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The European debt issues are known, and it’s also known that the Spanish government and the Spanish banks have a lot of debt to pay back at the beginning of the year, but the magnitude now seems bigger than earlier.

According to the Telegraph, banks must refinance (pay back, or rollover) 400 billion euros, European governments need to pay back 500 billion euros and there is a vast amount, probably hundreds of billions in mortgage related debt.

As institutional investors shy away from bonds, and the cost of money is on the rise, this could turn into a severe credit crisis – credit crunch 2 if you wish.

There is a window though:

Several banks are already understood to have created what one debt market banker described as “get ugly early strategies” in the hope they will be able to help their clients sell their bonds.

“I think you’re going to see everyone rush to sell bonds very early in January, because no one wants to take the chance of missing whatever funding window is available,” said the banker.

EUR/USD closed the year at 1.3383. Where will it go in 2011? Stay tuned for a prediction for 2011. In the meantime, here’s the weekly EUR/USD forecast.