over the 6% mark. There was also some chatter in the rumour mill that the ECB was doing some buying to support sovereign paper. This saga weighed in heavy on the gold market with the COMEX spot price finishing the day above the previous high spot close of $1256 on June 18, 2010. If we can break previous all time highs of $1265, we could swiftly see a move toward $1300 - Lock n Load!

The whole of Europe, both governments and banks are up to their eyeballs in a domino debt situation that is still spiralling out of control. Hand in hand, they go back to the debt trough again.

Fears rise as EU nations aim to raise borrowing

The eurozone debt crisis is about to enter a critical phase as governments prepare to step up borrowing in the capital markets to fund their faltering economies.

Some strategists are warning that some of the weaker economies could fail to raise the amount of money they need as eurozone governments attempt to issue double the amount of debt this month compared with August.

Eurozone governments will try to raise €80bn ($103bn) in September compared with new bond issuance of €43bn in August. Spain is expected to attempt to borrow €7bn in September compared with €3.5bn in August, according to ING Financial Markets.

Spain, Portugal and Ireland, so-called peripheral eurozone economies, are considered most in danger of being shunned by investors as worries persist over the health of their banks and economies. Greece is no longer a concern because it has emergency loans to cover its funding for the next two years.

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