The Banking and Strategy Initiative

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European Sovereign Debt Crisis: A weak Euro struggles with market pricing inefficiencies

Andalucia, Spain 2011

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Even as Mario Monti got to setting his Cabinet into place in just 3 days and seems to have got it just right, markets rebelled against an eventles sMonday with a vengeance brushing Italian yields up above 7% now trading at a rating of Ba2 per Moody’s and rnaked two notches above. Hungary is trading even two notches lower than Italy and the market seems to have finally got it right, with continuing good news in the Euro sphere, with all the right press for Angela Merkel, Integration and Unicreditos recapitalization eliciting drop after drop in the Euro Down from 1.37 to 300 points down 1.34 today afternoon.

Monday was good for equities as Germany and France reported growth in their Economies, a GDP growth of 0.5% for Germany bolstered by the evening’s outperformance by  New York’s longest shadow the Empire state manufacturing indices that lost their temporary “deep loving” for the negative jumping from -35 to -8 to Now a +3 in hardly 3 months.

Global Events

Chinese banks are again cloudy and unclear in the media soon after results announcements as the financial analysts take a

Sarkozy in Southern Lebanon, 1

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dim view of their US partners’ exits from the business stakes they had bought (ostensibly for profit) and you should disregard albeit after getting your facts right, news of China and its banks’ hard landing/fall from grace

Though one doubts if things could get any better for the big 4 bolstered by govt Huijin equity, and adding new business, the media is looking, nay shopping around for a crisis after Italy seems to have let them down on the weekend.

India’s banks and India itself are in furious negotiations with Moodys’ as also a lot of practising Economists, for their ultra aggressive ways of keeping India in speculative grade when Italy is yet to reach that distinction despite obvious similarities with Ireland, Portugal and Greece, the only junk rated Euro denomination currently

Some solutions for the Euro

I would have thought depreciation would be a blindingly obvious solution especially the regions exports are at risk, the zone

The Hemispheric at the Ciutat de les Arts i le...

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running out of internal custom fast. The Euro Economists have other aces up their sleeve , with a brilliant one being that since domestic debt of a nation can never be defaulted, the European Bank should also focus on buying Italian debt from Non Italian banks and investors. It should be an elegant solution. Tell me if you think this through.

Also, did you know that most of the Euronotes are overprinted only in Germany and Luxembourg, both printing nearly EUR 167 and EUR 67 bln(Lux) respectively their allocations and yes, every EZ country is allotted the kind of millions of EURO it can print. Also related to currency notes, Euro Zone cash cinsumption remains very high and may be another target as E100, E200 and E500 notes are more fancied by EZ customers The Central Euro authorities (ECB) are allocated to print runs of EUR 67 bln excluding which Germany is stting on prfoits from printing of notes it has not claimed

So far, the only monetary implication sof the banknotes imbalance is that the mints that print them could be missing on the profits of putting threir own into circulation but apparently that could change in the next 5 years with all the talk of integration

Spain is up next

Spain’s CDS and debt have hit 450 basis point spreads, and now with history one can see that this moment for Greece and Italy came hardly three months and one month ago respectively

With France and Austria’s own spreads hitting nearly 200 basis points, the Euro zone is returning to a place where it can

This image shows Angela Merkel who is the Chan...

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naturally claim the “RE-EMERGING MARKETS” tag pretty soon, These REM markets are characterized by a fear of 7%(interest rates) , 5% (inflation!!!) and 10% (deficit) but not of 120%( Debt for France) , 150% (Debt for many projected to peak) and 170% (debt projected for Greece after the austerity measures)   , a pseudo government without any real vote ( European Parliament has a majority from the Greens across the continent) and only one financed sovereign central bank at the Bundesbank headquarters

Spain’s Banks are seriously in need of bank capital however as they complete the mediterranean triad in the Eurozone(a foursome including Portugal , Italy and Greece)  with 40% unemployment in the ages 24-70(Eurostat) before the start of the “crisis” and a nice sunny climate for governments to retire to..



This entry was posted on November 16, 2011 by in Bailout Nation, Banking, European Sovereign Debt crisis and tagged , , , , , , , , .


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