Willem Buiter Says If ECB Does Not Intervene In Thursday's Italian Bond Auction, It Will Likely Fail

Tyler Durden's picture

Willem Buiter, Citigroup's chief economist and former BOE policy maker, told reporters in London today that "the ECB will intervene on whatever scale is necessary to allow Italy to conduct its auction on Thursday. If the ECB doesn’t come in, the Italian bond auction is likely to fail. What we’re going to have is the ECB are going to be doing the heavy lifting." To anyone who watched the sharp move in Italian sovereigns, so reminiscent of central bank FX intervention overnight, Buiter's conclusion is all too obvious. As we reported, there were extensive rumors, and certainly validated by trading activity, that either the ECB or the PBOC or both, intervened in the Italian bond market to make sure today's Bill auction priced, which it did, but absent the reinforcement of the central banks could have very likely failed. What is amusing is that it was just last week that reporters were querying Trichet why the ECB's SMP bond purchasing operation had been all but abandoned. Well, here's your answer: JCT was simply preserving his dry powder for all the upcoming contagion casualties, such as Italy first, then everyone else.

From Bloomberg:

The ECB said yesterday it refrained from buying government debt for a 15th week after the purchase program issued 74 billion euros ($103 billion) of liquidity in the last 14 months. Italy sells a series of bonds on July 14 with maturities ranging from 2016 to 2026 at a time when investors are pushing up its bond yields amid concern Europe’s debt crisis is spreading.

The Frankfurt-based bank may try to get greater guarantees for the debt it buys and will seek to extract “a pound of flesh” from governments by using the purchases to demand they impose greater austerity and avoid steps that could spur credit rating companies to declare a nation is in selective default, he said.

October’s retirement of President Jean-Claude Trichet may make the ECB less dogmatic in its aversion to so-called selective defaults and credit events, Buiter said.

Trichet’s past leadership of the Paris Club, which oversees debt restructurings, likely makes “intolerable” to him the idea that a default could occur on his watch in Europe and successor Mario Draghi will be more pragmatic, he said.

It is unclear what the role of the PBOC will be in all of this. We venture to guess that it will be just as supportive to protect the value of its strategic European investments.

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Harlequin001's picture

These central banks all so busy buying everyone else's bonds now that they've forgot to sell any gold...

Larry Darrell's picture

Edit, nvm:  Refresh has USDX back at 76.04


TruthInSunshine's picture

Off Topic, but somewhat timely/humorous - as the debt ceiling and budget deficit debate in the U.S. has gone full Kabuki Theater Retard:

07-12 10:17: Senate Republican leader McConnell says as long as Obama is in the White House a real solution to US debt problem is unattainable Back On Topic: As someone on another forum mentioned, it's highly amusing that China, whose economy is about 17% the size of the Eurozone's, is going to bail out the Eurozone, and that China's entire national surplus, if donated in its entirety to rescue Eurozone debtors and backstop counterparty risk, would have a burn rate of about 8 to 12 months.
SheepDog-One's picture

Its a Kabuki enigma...the real answer is THERE IS NO SOLUTION to the 'debt problem' which is WAY more than a 'problem' in reality its mathematically IMPOSSIBLE to ever pay back.

So Mitch and man-tan asshole Boehner and illegal alien Barry Soetorro you can keep up the puppet show, but you know there is NOT an answer!

TruthInSunshine's picture

Nope, Greece is almost fixed again (a matter of minutes or hours, possibly days):

Then, they're going to fix Italy, Spain, Portugal, Ireland and France, too. Dallara was apparently holding out. The Greek finance minister is requesting the next batch of euros ASAP, however...ahem...


LeBalance's picture


If someone has to intervene to save your ass, you already failed.

Harlequin001's picture

Hmm, what happened to those bad old days when money had some value and the last thing we needed was central bank intervention?

Sudden Debt's picture

When the ECB and IMF where considered useless organisations...

2007... the I-pad didn't even went mainstream in that time. Just imagine how people survived that era...

johngaltfla's picture

They did. It didn't fail. Wash, rinse, repeat.

Until the laundry comes out of the machine looking like Lehman.

Jonas Parker's picture

Good to see you, John! Glad you're enjoying watching the tightwire act (sans net) that the world economic news has become. Just wait for the first "splat"!

SirPlayomic's picture

This ECB doesn't do any "heavy lifting", that's left to us plebs - the tax paying public.


Harlequin001's picture

Yes, how much of my money are they going to blow again on this one...

SirPlayomic's picture

Well, they'll be asking the Germans to double their contribution to the ECB rescue fund, so the German tax payer is probably on the hook for at least 250 billion Euro. The US? At least as much.


Josh Randall's picture

SWEET! The Germans now officially are suffering from "American taxpayer syndrome", where you load up the world on your tax paying shoulders and get paid back with hand buzzer handshakes, and golden showers....welcome to the club boys and girls

hedgeless_horseman's picture

Circle jerk...European banker style. 

How long can they, "keep it up?"

Sudden Debt's picture

untill they are forced to back up the currency with tungsten to give it back some value.


etrader's picture

Just happens that Citi is the most (US based) exposed to Italy's debt. <?>

Sudden Debt's picture

there's no danger in that. The worst that can happen is that the stock drops to zero.

At least their generous dividend stops that from happening...


Cognitive Dissonance's picture

So when are the central banks going to run out of thumbs for all the leaking dikes?

Harlequin001's picture

I hear they're going to print more 'thumbs' as necessary...

and if that doesn't work they'll bring in some old workers from Fukushima of something...

I hear they've grown a few spare ones...

TruthInSunshine's picture

Post that McBaby face pic, CD.

It's creepy and highly symbolic.


Cognitive Dissonance's picture

It always brings a chill to my spine when I see it. Cute but scary at the same time. Very Cognitive Dissonance like.

Welcome to the new world order McBaby.


TruthInSunshine's picture

Poor little bastard. Gonna' be raised on Shamrock shakes and McNuggets.

Cognitive Dissonance's picture

And educated by Ronald McDonald. The ultimate human assembly line.

Perfectly consistent worker bees at last. Henry Ford must be eating his heart out.

Sudden Debt's picture

this kid will surely work on wallstreet when he grows up...


Just imagine all those flash crashes that could have been but didn't because he wasn't born yet...


HITMAN56's picture

on the conf call (going on now) he said ECB not ready for rate hike unless risk markets move substantially lower...no balls...smells just like QE3 wont happen until mkt moves substan lower....

SirPlayomic's picture

I read somewhere, probably here at zerohedge, that China is not only simply protecting its European investments, but wants to make sure that USA falls before EU, since that makes it more likely that China is the last man standing.


Dick Darlington's picture

Yeah, ECB buying the toxic waste of the insolvent european sovereigns has worked so well that now it's time to start monetizing the massive pile of **** called Italy.

steve from virginia's picture


So ... the benefits to the so-called EU economy flowing from Mr. Trichet's interest rate hike a few days ago have cost what, exactly?

This is a lesson for the US 'deficit hawks'. Austerity and grim determination need to be approached delicately. Wrong move -- .25% too far or too fast -- and the result is 2% losses -- turning into 20% losses.

The ECB has caused this 'ripple of financal discontent' and it is fitting that it will have to undo itself.

On the other hand, a finance deleveraging event would be refreshing, don't you think? Kind of 'clear the air' and 'get rid of dead wood'?

scratch_and_sniff's picture

Some huge bids comming into EUR/USD, and they are all bids, then the trickle back down of offers, which does suggest there is someone throwing money at it...who knows.

snowball777's picture

I love the smell of moral hazard in the morning.

Monetize it!

Don't criticize it (Moody's!)

Monetize it!

and JC will advertise it 

Some call it T-bills
Some call it bonds
Some call it sovereign 
Some call it junk 

SheepDog-One's picture

US leading in world full-retard Special Olympics YEAAAAAAAAyyyyyyyy!

SheepDog-One's picture

How come no one figured out this simple economic system before? ANY sign of danger ahead, just pave the road ahead with printed up fiat until smooth.

Troy Ounce's picture


If that is Willem Buiter, also called:

Willem the "I-hate-a-gold-standard-because-it-will-stop-any-over-leveraged-financial-company-like-Citi-to-manipulate-anything-and-everything-and-i-do-not-like-that-because-Citi-pays-my-enormous-salary-because-they-can-and-other-companies-can-not-because-they-are-not-financial-companies",

then ignore him.

SheepDog-One's picture

No matter what anyone says Im sticking with MY plan, Im my own central bank with my own currency. 

SDRII's picture

Buiter is like a addict trying desperately to break old habits but just when it seems within reach the relapse

Jerominoo's picture

Well, if Italy goes, quess who's next...


web bot's picture

So what do you think the mega parasites that appear on CNBC are doing now to get ready to play the Euro crisis?

Troy Ounce's picture


Where is that US (CNBC?) commentator with that high pitched voice who had a spat with ZH 2 years ago telling everybody that there was no crisis and that time would tell?

RobotTrader's picture

The investment community's fixation and fascination with "Paper" is nearing an all time record.

Everyone is eyeballing the huge yields on these PIIGS bonds, everyone wants to be the hero to bottom tick this paper so they can enjoy a huge dividend yield for the next 10 years.

A bailout is inevitable, nobody is going to let a major country go broke.

Pretty much a game of "chicken" to see who has the balls to step up and buy when the news flow is the worst.



tallystick's picture

Well, bailing out a major country is like trying to rescue someone who can't swim from drowning.  If you aren't careful you get pulled in and pushed under.

SheepDog-One's picture

YOUR cheap 2 bit whore fascination with paper is making Gentleman Jim *LOL* while you puke up more blood.

scratch_and_sniff's picture

"They say the darkest hour, is right before the dawn"