The Banking and Strategy Initiative

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Averting a crisis: On your "Marks", Euro slide, and split…How Germans would like it!

Even as Italian bonds cross the rubicon and seemingly come back to a ‘safe’ 6.6% yield (that was the bottom, bonds are trading near 6.77%) , the only sovereign guarantee now working for the Euro and within the 17 country Euro club is the GermanBund trading at 1.28% yield ( 5y/10y) As France will also use the bailout funds to trade its large Italian holdings

Euro currency (coins from first issues)

Image via Wikipedia

first and then more later, French bonds are already holding yields at a much higher 3.48%.  Reuters Breaking views is carrying tracks like Italian Flu and German, the only Sovereign on Reuters Insider


Nevertheless even as Italy votes on the EUR 59.8 bln balanced budget package tonight, taking a motion that says [ 21% VAT from 20% + a new energy tax = Balanced budget in 2014 ], traders cannot help but notice that the zone as such could trade to active default for each and every member with the German bonds only trading near sovereign benchmaks and the others counting like shop credit for the bondholders


No one wants a split of course, and there won’t be one. In fact bureaucrats at the Commission office in Brussels are worried about making contingency exit plans for those who might want to leave, just so Italy and Spain and even France do not get that option waved on them as there are not enough funds to go around and not many are ready for a deeper integration.

The full Monti

Earlier PM designate Mario Monti was appointed by President Giorgio Napolitano as a senator for life and is currently in the Senate deliberating the new EUR 60 bln package that later gets voted on today. Mario Monti will step in as Prime Minsiter of a National Unity Government by Saturday(CNN) The Daily Mail has another British twist to the story:

The austerity package discussed today foresees 59.8 billion euros in savings from a mixture of spending cuts and tax rises.

It aims to balance the budget by 2014 by increasing VAT from 20 per cent to 21 per cent, freezing public-sector salaries until 2014, strengthening measures to fight tax evasion ( A limit on cash transactions to EUR 2500)and introducing a special tax on the energy sector.

Today’s vote comes hours after U.S. President Barack Obama read the riot act to the leaders of several European countries – saying more dramatic action is needed to avert a eurozone meltdown.

Obama made telephone calls to German Chancellor Angela Merkel, French President Nicolas Sarkozy and Italian President Giorgio Napolitano late last night.

Read more:

Southern parts of Italy are more subject to the alternate economy prospecting without taxes as may be trargeted by the limit on Cahs transactions. The South also receives special attention from the European Development Fund along with a large part of Greece, Spain and Eastern bloc of the EU to encourage matching growth in under developed regions, an important benefit of the unity at stake and so assiduously avoided by richer nations in the union




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