Olli Rehn In Disaster Prediction Mode
As Reuters reports, the EU financial and economics commissar Olli Rehn has let us in on his current crisis appraisal, specifically the time line he now envisages as crucial to arrive at a 'solution' (we could also call it the bazooka production deadline).
Only ten days are separating us from Armageddon it seems.
"Europe faces a crucial 10 days to save the euro zone after agreeing to ramp up the firepower of its bailout fund but acknowledging it may have to turn to the International Monetary Fund for more help to avert financial disaster.
"We are now entering the critical period of 10 days to complete and conclude the crisis response of the European Union," Economic and Monetary Affairs Commissioner Olli Rehn said on Wednesday as EU finance ministers met."
Ten days! Saints preserve us! Given Olli Rehn's well-known usefulness as a contrary indicator this means we have either zero or anywhere between 20 and 100 days to reach Armageddon. Given that the markets are celebrating today that the euro area banking system won't go bankrupt today or tomorrow after all, Olli may just have bought us some time.
As the perceptive analysts from Rabobank remarked, the euro finance ministers were busy discussing 'yesterday's bailout vehicle'.
"It must also be remembered that the EFSF is already funding at very wide (borrowing) levels over Germany, struggled in its last auction to raise the required funds and would have its rating put under severe pressure by any rating downgrade of France," Rabobank strategists said in a note.
"This must call into question any plans related to the EFSF. It is yesterday's solution and the market has simply moved on."
Indeed. Just look at what the news moving the markets today were: a reserve requirements cut by the Bank of China and the announcement of concerted central bank action in the euro/dollar swaps markets – which means the dollar liquidity hose is now trained in Europe's direction in earnest. As discussed in our previous missive, euro area banks have found it impossible to sell their assets at anywhere near the prices they wanted to get. Since they don't want to book the losses such sales would entail, they must find new means to fund these assets, so the commitment to lend them dollars at even lower rates is certainly a boon from the point of view of the banks.
The markets certainly like it when central banks take inflationary steps, that much is once again obvious. Little else will do.
Alas, we are left to ask: what has really changed? Not one of the news items crossing our desk over the past 24 hours has given an indication that anything that remotely alters the basic problems has occurred.
Indeed, dark mutterings of Olli Rehn easily count as the most significant positive news item today.
Meanwhile, Bank of France president Christian Noyer added his two centimes as well:
"Two years into Europe's sovereign debt crisis, investors are fleeing the euro zone bond market, European banks are dumping government debt, south European banks are bleeding deposits and a recession looms, fuelling doubts about the survival of the single currency.
"We are now looking at a true financial crisis – that is a broad-based disruption in financial markets," Christian Noyer, France's central bank governor and a governing council member of the European Central Bank, told a conference in Singapore."
Well, there you are – isn't that the kind of thing we have central banks for? Nudge-nudge, wink-wink.
Meanwhile, an ECB report about Italy that was presented to the euro-group finance ministers has leaked out and found its way to the Guardian, which reports:
"The sovereign debt crisis has now moved from the periphery to Italy and other core euro area countries. Pressure on Italian sovereign bond yields is particularly acute, reflecting investors' mounting concerns with the sustainability of Italy's large public debt" – almost €2tn, (£1.7tn) – the report said.
"The risks of a full-blown sovereign liquidity crisis can increase rapidly in the absence of a determined policy response … Persistently high interest rates increase the risk of a self-fulfilling 'run' from Italy's sovereign debt. A liquidity crisis could then turn into a solvency crisis, whose repercussions for other large euro area countries would be very acute given their exposure to the Italian economy."
On second thought, maybe Olli Rehn is right for once and they really have only ten days.
EU finance and economics commissar Olli Rehn: 'Disaster, I see thee approaching'
(Image via keeptalkinggreece.com )
Source: Acting Man
