The Economissed: Time to Take Your Medicine…
I was going to rant with regard to the short comings of the group of weak willed spineless European ‘leaders’ who are tasked with leading us away from the Black Hole that is Sovereign Debts’ point of no return. That point appears to equate to an approx. 6% govie yield and some awful “-ve outlook” speak at present. Everyone is asking who has lent money to whom exactly? When clearly the better question would be – who hasn’t?
Italy can not afford to pay higher debts here – not with GDP shrinking (in part due to a loss of German Orders along with the associated manufacturing jobs to their more competitive Eastern European partners) and a Premier who has slightly less respect from half the electorate than DSK & who appears in court for the 16th time this week (or would if it were not for Official State Business). Throw an already upset electorate a bone why don’t you – this according to the FT:
Tito Boeri, professor at Bocconi university and one of Italy’s best known economists, has issued an analysis of the budget, comparing the final version with earlier drafts. He claims that in the finished version MPs are €12,000 a year better off than in earlier versions.……What do they really earn so that they can drive a Ferrari?” asked Mr Rizzo in a television interview, referring to Marco Milanese, a fast-driving MP of Mr Berlusconi’s party who until last month was political adviser to Mr Tremonti. A judge has approved his arrest for alleged corruption….”
Why on earth has a rating agency not downgraded this comedy of errors (or the risks associated with the ability to finance payments in any way) - no one knows…especially strange in light of their rather clumsy, if not obsessive compulsive disorder type swipe at the ECB & some EU officials who dared undermine their process. I believe they would have already downgraded Italy if not for this summit (no point wearing an ECB bitch-slap – doesn’t look good to the paying clients). So the Politicians – after blaming the rating agencies for acting too early – have the ball well and truly in their court – & what Europe needs is threefold:
- An EU Ministry of Finance. To manage Member States Fiscal Policy, implement the collection of taxes. Poss under Sir Merv King? a Knight to lead a charge….he could also address EJU financial regulation.
- A rather large printing press.
- A rather large pair of balls.
Fat prophets chance of those three occurring….what we do know is that only dealing with the Greek problem today is tantamount to directly furthering the crisis….which has a chance to go exponential now quite clearly. It’s why we’ve been targeting yield lows and breakout highs through ownership of short volatility profile put & call flys or similar. We also know that Europe has placed one sticking plaster after another on top of a severed artery. It’s high time to acquiesce Dr Merkel & rip off those plasters and address this wound properly before the patient bleeds to death. The flip-side is the very real possibility that the the general public start to really question whether the printed bank notes in circulation are as worthless as the AAA rated Greek Government Debt is now. My word is my bond? – HRH QE2 has a shock coming then…promises promises.
Pity David Cameron who steps off an airplane from Africa to find the Metropolitan Police in total shambles, not even able to protect an 83 year old man from down-under – who has been doing us all-over. DC himself is so embroiled in the mire that it’s even raised a smug smile on Milliband’s Wallace like face (or is it Grommit – I can never tell those two apart ). Now Dave is only 6-1 to quit, in from 25:1…..does that mean that Nick Clegg becomes….no wait…stop…..this is lunacy!
I wonder if the agencies would take a collapsing coalition as a reason for a downgrade? UK CDS creeping higher daily & after all Italy does owe the UK an awful lot of money….in return we owe them a fair amount it must be said….but then they also owe the Germans a lot….the Germans owe the French a huge sum and the French lent a load of cash to the Spanish…they loaned some to the Portuguese who themselves lent to the Greeks (with a slice to Goldman each time no doubt judging by their recent numbers)…of course the Greeks lent some to the Irish and a lot of that debt was then purchased by European and US Investment banks who sliced and diced it out to the street and to you and I….making this just a little Global, which of course this crisis has always has been. If the ECB accepts poor collateral and they have a massive swap line with the FED then we have those same 2 choices again; Default spectacularly or Get Printing, Tax Collecting, Selling Assets & Devaluing.
Bottom Line: Get on with it Angela – look closer & you’ll see that others are playing by the new rules already….
The Economissed is produced by Paul Wiggins head of Futures & Options at Market Securities in London.
Charts courtesy of Bloomberg
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