Today the Roubini’s long piece is worth your time. As Italy is too big to fail and too big to bail, the hopes of the eurocrats are that Italy would be just fine after Berlusconi leaves as the country can start designing and implementing austerity plans. The eurocrats are missing a crucial point: the trouble was not Berlusconi, though he was part of the problem.
The real problem is Italy, and it is still there. After some posturing by Rehn and the other crazies the reality will seep through in the guise of persistently high and unsustainable bond yields, and then the end-game scenario will be chosen. Backstopping Italy is simply too much, so now the game accelerates. Debt monetization or breakup, basically.
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| Click to enlarge. Stupid but fun |
The video to the right is Stratfor's Dispatch: First Greece, Now Italy. For office workers the text transcript can be found here. For my comfort-seeking European readers I would like to point out that my last night's post was filled with exceptionally good reads. Have fun, stay sharp!
- MoreLiver
News (Wed morning) – BTH
Danske Daily – Danske Bank
FX option vols – Saxo
Markets Live – alphaville FT
Debt crisis: live – The Telegraph
EZ crisis Live blog – The World / FT
EURO CRISIS
Eurozone Crisis: Here Are the Options, Now Choose – Nouriel Roubini / EconoMonitor
1) growth and competitiveness through asymmetrical inflation in EZ, 2) deflation/depression, 3) permanent subsidies from the core, 4) widespread restructurings and eventual breakup (the likely outcome as the other three are not likely, desirable or sustainable)
full research note on scribd: At this point, it seems Italy is now mathematically beyond point of no return…We think ECB needs to step up to the plate, print and buy bonds
Italy’s debt crisis has caused political upheaval. What can be done to cure the country’s decade-old growth slump? Since Italy’s capital investment, educational attainment, and market regulation improved during the last ten years, this column says its growth troubles lie in its governance problems, which worsened dramatically.
Grand Viceroy Rehn – alphaville / FT
Rehn presented Giulio Tremonti, Italy’s finance minister, with a detailed set of questions on the emergency austerity package passed in September that aims to eliminate the country’s budget deficit by 2013. He wants answers and he wants them by Friday.
Rehn presented Giulio Tremonti, Italy’s finance minister, with a detailed set of questions on the emergency austerity package passed in September that aims to eliminate the country’s budget deficit by 2013. He wants answers and he wants them by Friday.
The dog that did not bark: An ex-post evaluation of IMF surveillance of the Eurozone – Pisani-Ferry, Sapir, Wolff / voxeu.org
Europe’s surveillance of its highly-indebted countries has come under strong criticism. But these countries were also under the watch of another institution, the IMF. This column presents a report showing that the Fund is hardly without fault itself.
Here comes the (cross-border) bank deleveraging – alphaville / FT
Capital ratio requirements could be met by 100bn of capital or by deleveraging by 1trn. Exported credit crunch via big emerging markets looks most probable, given the pressure and pledge not to deleverage in eurozone area.
CHINA
full research note on scribd: Expects property prices to drop 10-30% in current cycle, which should not lead to systemic crisis.
An Address to the 2011 International Finance Forum – Christine Lagarde / IMF
Plea to China.
OTHER
CDS demonization watch, ISDA vs Morgenson edition – Felix Salmon / Reuters
CDS didn’t bring down Bear Stearns, or Lehman Brothers, or Washington Mutual, or Wachovia, or for that matter any of the Icelandic banks, or RBS, or Fortis, or now Dexia. Or MF Global. Which is why it’s important to concentrate on the things which do cause systemic risk, rather than simply blaming CDS all the time.
Does Mars have rights? – an ethical case for terraforming – reason.com