Don't Believe The ECB Hype

The markets and some commentators are trying to delude themselves that the ECB will finally do something tangible to "save" the Euro.

ECB President, Mario Draghi, has managed to con some people who should know better into believing that the ECB will conduct a major bond purchasing campaign. In theory the bond buying campaign will reduce the interest rates of Spain and Italy (note Greece is not included, because it has been thrown to the wolves) and thus save the Euro.

However, people are ignoring the two very large elephants in the room:

1 Any such decision and action to buy bonds will not occur until after 12 September, when Germany’s top court rules on the ratification of the ESM. This being over a month away means that Spain and Italy, because of crippling interest rates, will most likely have imploded by them.

2 Germany’s top court may well not ratify the ESM. Even if it does, all 17 eurozone members would need to agree to it as well. Fat chance!

Therefore, don't believe the ECB hype.

The Euro, in its present form, is finished!

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The Oncoming Storm - Eurogeddon

Europe is poised to bailout Spain and Italy to the tune of £600BN, and the Telegraph reports that a  Bank of England policy maker has told traders to prepare for a devastating market seizure similar to the collapse of Lehman Brothers.

Batten down the hatches!

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Italian Bond Yields Beyond Danger Level

Italian bond yields have gone beyond the 6% danger level this morning.

For why?

No one believes, with good reason. that the Spanish "bailout" will be anything more than a short-term palliative.

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The Spanish "Bailout" That Dare Not Speak Its Name

The market "relief" at the Euro100BN Spanish "bailout" that dare not speak its name has been somewhat short lived, Spanish 10-year government bond yields are now back above Friday's close.

For why?

Whilst the Spanish banks may have been saved in the sort term, the fundamentals remain unchanged. Spain has the highest unemployment and the third widest fiscal deficit in Europe, and its government is not regarded as being fiscally competent.

Next in line comes Italy, for which there is not enough money in the Eurozone to bail it out.

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The Fate of The Euro To Be Decided At The Gates of Rome

The ratings agency Fitch has decreed that the fate of the Euro will be decided at the gates of Rome, and has put Italy on notice that it faces a downgrade at the end of this month.

For good measure, Fitch's head of rating has stated that if Italian debt is restructured it will mark the end of the Euro as a reserve currency.

Given that a downgrade of Italy will increase the likelihood of a debt restructuring, Fitch has placed itself in the role of judge, jury and executioner.

In other news, the French are determined to push through a financial transactions tax; despite the fact that this tax has split the German coalition.

As European dictators learned in the past, a war on two fronts (in this case three fronts, Greece, Italy and France/Germany) is unwinnable. The European political "elite" need to focus their minds, and determine exactly what it is they really need to do, can do and want to do in the short term.

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The German Juggernaut

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As the eye of the financial storm moves from Italy to Spain, it was fascinating to learn that the Irish budget was being circulated around the Bundestag for approval, before it was even seen by Irish members of parliament.

Coupled with the fact that both Greece and Italy are now, in effect, German financial protectorates (complete with German appointed Prime Ministers) and we have to wonder what form of "new" European political structure and governance model is being created.

Clearly David Cameron is concerned as well, because he is hot footing it to Berlin for talks with Chancellor Merkel.

Let us trust that something more tangible than a piece of paper will be forthcoming from that meeting!

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ECB Does a Canute

The markets remain unconvinced by the new unelected technocrat government of Italy, and as such the bond yields have risen close to 7%.

The ECB is currently "doing a Canute", and buying bonds in order to keep the yield down.

This of course is merely kicking the can down the road.

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A Smaller Eurozone

As the world waits for Greece and Italy to name their new Prime Ministers, it seems that France and Germany have finally woken up to the fact that the current Eurozone structure is doomed to failure. They have talked about creating a smaller Eurozone.

Additionally, Merkel's party is discussing a move to permit countries to exit the eurozone without leaving the EU.

The question is, will these rumours turn into facts before the markets tear the Eurozone to pieces?

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Veni Vidi Vici

It is now game over for Italy and the Eurozone, as Italian bond yields have breached 7% (a level viewed as economically unsustainable).

Can the Eurozone bailout Italy?

No, there is not enough money in the "kitty".

Emperor Berlusconi's excesses have managed to do what many a Eurosceptic has only ever dreamed of, namely destroy the Eurozone.

To follow the latest updates from Italy and Berlusconi's antics read "Veni Vidi Vici".

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The End of The Beginning

As Italian bond yields hit a staggering and unsustainable 6.7%, Umberto Bossi of the Northern Leagues has called on Silvio Berlusconi to resign.

Suffice to say Berlusconi will not go without a fight, because he fears losing the immunity from prosecution that remaining in office gives him.

That being said it is clear that he is finished.

The removal of Berlusconi will give some temporary relief to Italy. However, it is clear that this is not the end of the Euro crisis, nor even the beginning of the end, but most likely the end of the beginning.

I should point out that the end of the Euro crisis will occur only when the Euro itself is consigned to the dustbin of history.

The world mnust brace itslef for months of further turmoil, as Eurozone countries are picked off one by one until the "leaders" of the Eurozone finally admit that the "game is up"..

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Italy Next in LIne

As Greece shambles towards some form of coalition government which might, given that it has a gun pointed towards its head, "graciously" accept the bailout terms foisted on it by the Eurozone, attention now moves to Italy.

This morning Italian bond yields are rising (6.6% at the moment), and are approaching the levels at which the country will have to ask for a bailout.

The only problem with that is that there is no money with which to bail them out, the EFSF has managed to raise zero funds (despite Eurozone flunkies passing the begging bowl around the world) and the ECB flatly refuses to purchase anymore bonds from Italy unless there is evidence from Italy that it will implement an austerity package.

During the course of this week the markets will push the intractability of the ECB and the stubbornness/shiftiness of the Italian political system to their respective extremes; it will be interesting to see which one breaks first.

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Lack of Political Will

Angela Merkel, the German Chancellor, is under considerable domestic political pressure not to agree to a plan for Eurobonds (intended to save the Euro from its expected demise).



A poll of Germans show that 44% want Germany to withdraw from EMU, and Merkel's coalition partners will withdraw from the government if she goes ahead with Eurobonds.



Given that there is no political will to support the policies necessary to prop up failing Southern economies (eg Spain, Italy etc), these economies will fail and will inevitably drag the Euro down with them.

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Europe Plays Canute

France, Italy, Spain and Belgium have decided to take on the role of King Canute and are attempting to turn back the tides of the markets. They have banned the short-selling of banking stocks.



The ban will last 15 days.



A similar ban was put in place in 2008.



The result?



The shorters were proved right.



As such this ban will have little positive effect, and may well exacerbate the situation.

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It's The Politicians Stupid!

As markets throughout the world plunge, on fears of another financial crisis, the blame for this can be laid full square at the feet of the politicians.

Those in the US who used the stage of Capitol Hill for their self serving antics over the debt ceiling and the "leaders" of Europe, who have behaved and bickered with crass stupidity, are equally to blame.

José Manuel Barroso, the inept President of the European Commission, publicly warned that Eurozone countries are failing to stop the “contagion” of the debt crisis. All very well, maybe. However, by publicly stating that, he needless to say spooked the markets.

To add to the feeling of panic, Italy publicly stated that China has told it that if the European Central Bank will not buy Italian debt, why should China?

I have to ask, by making this public, what exactly were the Italians thinking?

1 It spooks the market even more

2 It shows that they themselves are desperate, as clearly they are trying to offload their debt to all and sundry.

Add into the melting pot the fact the the "leaders" of Europe recently claimed, with self inflated pride, that they had "solved" the Eurozone crisis and that they had earned their holidays and you have a recipe for disaster.

Take all of the above together, and it is self evident that the blame for the current crisis can be attributed to the politicians. Politicians who clearly do not understand that markets are driven by primal instincts (fear, greed, euphoria and a pack mentality).

Until the politicians actually "get it", the crisis will continue and worsen.

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ECB Plays Canute

In an attempt to hold back the tides of the market, which will swamp a "nation too big to fail" (ie Italy), the ECB will reopen its purchases of government debt.

No matter what the ECB does, it will have little effect other than to postpone the day of reckoning. The Centre for Economics and Business Research has stated that Italy, with a debt equivalent to 120% of GDP, is on an unsustainable path and "bound to default".

Playing Canute by throwing money at the problem will simply not work, the markets know that there are fundamental problems with Euroland that can only be resolved once certain countries exit the Euro.

The fact the the leaders of Euroland thought that their recent "Hail Mary" was enough to resolve the issue, so that they could all go on holiday, shows how completely out of touch with reality they are.

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The Mad Hatter's Tea Party

The world economy stands on the precipice, thanks in no small part to the dishonesty and incompetence of politicians around the globe.

Europe faces the collapse of the Euro; as countries such as Greece, Italy, Portugal (which has just "discovered" a Euron2BN budget hole), Spain and Ireland are going to default on their debts.

Meanwhile in the USA, politicians (thanks in no small part to the pig headed intransigence of the Tea Party) continue to fail to raise the debt ceiling.

Wall Street has at last woken up to the very real danger that the politicians will fail the country, and fail to raise the debt ceiling in time, before the USA defaults on its debts. With no signs of progress from Capitol Hill Wall Street is now falling.

Welcome to the Mad Hatter's Tea Party!

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The Long Hot Financial Summer

Italy is now in the firing line of the markets, as fear of Europe wide contagion spreads.

Meanwhile the clock is ticking on the debt ceiling farce in the US as a result of the childish and partisan stand off between the Republicans and Democrats.

It's going to be a long hot summer in the markets!

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