BREAKING….ECB hoovers up more bonds as EU debtor borrowing costs continue to rise.

“Look into my eyes, look into my eyes, look into my eyes….”

Trichet’s hypnosis looks more and more like hocus-pocus

The European Central Bank is quietly increasing its purchases of government bonds, amid rising concerns about the ability of Greece, Ireland and Portugal to repay their debts.

Tricky Trichet’s ECB has spent more than €61 billion since May on government bonds, but borrowing costs remain very high for struggling EU debtor nations. Yield spreads between government debt in Greece, Ireland and Portugal and their ‘safer’ German equivalents are hitting or approaching record highs. The painful squeeze of falling gdp and rising repayment management costs on the bollocks are the inevitable result of employing the scrotal dialect for too long….but this doesn’t seem, as yet, to have gotten through to Trichet in Bankfurt.

The objective of the bond purchases, the ECB’s President says, is “to help restoring a functioning of our monetary policy transmission.” While it is surely a laudable aim to be restoring the transmissioning of the policying, the restoring of the functioning isn’t doing much of the happening.

The yield on Dublin’s 10-year note was up another 18 basis points to 6.54% yesterday, the highest since adopting the euro, while Ireland credit default swaps are at a record high of 429 basis points. Dublin is due to test the market on today with an auction of up to €1.5bn worth of paper.

Portuguese 10-year yields are also spiking higher, up 20 basis points to 6.46%, taking the spread with Bunds to a record since the euro was created.

But all is not exactly quiet on the WesternLB front either. Following the recent shotgun marriage between Deutsche Bank and Postbank, WestLB and Bayern LB (Landesbanks) issued a joint statement yesterday saying they would ‘assess this year whether to join forces to create Germany’s third-biggest bank by assets’.

While the term ‘this year’ is technically accurate, it also equates roughly to ‘right now as quickly as possible’. WestLB has already been bailed out twice, but the medicine isn’t working. If the deal completes quickly, it could mark a breakthrough in long-standing attempts to consolidate the troubled Landesbanken sector. Or it could turn into an even bigger traffic accident. It’s hard to tell right now.

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Anonymous on September 21, 2010 at 3:31 pm

I've always had far more respect for Hillary than O'barmy. Because she proposed drastic reform of healthcare before Obama, she was unfairly looked upon as being more left-wing.I believe Hillary does believe in the concept of fiscal discipline. But O'barmy has encouraged a more leftward shift in Democratic thinking (particularly in Pelosi's mind) since he became President.The big problem for America right now is this – if O'barmy did not see a threat to the world economy from the Eurozone fiscal crisis then he's a bloody fool!O'barmy just seems to be too fixated on his failing "borrowing out of recession" (re-dubbed "fiscal stimulus") strategy.It'll be interesting to see how many Democrats challenge this muppet for the leadership candidacy in 2012.Warren Blinston

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Barncactus on September 21, 2010 at 7:46 am

Trichet is still playing the "bankers' bluff". He knows full well that a total bail-out of the PIGS would be so far beyond the Germans' capacity to finance (let alone their will) that his only route is to finesse and bluff. It's wonderful to watch such a shabby and demeaning charade.Unfortunately he is playing poker with some canny opponents. They know what his cards are (and to some extent he knows theirs) but timing is on the side of the speculators as they only have to wait until he has depleted his financial bluffing/smokescreen ammunition and then pounce. For while his finances are not unlimited – and may not in fact exist if the Germans play up – the underlying problems are, well, underlying, and remain so whatever Trichet does short of devaluation of the PIGS' parts of the Eurozone.Timing as ever is hard to predict and may be triggered by some other external event, but there is a major change coming to the Eurozone and Hillary is right to whisper impending Euro doom in Obama's ear.

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