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BERLUSCONI IS GONE. No doubt, world leaders across Europe are busting open the prosecco, cheering alongside the people on the streets of Italy.
But of course there’s no great reason to think that the next PM of Italy (likely Mario Monti) will be much better at enacting reforms, or that any said reforms will keep the bond wolves at bay.
No, what we’re going to be watching on Monday is whether the ECB – lead of course by Italian Mario Draghi – will seriously jump into the market and suppress Italian yields. We’re not talking about a bond buying programme, we’re talking about explicit yield suppression.
We’ve been talking about this possibility of a Monday intervention for the past few days, starting with the huge interest rate spiral back on Wednesday.
Now with Silvio gone, that theory will be put to the test.
If the ECB gets in, it will be the first game-changer of the whole crisis. If the ECB waits it out, or only nibbles on some more Italian debt, it might even be worse than the status quo, since it will confirm that even with major changes in leadership, the ECB just doesn’t want to do its part.
- This article by Joe Weisenthal first appear in BusinessInsider.com
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Bring back the pound.
Ok. Thats fine until you see it devalued. Half of personal wealth in ireland would be lost. It would be the greatest depression ever.
The Euro has failed, it is time to work on minimizing the damage. Ireland and many other counties made a tremendous mistake in joining it, we now have to live with its inevitable demise.
I wish they’d do “something”. One way or the other. The suspense is killing me !!! If Euro is going to collapse – so b it. The sky won’t fall in, people will find a way & life will move on. If they don’t want it to fall, do something. Please !! Will we get rid of MerKosy now ? Time for new blood.
Declan I agree, they c
Declan I agree, they couldn’t sort out the washing I say! Do something we are all fed up with this ‘game’.
Markets, shmarkets!
Get rid of it! Economic globalization has failed. Alan Greenspan went on a roll when Clinton ‘wasn’t having sex with that woman’ and Europe followed suit with the Euro experiment – it’s failed. Countries are being barred from the bond markets national independence is being threatened by private financial dealings to the detriment of domestic economies. It’s failed let it go!
Nonsense. Economic globalisation has brought hundreds of millions out of poverty. A few hiccups along the way is a small price to pay.
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Debt write offs and wage slashing will be the best way out of this. The markets have already decided. Italy is already dead, its just being kept beating by the money of the ECB. The debt either needs to be wrote off or printed out of existance. Germany tried the latter before.
The Euro has been a spectacular failure, and we are not done yet. Italy may or may not be able to grow/reduce the debt with the constraints of the Euro, it certainly is too big to fail/bailout, that does not mean that it will not fail. The next countries to go are Spain and France and indeed Germany. The German banks are holding a lot of dodgy and poor debt, if they have to be bailed out, Germany’s credit worthiness may come in to question.
It is time to cut interest rates to zero and the ECB start buying debt and writing off of debt, that is the only thing that can save the currency from disorderly collapse. They should also start planning for the break up of the currency. The idea that 17 different economies could be merged in to one, was always a foolish and unworkable idea.
Re your last sentence, Tim – would it be a fair statement to say that if federalisation of the EU was achieved first, the Euro would have succeeded ? Like the dollar in the USA ? I think it would as federalistion of the EU could have stabilised the EU for a single currency. Where to now is anyone’s guess. Either that or the problem with the EU has to do with weak leaders. I tend to think weak leaders who are policy-less are as much to blame. Look at the clowns we had before & look what we have now.
Declan
The problem with the EU has to do with leaders and politics bought by economic strategies that became too big to fail. Global economics made the markets more important and more powerful than national economies and therefore the governments became beholden to their ‘sponsors’ and not the public and national interest. Our own 2008 bank bailout is a case in point. Iceland were not bullied into meeting market exceptions like Greece was and recovered. Argentina was ditched by the US dollar and fed to the wolves and descended into chaos. Greece is on the point of total social chaos right now. We’ve been suckered.
At least the Greek leader offered a democratic option to the public. Our lot done a deal, (under bullying by the ECB) with the banks behind closed doors in the dead of night that has made us all paupers and protected the senior bank officials salaries, bonuses and severance payments at the public expense. As I said we’ve been suckered.
“The double-bind can be stated thusly:
1. If the European Central Bank (ECB) tries to save the private banks and bondholders by printing trillions of euros to buy up the mountain of hopelessly impaired sovereign bonds, then Germany will rebel and renounce the euro as an act of self-preservation.
Germany knows that money-printing robs savers and the productive via the stealth theft of inflation, and its people will not stand idly by while their wealth is destroyed by ECB euro-printing.
2. If the ECB renounces money-printing, then the only economy solvent enough to fund the 3-trillion-euro bailout with actual cash is Germany, which will rebel against this debt-serfdom by renouncing the euro.
There are only two paths, and they both lead to the same end-state: dissolution of the euro and the EU’s monetary union.”
That pretty much sums it up.
Good summary but missing one important point. If the ECB agrees to act as lender of the last resort to euro governments, unless the markets believe the euro-zone as a whole is insolvent, the ECB won’t need to print money, the markets will freely lend. It’s therefore a gamble on the overall solvency of the euro and on their ability to rein in overspending members.
A guarantee of this nature is inevitable, but why do it until the Berlusconi’s of the eurozone have been replaced and proper economic governance introduced, including harsh austerity where needed? All in good time….
ECB lender of last resort to beleaguered EU states with only a EU440 billion bailout fund? Don’t think so.
And you’re right! Germany’s not going to buy into funding an EU bailout and the markets are too jittery also so where’s it going to come from – China? The games up.
It actually depends on German reaction to the departure of Berlusconi AND the budgetary measures passed by the Italien Parliament. If they have confidence that the new measures will work then they will temper their objections to ECB intervention.
So Germany rules ? !
Again. They’ll dominate Europe one way or the other. I like Germany & the German people but the EU is more that France & Germany.
Press the reset button and start all over again and let us learn by our mistakes
Yes, sounds smart,what about the next time theses faceless people make another f… Up.Then what reset the button again? The whole euro idea was great but it is like everything else that that is not equal it will eventually come tumbling down. The Euro is over.The sooner we all realise that the better.
It worked in the US.
Until now!
Nice comment Hot Toddy – so simple, makes obvious sense.
Silvio has not gone away……
PS Comparing the EUSSR to the USA is not a good idea.
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