Wednesday, October 05, 2011
The New "Reality" From The Bunkers of Euroland
As the EU refuses to act to resolve the never ending crisis, markets have become used to the new "reality" of rumours/denials/promises/reneges being made by those allegedly "leading" Europe.
Unsurprisingly this febrile atmosphere, as we wait for Greece to finally/officially default and leave the Eurozone, has caused wild swings in the markets.
The latest round of news and rumours will do nothing to quell the volatility.
On the news front:
- Moodys' have downgraded Italy
- Greece is on strike (below is live footage from Syntagma Square)
- Cameron (rather bizarrely) wants everyone to pay off their credit card debt (doesn't he understand that consumer economies are built on debt?) UPDATED Frightened by the ridicule heaped upon him, Cameron has changed that part of his speech.
On the rumour front:
The EU would have us believe that Dexia will be saved, and that European banks will be recapitalised. Oddly enough the markets actually believed this briefly and rallied. Commonsense then dawned, as the markets realised that this was in fact the normal bullshit being pumped out by the clueless bunker dwellers who "lead" the Eurozone.
As I noted yesterday, given Dexia's exposure (180% of Belgium's GDP), saving the bank is all but impossible. Add into the mix that other banks are also going to need saving (eg BNP and a number of Italian ones) and it becomes clear that the Eurozone is powerless to save them.
Unless the EFSF is expanded by to many trillions, it just can't be done. Germany has stated that it will not allow an expansion of EFSF.
Therefore, simply put, there is simply not enough money in Europe to save the banks without there being significant crystallisation of losses and a major print run of paper.
Meanwhile deep in the bunkers of the Eurozone our leaders are drafting the next rumour, which they hope will underpin the markets.