This has the feeling that the end game is now about to play out. There can be no solution or compromise as the positions have been drawn up. Merkel by addressing her party and parliament and definitively ruling out Eurobonds in her life-time, has put herself in a position where it is impossible to cede to the demands of the Latin block. For Spain, Italy and France it is not an ideological problem – both left and right parties want to liberate the ECB as they have no other choice.
Spain’s, Italy’s,Greece’s and France’s banks are bust, and the Spanish and Italian governments are now insolvent. France will follow. The problem here is that the debt situations of both their banks and states are massively understated and huge amounts of liabilities have been shipped off the books – but they are still debts and liabilities which need to be paid or defaulted on whether they are part of the official accounts or not.
Germany doesn’t have the money to save Europe especially when everyone comes clean about the real state of their accounts.
The true state of the Latin Block’s finances is starting to show now as its leaders become increasingly desperate. 100 billion is not enough to save Spain’s banks. They have already had 200 billion in LTRO and were forced to ‘invest’ it in their own government’s bonds for a loss. If their true needs are 350 billion, its pointless thinking that even 100 billion is going to get them out of trouble. Where will they invest it this time to get themselves off the hook?
The reason the Eurozone lurches from crisis to crisis is that by consistently understating the size of the financial problem, the solution is always necessarily under-funded. This sets up the requirement for the future bailout in principle as surely as night follows day. The new model of accounting everywhere is Enronesque and fraud has permeated throughout all our government, financial and corporate institutions.
Spain, Italy, France all need to desperately get their hands on the ECB and print their way out of trouble and the only thing standing in their way is Germany and a few northern satellites (though a few of them they may not be adverse to having a Eurozone Fed to fall back on).
This situation has moved beyond politics or ideology. It is now merely a question of economics. Eurozone Corp is bust, yet it still retains the possibility to print its way out of trouble and the markets will celebrate. The time to fix these problems was 5 years ago and now it is too late. All that is left is to emulate what the UK and US have done and monetize the debts using central bank printed money.
This is the dawn of the economic Euro dead, with the virgin Germany waking up to find itself surrounded by zombie banks and zombie economies. Angela Merkel has so far avoided their plodding and cumbersome advances, but there must surely come a point when the heroine gets on a fast motorcylce and gets the hell out of town.
3 responses to “Approaching End Game.”
All well and good but, the ECB may yet surprise.
Nice to see you here.