And So It Rumbles On...

I haven't done a Eurozone post for a while largely because it consists of soporific repetition, however rumble on it still does:

And:

And:

It all reminds me of this post by the FT in 2010 regarding the sterling devaluation crisis in the 1960's:

To some who went through the unsuccessful struggle from 1961 to 1967 to stave off sterling devaluation, the series of crises surrounding the euro will be drearily familiar. First there is a surprise loss of confidence. Then there is a series of rescue operations, usually taking the form of international guarantees of one kind or another. These are backed up by domestic restrictive measures leading to a domestic recession of sorts. In time the financial pressures ease and near-normality is seen to return. But then, when few are looking, there is another crisis, another set of international rescues and another set of domestic restrictions. And so on. Eventually the struggle is abandoned, and political and financial leaders work to pick up the pieces.

During the period when sterling devaluation was known as “the great unmentionable” a tiny band of Treasury officials kept “a war book” on how to deal with the unmentionable if it nevertheless happened. Harold Wilson, the prime minister, ordered that the “war book” be physically burned, which it was of course not. It is difficult to believe that such a manual does not exist in Athens, Frankfurt and perhaps other European centres.

Can we put it out of its misery yet...?

3 Days After Remembrance Sunday

A major European country ceases to be democratic (my emphasis):

Italy Prime Minister-designate Mario Monti on Wednesday unveiled his new cabinet to deal with his country’s debt crisis.

The former EU commissioner named himself as Italy’s new economy minister.

Monti’s cabinet does not contain a single elected politician.

His ministers are drawn from the worlds of finance, academia, and law.

The 68-year-old does have the support of all major political parties.

Only the right-wing Northern League has refused to back him.

Monti must win a vote of confidence in both houses of parliament before he can officially take office.

Wearing a poppy means bugger all, the best way to honour those who gave their lives for 'their tomorrows' is to continue the everlasting fight to preserve freedom and democracy:

"Freedom is never more than one generation away from extinction. We didn't pass it to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same." - Ronald Reagan

Groundhog Week

Rumours are now swirling about that Italian Prime Minister, Berlusconi, is going to resign, then it was denied, then confirmed again. I'm not so sure, whatever Berlusconi is, he is a political survivor - still PM despite scandal and numerous trials.

What odds on that he announces a referendum soon or decides to pull out of the Euro altogether as a last desperate measure?

That Euro Crisis (Again)

The events in Greece are now a sideshow as the Euro crisis moves to Rome. The yield on Italian 10-year bonds rose to a euro-era high of 6.6% - this is dangerously near bailout territory. And given that Italy is the 3rd largest economy in the Eurozone, a crisis there is a whole different ball game to Greece.

Talks of a possible Euro breakup are now openingly being discussed as German tour operator TUI writes to hoteliers demanding that they agree to renegotiate contracts in Greece's old currency - the drachma.

There are conspiracy theories this morning that the pressure on Italian bonds is being used to force the removal of Berlusconi. The collapse of the Italian government would bring relief to the markets. That a government collapse could help market confidence is a strong indication of how bad this crisis is. I'm not so sure about the conspiracy theories, my feeling is that the crisis is starting to snowball, to escalate out of control towards its inevitable conclusion; that the markets no longer believe (rightly) that the EU has the capacity to solve the problem. We can only wait and see.

But don't worry the EU have everything in hand, their solution? To announce another Eurozone crisis meeting. On November 17th.

That Bombshell

I wrote yesterday's post about the referendum proposal in Greece in a bit of a hurry. Partly because I was at work when the news came through on my phone and partly because it was such a bolt from the blue. It completely surprised everyone even George Papandreou's own parliamentarians. But whatever the reasons behind his decision, much amusement can be had from the obvious sheer terror he invoked across the EU. Daniel Hannan writes:

I wish I could convey the sheer writhing horror that George Papanderou's referendum proposal has provoked in Brussels. Eurocrats instinctively dislike referendums. They feel that their work is too important and complicated to be vulnerable to the prejudices of hoi polloi.

A referendum at any time would be regarded by European leaders as irresponsible. But a referendum when the euro is teetering on the brink is seen as the height of ingratitude, selfishness and recklessness.

Wondrous joy. As expected the markets this morning have taken on a plummet trajectory - over two months of uncertainty now lie ahead until the vote. That Greece will default is a given, the markets have priced that in; how and when are the key questions. Now with the referendum there's another possibility that's been thrown into the mix, that in the event of a no vote that Greece could not only exit the Euro but possibly the EU altogether.

And it's the last point that means a Greek no vote is not a certainty.

Firstly it will significantly depend on the referendum question asked. If the question is along the lines of the bailout package itself and more austerity then a no vote is a likely outcome. However if the question is couched in terms of a no vote meaning exit from the Euro and the EU, and I suspect strongly that this will be the case, then the outcome is far from certain. Not only do referendums tend to favour the status quo but much scaremongering will be deployed - Greece leaving 'will be a disaster' they will cry.

Secondly the EU will use every tactic in the book; blackmail, threats, coercion and bribes. They have form on this - Lisbon, Ireland anyone? Then there's the infamous EU's last resort of; 'wrong answer vote again'.

A no answer is not guaranteed by any means.

What Papandreou has done though is start a risk of contagion of similar demands in other countries. Already, after last week's deal, Spain, Portugal and Ireland started making noises about getting more concessions from the EU as Zerohedge highlights:

...just as expected, the weakest PIIGS - Portugal and Ireland - wasted no time to start rumblings about a "suddenly slowing economy" in the aftermath of the Greek bail out which achieved nothing but to delay contagion by 48 hours and to unleash demands by everyone else to get the same concessions, in essence pushing Europe into an even deeper hole...

Confirming that the tsunami of demands has been unleashed is today's announcement from the Bank of Spain that not only was Q3 GDP flat (read: negative), but that the deficit target for the year would not be achieved.

How long before they start to make threats of referendums as well?

Another pressing problem is Italy, here the Eurozone has real immediate problems. I suspect that Greek Finance Minister Evangelos Venizelos's hospitalisation due to stress related health problems won't be the last amongst Eurozone politicians.

Tomorrow Is Another Day

Much press attention is currently on the disturbances in North London, however tomorrow sees another significant day regarding the Euro. Over the weekend, the US credit rating has been downgraded, Cyprus is in trouble and the ECB is fighting amongst itself to try to resolve the Euro crisis.

A deal has apparently been struck for the European Central Bank to buy Italian and Spanish bonds, though given how quickly the last EU deal unravelled - in less than a week - optimism that this latest agreement will work must be in short supply.

It's pretty clear that EU leadership has been found wanting on a massive scale - no one is prepared to make the great leap forward to fiscal union to appease the markets nor is anyone prepared to instigate an orderly break-up of the eurozone. Fudge is the name of the game, and while the financial markets sometimes over-reacts what they are particularly good at is smoking out bullshit. The Euro is being found out

Ambrose Evans-Pritchard from the Telegraph reports that Germany is losing patience with the whole Euro project:

Even Germany's most ardent pro-Europeans seem to have given up trying to find a solution. They are building an alibi for EMU break-up instead.

This is a dangerous moment for the world. It is still possible that the growth scare of recent months will prove a false alarm.

Yet the Bank for International Settlements is surely right that we are pushing ever closer to the limits of a model that relies on artificial stimulus to keep stealing extra prosperity from the future. There is ever less to steal.

It looks set to be a very bumpy week.

That Widening Euro Debt Crisis

The recent bailout of Greece was supposed to appease the markets until September and so confident were the EU they buggered off on holiday. However the markets have intensified their pressure on Italy today:

Financial market pressure on Italy intensified on Tuesday, sucking Europe's biggest debtor nation deeper into the euro area danger zone and prompting Italian authorities to call emergency talks.

Italian bond yields hit their highest level in the euro's 11-year lifetime, ominously reaching the same level as Spain's in a sign that Rome is overtaking Madrid as the main focus of investors' concern about debt sustainability.

Economy Minister Giulio Tremonti called a meeting of the Financial Stability Committee -- made up of representatives of the government, the Bank of Italy, market regulator Consob and insurance authority ISVAP -- a day before Prime Minister Silvio Berlusconi is due to break his silence and address parliament.

And Spain:

José Luis Rodríguez Zapatero, Spanish prime minister, on Tuesday delayed a planned holiday in southern Spain to supervise his government’s response to the sharp fall in the price of the country’s sovereign bonds.

Amid growing alarm in Madrid over the possibility that Spain will become the next eurozone country to need a bail-out from the European Union and the International Monetary Fund, Mr Zapatero’s office said he would delay a trip to the Doñana national park in southern Spain “to follow more closely the movement of economic indicators”.

All of which has prompted Chantal Hughes, speaking for Economic Affairs Commissioner Olli Rehn, to issue a denial that bailouts will be necessary for these countries:

The European Commission said Tuesday that debt rescue planning for Spain, Italy and Cyprus was not on the cards, despite bond yields for the big two hitting the highest levels since the euro was created.

"The question of a programme of emergency aid is certainly not on the table," said Chantal Hughes, speaking for Economic Affairs Commissioner Olli Rehn, after Spanish Prime Minister Jose Luis Rodriguez Zapatero delayed a holiday departure to keep tabs on growing economic concerns.

That came after the difference in borrowing costs for Spain and Italy, against benchmark Germany, rose sharply in Tuesday bond trading

Which means of course another crisis is imminent.

However in more important news, Cameron didn't tip a waitress and he wore office shoes whilst being sockless, while on holiday.