The Economissed: Revolting…. Against the Rating Agencies
The French Revolution was an uprising that cost at least 600,000 lives from 1789, when the Bastille was stormed, for the next half dozen or so years. Thatʼs like a 9/11 every day for seven years. The 600,000 people slaughtered will be turning in their graves as they look upon this Financial debacle as Eco-Fascism is born. Franceʼs population in 1789 was thought to be some 28 mln, by far Europeʼs largest then.
As the revolution spread, Royalty – the Authority of the day – showed just how far removed in attitude from the common man they were which was famously encapsulated by Marie-Antoinetteʼs “let them eat cake” statement are actually starting to appear more in touch than todayʼs inept Governments. It is quite staggering how France and Germany (both abusers of the debt to GDP ratio rules) are woefully short of answers and ideas here it seems.
One and a half years in to the European Debt Crisis and we are still debating the merits of monetary policy acting without a fiscal policy despite the writing having been on the wall for quite some time now. Merkel and Sarkozy both face elections relatively soon, adding to the apparent lack of cohesion. Italy back in the market today tapping 5,6,12 & 15yr – although not too tough for China to take this supply down, administer another sticking plaster and await details of Fridayʼs summit…..if there even is one….GroundPIG day.
It is clearly time to do the following:
- Set up a FInance Ministry to oversee any member states using EU money to finance their debt. If anyone is in doubt as to whether current Sovereignty can exist in the EuroZone you are dreaming. If thereʼs a Euro – there has to be an EU Fiscal Policy.
- Bring forward Eurobond issues a la Treuhund Unification Bunds and do it quickly.
- DO NOT bother to set up a new competitive rating agency……simply understand the risk & worth of bonds.
The Greeks blamed speculators and Hedge Funds a year ago and launched an EU enquiry in to CDS trading – that report showed NO EVIDENCE WHATSOEVER in support of such allegations…..I guess an apology is asking too much though.
Recently the authorities have started to blame the Rating Agencies…. which is clearly nonsense – when history looks back for someone who took responsibility – at this point, it will find nothing but a load of spineless Federalists.
Indeed, up until very recently the authorities have tried to be clever rather than decisive – which quite frankly has backfired enormously. The latest idea that Default – without triggering CDSs – would provide the mechanism for an orderly kind of quiet restructuring shows just how ignorant they are….The Agencies (understanding CDSs a little better) warned about the lack of a credible hedge and promptly downgraded Portugal….no CDS meant there was no exit for guys long Italy…..Ireland swiftly followed in to junk status…what a week…Good job guys – thatʼs 3 of 4 pigs now in the sh!t – & for every contagion, failure is clear.
And so, once again the EU Fin Mins jump on planes – spout the usual “The EURO will never die” propaganda… and manage to bully someone somewhere to buy some Spanish and Italian debt thereby stopping the rot briefly once again. Stress tests – which laughably the authorities seem to be pining all their hopes to will come and go by the weekend – no doubt starting to take a little pressure off but Basel III isnʼt what it should be and as such the real problems remain.
When will the EU realize that the debt to GDP ratio rules were keenly violated by many members and now is the time to pay the ferryman – rather than relying again in on that failed self-discipline model. When will they also realize that Monetary Policy & Fiscal Policy have to co-exist (zzzzz…) and when oh when will they realize that Europe, without a PIG grabbing the headlines, is actually as a whole, forecast to have a primary deficit of just 1% of gross domestic product in 2012, well below the 6-7% of GDP forecast for the U.S. and Japan.The euro zone also runs a current-account surplus, unlike the U.S., which continues to run a 4% deficit. Europe is fine – but can Europe act as one? What will PIGS say to losing Fiscal Authority? – Well, if there was ever a time to let them eat cake itʼs probably now…..
IF (and i realise that the EU is one big IF here) they find a fix we will obv. retrace quickly….it’s binary – but with Fitch keeping Italy supported, fabourable IMF comments on Greece, stress tests friday & the market screaming for some kind of credible news….it seems prudent to have a trade on to take advantage…
The low ~ high for the Dec contract 118.80 ~ 129.52 & 61.8% = 122.90:
The Economissed is produced by Paul Wiggins head of Futures & Options at Market Securities in London.
Charts courtesy of Bloomberg
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