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European Duopoly Fight Over The ECB Printing Press.

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    November 18, 2011

    CNBC reports: France and Germany Clash Over ECB Crisis Role

    France and Germany, Europe’s two central powers, have stepped up their war of words over whether the European Central Bank should intervene more forcefully to halt the euro zone’s debt crisis after modest bond purchases failed to calm markets. 

    Facing rising borrowing costs as its ‘AAA’ credit rating comes under threat, France urged strongerECB action, adding to mounting global pressure spelled out by U.S. President Barack Obama.

    BoomBustBlog readers and subscribers saw this coming a mile away. The Duopoly that ruled the economics of the EU have divergent needs now, hence divergent interests. Expect this to get worse in the near term. The reasons have been spelled out in Italy’s Woes Spell ‘Nightmare’ for BNP – Just As I Predicted But Everybody Is Missing The Point!!! You see, France, As Most Susceptible To Contagion, Will See Its Banks Suffer because stress in the Italian bond markets will be a direct cause of a French bank run – with the largest of the French banks running the hardest BNP, the Fastest Running Bank In Europe? Banque BNP Exécuter. For those who don’t follow me regularly, I warned subscribers on BNP due to the Greco-Italiano risk factor causing a liquidity run born from imminent writedowns. No one from the sell side apparently had a clue. Reference the series:

    The Italian problems were brought to the Attention of BoomBustBlog subscribers over a year and a half ago (subscribers reference  Italy public finances projection from March of 2010) and each of the major Italian banks undergoing major distress righ now were identified and outlined over a year and a half ago as well, when their share prices were multiples of what they are now. Subscribers should reference Italian Banking Macro-Fundamental Discussion Note.Long term puts and shorts on these banks (you could’ve simply closed your eyes and picked two or three) would have made any fund manager’s year. Those who don’t subscribe can still see the aftermath, after the fact, as referenced by Bloomberg… UniCredit Trades as Junk With $51B Due

    Bonds of UniCredit SpA (UCG), the Italian bank that posted a surprise 10.6 billion-euro ($14.3 billion) third-quarter loss this week, are trading as junk as the lender prepares to refinance $51 billion of debt coming due next year.

    Fixed-income investors are pricing the Milan-based lender’s bonds at levels that imply a rating of B1, four levels below investment grade and eight steps lower than its A2 ranking, according to Moody’s Analytics. The 13.4 billion euros of UniCredit debt securities that are contained in Bank of America Merrill Lynch’s Euro Corporates Banking index have lost 2.8 billion euros since the start of June.

    UniCredit, Italy’s biggest bank, has the highest amount of bonds maturing in 2012 by a major European lender, according to data compiled by Bloomberg. Concern that Italy will struggle to cutEurope’s second-highest debt load and tame the sovereign crisis drove the country’s debt yields to euro-era records, infecting UniCredit’s 40 billion euros of Italian bonds.

    Yeah, right! “Surprise” , “loss”. Interesting terms considering the warning was given a year and a half ago. Those damn non-BoomBustBlog subscribers… So, where goes Italy, so follows France…After Warning Of Italy Woes Nearly Two Years Ago, No One Should Be Surprised As It Implodes Bringing The EU With It – or  Focus on Greece? No! How About Italy? No! It’s About Baguettes, Mes Amis! See also,When French bankers gorge on roasting PIIGS – OR – Can You Fool Everybody All Of The Time?

    The Catch 22 is that Germany’s woes are not that far detached from France’s, yet it appears that they do not see this. I reiterate, then query again – Italy’s Woes Spell ‘Nightmare’ for BNP – Just As I Predicted But Everybody Is Missing The Point!!! This is a Pan-European sovereign debt crisis, not a southern or western European sovereign debt crisis. The countries fates are inextricably linked.

    And for those who believe what Fed Member Bullshitterard said, at least according to CNBC: European Debt Crisis Unlikely to Impact US: Fed’s Bullard, I refer you to my extended, self-answered query, “Is The Entire Global Banking Industry Carrying Naked, Unhedged “Risk Free” Sovereign Debt Yielding 100-200%? Quick Answer: Probably! ” I place this stamp on Bullard’s comments…


    If you really want to know the truth, simply read my post from yesterday, Squids, Morgans & Counterparty Risk: Blowing Up The World One Tentacle At A Time

    Bond market turmoil is spreading across Europe. Italian 10-year bond yields have risen above 7 percent, unaffordable in the long term. Yields on bonds issued by France, the Netherlands and Austria — which along with Germany form the core of the euro zone — have also climbed.

    Asian shares and the euro fell further on Thursday as doubts deepened about Europe’s ability to stop its sovereign debt crisis from spinning out of control.

    MSCI’s broadest index of Asia Pacific shares outside Japan fell 0.2 percent, while Japan’s Nikkeistock average opened down 0.5 percent.

    The euro  hovered near five-week lows against the dollar, trading not far off Wednesday’s trough around $1.3430, a low not seen since Oct. 10.

    “The ECB’s role is to ensure the stability of the euro, but also the financial stability of Europe. We trust that the ECB will take the necessary measures to ensure financial stability in Europe,” French government spokeswoman Valerie Pecresse said after a cabinet meeting in Paris.

    French Finance Minister Francois Baroin repeated Paris’s view that the euro zone’s EFSF bailout fund should have a banking license, something Berlin opposes. Such a move would allow the fund to borrow from the ECB, giving it extra firepower to fight the spreading crisis.

    “The position of France … is that the way to prevent contagion is for the EFSF to have a banking license,” Baroin said on the sidelines of an awards ceremony.

    But German Chancellor Angela Merkel made clear Berlin would resist pressure for the central bank to take a bigger role in resolving the debt crisis, saying European Union rules prohibited such action.

    “The way we see the treaties, the ECB doesn’t have the possibility of solving these problems,” she said after talks with visiting Irish Prime Minister Enda Kenny.

    The only way to recover markets’ confidence was to implement agreed economic reforms and build a closer European political union by changing the EU treaty, Merkel said.

    ECB policymakers continue to reject international calls to intervene decisively as Europe’s lender of last resort, stressing that it is up to governments to resolve the debt crisis through austerity measures and reforms.

    However, many analysts believe such a move now represents the only way to stem the contagion, despite the potential risk of inflation from printing money.

    Short Respite

    Traders said the ECB bought Spanish and Italian bonds on Wednesday, but the respite was short and there was no sign of a change in its policy of limited, stop-go purchases to calm markets temporarily while maintaining pressure on governments.

    Fitch Ratings warned it might lower its “stable” rating outlook for U.S. banks because of contagion from problems in troubled European markets. 

    But didn’t Fitch here what Fed Member Bullshitterard said??? What’s the problem? Are those Fitch guys reading BoomBustBlog now??? Tired of the HPA non-sense (as in [residential] housing perpetual price appreciation). Yep! Those guys from Fitch justified their AAA ratings on Bullshit based upon the concept of prices in housing increasing at XX% per year, FOREVAAAAH!!!! You thought I forget about that, guys???


    Back to CNBC’s article…

    The size and mood of the rally, the first big protest in almost a month, will signal just how bitterly a restive public will fight further tax rises and spending cuts that international lenders demand in return for a massive bailout.

    Greece’s main conservative leader Antonis Samaras has refused to bow to EU demands for a written commitment to the bailout program and called for elections in three months to restore social peace.

    New data showed that Greece’s austerity-fuelled recession had widened the budget deficit in October, the government failing to boost revenues despite unpopular new taxes.

    ECB President Mario Draghi has said the 17-nation currency bloc will be in a mild recession by the end of the year, making it tougher for governments to put their finances in order, and Europe’s debt crisis is also increasing strains in the money market, the plumbing of the international financial system.

    Euro zone banks are finding it harder to obtain dollar funding. While the stresses are nowhere the levels of the 2008 financial crisis, they have continued to mount despite ECB moves to provide unlimited liquidity to banks.


    Images: Flickr (licence/attribution)

    About The Author

    Reggie Middleton is an entrepreneurial investor who guides a small team of independent analysts to uncover truths, seldom if, ever published in the mainstream media or Wall Street analysts reports. Since the inception of his BoomBustBlog, he has established an outstanding track record