John Ward August 5, 2011 European chaos

EXCLUSIVE: TRICHET BUYING BONDS, BUT NOT FOR ITALY AND SPAIN

Trichet….eccentric headgear

Germans stamp on bond-buying as full debts of eurobanks revealed

The Slog has learned this morning that ECB boss Jean-Claude Trichet’s resumption of bond buying has NOT so far included those of Italy and Spain. Reliable Slog sources among credit managers and bond traders told the site that the ECB had purchased Irish and Portuguese securities, but that Spain and Italy were being left to cope on their own.

“This is a special form of madness,” commented one Swiss based banking executive, “And part of Trichet’s obsession with member States sorting out their own mess. The guy is sending a gigantic signal out there, and this can only make things worse.”

It also emerged late last night that, had Angela Merkel’s will prevailed, there would’ve been no ECB bond-buying at all. But the EU’s central bank nevertheless bought Irish and Portuguese bonds anyway, choosing to support territories already drawing on official aid. The ECB boss told the media that Italy “must demonstrate its ability to show it can stayahead of the curve” and get sovereign debt under control.

As The Slog commented recently, Franco-German banking survival remains at the top of the ECB’s agenda: this is hardly surprising given the news that the 90-odd eurobanks who took part in the recent eurozone stress tests must refinance €5,400bn of debt in the next two years, equivalent to 45% of European Union gross domestic product.

In short, without leaving the big fish to dry out and die on the beach, the EU banking system will collapse in very short order. Meanwhile, the dilemma of how to protect even French finances centres around the need to find further funds to prop up the currency.

“To be effective, the EFSF needs to be credible and respected by the markets,” European Union Economic and Monetary Commissioner Olli Rehn said on BBC Radio 4’s Today program. Nice thought Olli, but don’t expect the French to cough up without a fight.

Yesterday’s frenzied stock market sell-off in New York was followed overnight by 3% falls in Asia, and 4% in Australia. This morning, the FTSE 100 is already testing correction territory: that is, a level at which, if it doesn’t hold, a large drop would rapidly follow…and resume again next Monday.

The weekend has once again intervened to stop total disaster…but for how long?

18Comments

Add yours

1

Carys on August 6, 2011 at 9:39 am

Any space left in the sand, for burying the collective heads of our political class?

LikeLike
2

old dog on August 5, 2011 at 8:20 pm

“90-odd eurobanks must refinance €5,400bn of debt in the next two years, equivalent to 45% of European Union gross domestic product.”

you sure?

i admit i used to be a real europhile so bit blind to bad news in that dept, are things there really that grim, we’ll see.

LikeLike
3

oldasiahand on August 5, 2011 at 8:17 pm

If that slag Sally Bercow is on BB that should be good for a tirade from the Slog about the decline and fall of the west..

LikeLike
4

Romford Dave on August 5, 2011 at 7:54 pm

It would so much easier if they stopped burning money in a futile attempt to avoid the inevitable. Let whatever is going to happen happen, then at least we can get back to real issue of who will win the next Matrix inspired Big Bro

LikeLike
5

Bankrupt Taxpayer on August 5, 2011 at 7:51 pm

€100 bond sold for €100 with 3% interest:
interest: 3/100 = 0.03

Same €100 bond later sold for €50 with same 3% interest:
interest: 3/50 = 0.06

LikeLike
6

John Ward on August 5, 2011 at 6:40 pm

TRT
Unless you know of a discount level I don’t, then I don’t follow. The bond pays interest over the period, and gives a final yield + your capital back.
Once sold, however, they get resold at all sorts of silly prices. And then the derivative lunatics get involved. And then a big boy hits your broker and runs away.

LikeLike
7

MickC on August 5, 2011 at 6:21 pm

And which countries do you consider are not ruled by shameless liars?

Certainly not the UK so far as I am aware.

LikeLike
8

LJH on August 5, 2011 at 3:48 pm

George Eliot, Middlemarch 1871:
“A man’s mind, what there is of it, always has the advantage of being masculine; even his ignorance is of a sounder character.”
Being patronising/going deaf unfortunately is still a default position for many men.

LikeLike
9

Carys on August 5, 2011 at 1:54 pm

Perhaps he doesn’t want to say that both Italy and Spain have very large ‘informal sectors’ that need tackling before anything else is done. Tax avoidance on an industrial scale.

LikeLike
10

Mac on August 5, 2011 at 1:33 pm

Bliss then…….

LikeLike
11

Gemma Laming on August 5, 2011 at 1:21 pm

You may find that the value of the Italian bond is 50DM in a few month’s time.

LikeLike
12

Gemma Laming on August 5, 2011 at 1:19 pm

You are a bloke, and would not see the affects with the clarity that I do.

LikeLike
13

Maria dos Santos on August 5, 2011 at 1:08 pm

At last its the ECONOMY STUPIDS for now!A weekend or goodish NFP numbers and all will be bliss.

LikeLike
14

TheRagingTory on August 5, 2011 at 12:22 pm

John, may I trouble you for a moment

If Italian bonds with a face value of 100 euros and an interest payment of 3% have a yield of 6%, does that mean the bond is for sale for 50 Euros?

LikeLike
15

TheRagingTory on August 5, 2011 at 11:38 am

“To be effective, the EFSF needs to be credible and respected by the markets,” I would like to point out that so far the markets – whatever form they take – are not the sort of force that understands such concepts as “respect” ”

Of course it does.
Tell the truth, people will believe what you say, lie, people will ignore you.
EUrope was the last power to claim it was a liquidity crisis, when everyone else had admited it was solvency, when banks were everyones concern, EUrope was announcing all of its banks were strong and nothing could touch them, less than a week later, Irelands banks fell apart and needed a rescue. There were no need for bailouts, and yet Greece is nearing its third.

You are ruled by shameless liars, and the foreigners you are begging to borrow money off know it.

LikeLike
16

MickC on August 5, 2011 at 11:31 am

“a world powered by men and ignorance”-absolute belter of a phrase!

I don’t totally agree with it-but I’ll certainly use that one in the future.

LikeLike
17

Brian Morrison on August 5, 2011 at 11:17 am

Not sure if this is what you read from AEP John, but it makes interesting reading, if not only for the language he uses:

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100011278/please-europe-either-put-up-or-break-up/

Interesting times indeed?-

LikeLike
18

Gemma Laming on August 5, 2011 at 11:05 am

Sir, your reports and analysis are always a welcome insight into the financial world around me.

Your qoting of Ollie Rehn “To be effective, the EFSF needs to be credible and respected by the markets,” I would like to point out that so far the markets – whatever form they take – are not the sort of force that understands such concepts as “respect” they are there to make money and respect or anything else has nothing to do with it as long as it does not interfere. As a woman dealing in a world powered by men and ignorance, it is harder to get anywhere simply because men do not respect women. After all, why should they? What would it profit them? That is the truest test of a gentleman in my book.

As to Trichet’s ideas that Italy and Spain can put their house in order through austerity is laudable save for the fact that the markets are now punishing Italy and Spain for not being able to produce growth. They have to cut their deficits to please the markets because otherwise they will be punished. Whilst this seems to me a circular argument, it is how the markets work.

In short, it is a situation that Trichet should have avoided ten years ago when it was still possible to deal with it.

LikeLike