by John Ward
As bond rates widen between Berlin and Rome, ECB boss Mario Draghi faces a damned-if-you-do-or-don’t moment. Either he reverses direction on the QE wind-down, or he offers the bond markets some serious reasurance about the Italian default outcome. In the insanity that is the eurozone, he cannot give either bearish signal. But to do nothing will condemn the euro to death. Now more than ever, it is vital that Britain cuts all ties with the SS Eutanic.
The time left between Now and Crash2 is going to be littered with occasions when no option represents salvation….only salivation on the part of the Bond Vultures. We are currently in the early stages of just such a push-to-shove incident.
Think not for whom the clock ticks, Barnier…it ticks for you. The time during which Michel ‘Monsieur Non’ Barnier can posit his idiotic ticking-threat to Britain is rapidly running out. And come the end of the 2018 holiday season, it could well call the Brussels Bluff bigtime before the UK’s departure date in March next year.
Once again, two sets of bond rates in ClubMed are spiking in comparison to the cost of borrowing in Frankfurt. One is Spain following the accession of a Socialist government; but the faster acceleration is in Italy, where an increasingly truculent and disobedient régime – in charge of the EU’s fourth biggest economy – is already looking to Mario Draghi’s ECB for further QE support in the light of widening bond yields versus Germany.
Bear in mind that, in recent times, Draghi’s fiefdom in Frankfurt has been the only buyer of Italian debt – given that serious investors won’t touch it with a bargepole, and the sleazy vultures won’t buy it until a irreversibly high spike gives them the fattest possible insurance profit. While you’re at it, imagine the carnage on Wall Street if no insurance is forthcoming this time. And during the digestion of that can of worms, you don’t even want to start thinking about what happens when the ECB is no longer the buyer of last resort. We aren’t talking holiday resorts here: we are instead staring at the destruction of the Bankfurt Wall around Italian debt.
Claudio Borghi ( the boss of the budget committee in Italy’s lower house in Parliament) has made his view crystal clear: a defenceless Italy cannot survive. “If Draghi leaves us to our fate, the dismantling of the euro will swiftly follow”.
Meawhile, the German Bundesbank is watching events with growing concern, as Draghi’s conundrum looks set to become a calamity . Today (Wednesday 15th August) the Euro has started to weaken further based on fears the Turkish debt crisis could give Spanish lender BBVA and Italy’s UniCredit major problems given their huge exposure to Recep Erdodebt. Although the Bundesbank’s Joachim Würmeling said investors shouldn’t “over dramatise” the risk to the European banking sector from Turkey, this comes under the age-old heading of “he would say that”.
Herr Würmeling is well aware that Turkey’s rain is not falling onto an Italian villa who’s roof was repaired while the sun shone. Nor are many savvy investors fooled by Draghi’s circular money-shuffle around Spain’s banks. Three days ago, the well-informed site Seeking Alpha warned for a second time about the dangers of investing in BBVA and other eurozone banks:
‘We warned about investing in the two largest Spanish banks, Banco Santander and BBVA due to Latin America accounting for 46% of revenues. We also mentioned these banks’ exposure to Turkey as being a major problem. Very quickly this warning turned very valid. It now seems like the secondary concern has turned into a primary concern. Beware and don’t say you haven’t been warned’
This is turning into a perfect storm that makes the May Chequers “plan” even more of a capitulative farce than it was already. So thank you, M. Barnier, for turning it down.
The last thing Britain needs right now is to be tied to a currency and a trading zone that is facing far worse debt problems than those of Britain. And it has to be said, the mood in Bankfurt is equally negative beyond the graceful optimism of Joachim “Swan” Würmeling.
The Chequers formula is dead anyway. But we will never change our spineless grovelling before the fantasists from Brussels as long as a Conservative Government led by Theresa May and “advised” by Olly Robbins is in charge. The time has come for everyone of common sense and vision to look closely at extra-Parliamentary ways of stopping this criminal Administration in its reverse tracks.