Reading between the lines from the Bank of Italy , Back to 2012 in the month of July Mario Draghi, on the verge of yet another Eurozone collapse, promised the world that he would do literally “whatever it takes” to defend the Euro, banks in the insolvent continent took his promise seriously, and ramped up their participation in the most epic Ponzi scheme conceived in Europe to a whole new level. The scheme, of course, was one where banks would buy sovereign bonds issued by their host country (most notably Spain and Italy), and subsequently repo them back to the ECB for near full cash (net of a minuscule haircut) collateral.
The IMF also published a crucial paragraph doing the spillover analysis indicates that a shock from Italy could have a marked impact on the Europe and beyond through trade and financials channels. Continue reading “Italy all over the Europe – It’s a Déjà vu Feeling for Mario Draghi”
Like Jennifer Lawrence‘s fall at the Oscars, unexpected but a chance to shine ‘comedically,’ Italy’s elections have shocked investors but provided attractive entry points to strong international firms, insulated from domestic woes (as well as offer up some funny one-liners from candidates). The possible loss of eagerly anticipated labour reforms, financial restrictions and market contagion provide shorter term sources of turmoil. Continue reading “From Rome With Love”
I have always contagion on the negative terms as it has been evolving and spreading since the 2007.
Was observing the great Euro zone Yield convergence at Bloomberg from the FT dash-board –
…let’s not forget about one thing. We speak a lot about contagion when things go poorly, but I believe that there is also contagion, positive contagion, when things go well. And I think this is in play now. There is positive contagion. – Mario Draghi, ECB President
The Key Data Points
German 10-year Bund 5 bps higher; Continue reading “Euro Zone”
Economic relations in the euro zone amount to a game of chicken. Like car drivers aiming directly at one another, governments are challenging their counterparts to flinch first and give in. Unfortunately, the economic study of strategic behavior — also known as game theory — suggests that if you play chicken too many times, you will eventually crash the proverbial car.
Few months back I did a post Italy was in strong position according to the game theory Continue reading “The Euro Crisis – Game theory”
BANK runs don’t always involve small depositors queuing round the block. As we saw in 2008, institutions can withdraw
their money with devastating effect.
US money market funds are exiting the euro zone in what can only be described as a stampede. The rating agency Fitch says that the funds’ exposure to euro zone banks has dropped by 33% since May this year, and is now 78% down on its May 2011level. (French exposure is down 88% since May 2011.) Just over 8% of all their assets are now in the euro zone, compared with nearly 40% in 2009.
Britain, though not in the euro zone, has not been spared in the rush. Money market exposure is down 23% since May 2012 and 56% down on May 2011. Luckily, few banks Continue reading “Bank Runs and the Euro Crisis :”