Europe Scrambles To Deal With Italy Contagion Fallout, Calls Emergency Meeting As Former ECB Official Says "Very Worried About Italy"

Tyler Durden's picture

As was reported last week, Europe has suddenly found itself shocked, shocked, that the bond vigilantes decided to not pass go and go directly to the purgatory of the European core, in the form of the country that, at €1.5 trillion euros, has more debt than even Germany, but far more importantly, has a debt/GDP ratio of over 100%, and has the biggest amount of net notional CDS outstanding (not to mention that it has dominated Sigma X trading for the past several weeks). Italy. On Friday we explained why things are about to get really ugly for the boot as a flurry of bond auctions is now imminent. Which is why it was not surprising to read that tomorrow morning the European Council has called an emergency meeting "of top officials dealing with the euro zone debt crisis for Monday morning, reelecting [sic; we assume Reuters means reflecting] concern that the crisis could spread to Italy, the region's third largest economy." Newsflash: the crisis has spread to Italy. And it will only get worse at this point as Spain is largely ignored for now (until its own mortgage crisis starts making daily headlines like this one, however, where courtesy of the insolvent Cajas which are simply a GSE waiting to be nationalized, the can will be kicked down the road for at least 6-9 months ) and the vigilantes start dumping Italian debt and buying up every CDS available and related to Italy. "We can't go on for many more days like Friday," a senior ECB official said. "We're very worried about Italy." But, but, didn't Draghi just say Italy's banks will pass the second, "far more credible" stress test en masse? Welcome to the second, and final, part of the European insolvent dominoes contagion, the one which culminates with everyone bailing each other out... and the death of the euro currency of course.

As a reminder, this is the key chart that matters vis-a-vis Italy.

More from Reuters:

European Central Bank President Jean-Claude Trichet will attend the meeting along with Jean-Claude Juncker, chairman of the region's finance ministers, European Commission President Jose Manuel Barroso and Olli Rehn, the economic and monetary affairs commissioner, three official sources told Reuters.

The talks were organized after a sharp sell-off in Italian assets on Friday, which has increased fears that Italy, with the highest sovereign debt ratio relative to its economy in the euro zone after Greece, could be next to suffer in the crisis. A second international bailout of Greece will also be discussed.

We reported on the UniCredit collapse, but here it is again:

Shares in Italy's biggest bank, Unicredit Spa, fell 7.9 percent on Friday, partly because of worries about the results of stress tests of the health of European banks that will be released on July 15. The leading Italian stock index sank 3.5 percent.

The market pressure is due partly to Italy's high sovereign debt and sluggish economy, but also to concern that Prime Minister Silvio Berlusconi may be trying to undermine and even push out Finance Minister Giulio Tremonti, who has promoted deep spending cuts to control the budget deficit.

"We can't go on for many more days like Friday," a senior ECB official said. "We're very worried about Italy."

Greece or Italy? Pick one.

Monday's emergency meeting will precede a previously scheduled gathering of the euro zone's 17 finance ministers to discuss how to secure a contribution of private sector investors to the second bailout of Greece, as well as the results of the stress tests of 91 European banks.

Back to "square one."

A senior euro zone official told Reuters on Friday that rather than progress being made in the talks with the IIF, as IIF managing director Charles Dallara has said, all sides were close to being "back to square one."

Dallara will attend the meeting of euro zone finance ministers in Brussels on Monday.

Since the euro zone's debt crisis erupted last year, the region's rich governments have aimed to isolate it to Greece, Ireland and Portugal, which have signed up to bailouts totaling 273 billion euros -- a sum that is small compared to the financial resources of the zone as a whole.

Spain, commonly seen as the next potential domino in the crisis, has managed to retain its access to market funding through fiscal reforms. But because of the large sizes of the Spain and Italy, pressure on the euro zone would increase dramatically if those countries eventually needed financial assistance.

Actually make that square minus one. So as Europe scrambles to convince itself it is not insolvent, America is doing the same across the pond. And when everything comes crashing down, as it will, once again nobody "will have been able to predict any of this."

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Atomizer's picture

We had better conduct another bank stress test first. LOL

Skittles, unicorns and rainbows will embark change & hope.

Barack Obama Speech from Berlin, Germany

Urban Redneck's picture

EBA revised the old "skittles & unicorns" stress test formulation after that presentation was made, we should now have a new "skittles & unicorns" formulation for the stress test...   

mickeyman's picture

Ireland can bail out all of Europe using gold from leprechauns.

Fish Gone Bad's picture

Why was Slovenia included in this graph?  Is that even a real country?

aminorex's picture

I was surprised more by the position of France, which appears more parlous than Spain.  But OTOH Germany will be subsidising France by purchasing nuclear power.

buzzsaw99's picture

the bernank will bail them out. the federal treserve currency isn't enough of a joke yet.

Popo's picture

Nah, the banking cartel will be perfectly happy to rape Italy for her national treasures. The Duomo will make an excellent office for Goldman Sachs. And Michaelangelo's David would look killer in the lobby of 60 Wall.

Also, there are hundreds of Palazzos in Venice that the boys at Deutchebank would be happy with.

Thanks for playing, Italy.

Djirk's picture

Exactly, not to mention the Chinese who want a villa in Cuomo.

I am not an expert on the Italian finance system, but I would not be suprised if the off balance sheet, FX tricks and shadow banking liabilities are HUGE.



TBT or not TBT's picture

The Chinese will have their own severe issues thanks to any such collapse. My advice, stock up on iPads because they are super cheap in today's dollars and euros, and After they will be the new currency.

ArkansasAngie's picture

"tomorrow morning the European Council has called an emergency meeting" ???



Yep, ssdd! Since the great engineered "crash" the nation defualt drama saga started with Dubai, then Ireland, Greece(that one was played well) now its Italy. The finanicial and political drama queen writer make the real housewives series look like a love story in comparision. Total bullshit! BTFD!

Caviar Emptor's picture

Open the money fire hose. Again. Looks like the old fire brigade from 2008 is getting a bit overwhelmed. Unfortunately, 2008 was already a 5 alarm fire (5 continent-cordinated-bailout). So who can we call in now to help? Antarctica? Mozambique? Greenland? Sandwich Islands? 

The only suggestion I have: throw all the bad debt in Gitmo and declare mission accomplished. 

Long-John-Silver's picture

They too are suffering Global Warming. I have no idea how you control Global Warming with Dollars but NASA has been planning to go to Mars for decades. I wonder how that will happen without the ability to launch Space Craft.

snowball777's picture

Knit them into a solar shield...and I'm sure that set in the Mojave is still available. ;)

QQQBall's picture

Problems with pIigs debt?. Who cuddanode, right?

Caviar Emptor's picture

Aren't there some terrorists on Mars we need to go after? 

Long-John-Silver's picture

There have been warnings of Martian invasions for decades.

DeadFred's picture

It is rumored they have Weapons of Martian Destruction.

Transitory Disinflation's picture

We could always have Martian Law declared.

snowball777's picture

Is there oil in those canals?

And do we want to see the dollar as the galactic reserve currency?

Miss anthrope's picture

really, thank you......... golf clapping...................


BEST LAUGH ALL WEEKEND... I lead a somewhat desolate existence and seek solace from all here.  ......... tears..........

jerry_theking_lawler's picture

i just figured it out....

South Sudan!!!

Long-John-Silver's picture

and the death of the euro currency of course


The US Dollar will follow the EURO over the cliff. All the worlds fiat currencies are tied together like mountain climbers. The PIIGS are dangling and dragging all the others over the cliff with them.


Caviar Emptor's picture

It's gonna be a movie cliff hanger all summer-long! Just like in the old movies. 

Dollar is at the top of the cliff trying to pull on a string around it's waist to keep the others from falling down the canyon. But every sweaty step back is quickly followed by two steps closer to the edge. 

Get me some popcorn!

Sudden Debt's picture

Let's just give up that idea of the death of the euro or dollar.

They'll just keep in printing their worries away.


We've all seen the 100 year dollar value chart. The dollar has dropped 99% in that time.

So if history is any lead:

In a decade from now, the euro and dollar will be down 99% yet again but they'll both will still be there.


The McDonalds DEAL OF THE DAY will only cost 100$!

And the Happy meal will be a 1000$


buck777's picture

Im getting a boner

Jack Napier's picture

Still no sign of Jean-Claude Van Damme.. but at least they got the Double Impact part right.

Long-John-Silver's picture

For some reason my wife hates it when I tell her a Damme movie is coming on TV.

MonkeySmoke's picture

the euro will start falling off a cliff in mid-late 2012 and the dollar will follow suit. nothing to see here, except as David Byrne put it "same as it ever was".

Number Yuan's picture

Its very clear the dominoes are going to fall, we can only guess the order.


I take the views of Zerohedge and of course Nigel Farage in the UK as the best available.


Bye Bye Euro !

FeralSerf's picture

Italy has some rather nice art pieces that would go well in some of the oligarchs' collections.  Maybe Nat could stop over on his way back from his birthday party and make a deal on a present to himself.  A Bernini or a Michelangelo perhaps?

Caviar Emptor's picture

Rumor that they're offering to rename the Coliseum "Juncker Stadium" ..just rumors

bob_dabolina's picture

CTRL+P €1.5 trillion euros 

Select Printer: Bureau of Engraving and Printing CC Ben Bernanke

Intiate eur/dollar FX swaps

Isn't that the playbook they've been using?

Long-John-Silver's picture

these are not the droids you're looking for

Caviar Emptor's picture

Yep. But these guys have egos. They don't like being caught hitting CTRL-P for the fourth time when they swore they weren't doing it in the first place. Embarrass them a few too many times and they start to have in-fights, point fingers, and become more unpredictable. 

And there's the tiniest bit of reason still left in some which tells them that they're redlining the risk of price instability in their own economies. Situation is way more complex now than it was in 2008 when it was "just a bank liquidity crisis"