Archive - Jul 27, 2012 - Story

The jawboning party has come and gone, leading to a nearly 100 bps move tighter in Spanish spreads (from all time records of 7.6% just three days earlier), and now the hangover is here. Or, as Bloomberg puts it, Draghi is now in a box. "European Central Bank President Mario Draghi has boxed himself into a corner. Spanish and Italian bond markets rallied yesterday as investors cheered Draghi’s signal that the ECB is prepared to intervene to reduce soaring yields. Now he has to deliver, or face deep disappointment on financial markets, analysts said. The risk in doing so is alienating key policy makers on the ECB council, such as Bundesbank President Jens Weidmann. The Bundesbank reiterated its opposition to bond purchases today." If this seems like a Catch 22 in which the ECB loses regardless of the outcome, that's because it is. Luckily, no matter which path Draghi chooses, the time for talk is over, and now he has to act. Because with every day the ECB does nothing, the more credibility it loses.

• Bundesbank Maintains Opposition to ECB Bond Buying (WSJ)
• Greek Budget Talks Stumble as EU Urges Samaras to Deliver (Bloomberg)
• Fortified by euro, Finns take bailouts on the chin (Reuters)
• China Job Market for Graduates Shows Stress on Slowdown (Bloomberg)
• China Exports Fade as Inflation Eludes Targets: Cutting Research (Bloomberg)
• Japan Falters as Ito Calls for Euro Buys to Rein in Yen: Economy (Bloomberg)
• Government weighs social insurance reforms (China Daily)
• Colombia’s Split Central Bank to Weigh First Rate Cut Since 2010 (Bloomberg)

Following two days of desperate attempts by the ECB to talk down record peripheral bond yields without any actual action, it is only logical that while Merkel is on holiday, we get a third day of talking to buy some time purely thanks to rhetoric and jawboning, before the Chancellor comes back and spoils the party. Sure enough, here it comes via French Le Monde, whose host nation knows very well that after Spain and Italy, France is next:

• ECB PREPARING TO BUY SPANISH, ITALIAN DEBT, LE MONDE SAYS

But while the cat may be away, the Bundesbank has decided to take at least some matters into its own hands:

• BUNDESBANK SAYS IT HASN’T CHANGED STANCE ON ECB BOND BUYING, REMAINS OPPOSED TO FURTHER BOND BUYING BY THE ECB

Then just to confirm that nobody in Europe has any clue what is going on and its politicians are now just making things up on the fly, we get this:

• HOLLANDE-MERKEL TO SPEAK BY PHONE AT 1 PM ON HELP: LE MONDE

And the logical response:

• STREITER SAYS `DOESN'T KNOW' ABOUT MERKEL-HOLLANDE CALL

Sigh - when one sees such relentless lies and confusion what else can one say but... "Europe."