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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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Tue, 07/12/2011 - 09:51 | 1447501 Harlequin001
Harlequin001's picture

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

Tue, 07/12/2011 - 10:20 | 1447588 Larry Darrell
Larry Darrell's picture

Edit, nvm:  Refresh has USDX back at 76.04


Tue, 07/12/2011 - 10:23 | 1447591 TruthInSunshine
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.
Tue, 07/12/2011 - 10:27 | 1447607 SheepDog-One
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!

Tue, 07/12/2011 - 11:38 | 1447806 TruthInSunshine
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...


Tue, 07/12/2011 - 09:52 | 1447506 LeBalance
LeBalance's picture


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

Tue, 07/12/2011 - 09:53 | 1447514 Harlequin001
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?

Tue, 07/12/2011 - 09:56 | 1447527 Sudden Debt
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...

Tue, 07/12/2011 - 10:51 | 1447684 johngaltfla
johngaltfla's picture

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

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

Tue, 07/12/2011 - 11:06 | 1447741 Jonas Parker
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"!

Tue, 07/12/2011 - 11:09 | 1447750 Jonas Parker
Jonas Parker's picture

Oops! Fat fingers!

Tue, 07/12/2011 - 09:53 | 1447512 SirPlayomic
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This ECB doesn't do any "heavy lifting", that's left to us plebs - the tax paying public.

Tue, 07/12/2011 - 09:55 | 1447523 Harlequin001
Harlequin001's picture

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

Tue, 07/12/2011 - 10:00 | 1447545 SirPlayomic
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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.

Tue, 07/12/2011 - 10:17 | 1447585 Josh Randall
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

Tue, 07/12/2011 - 09:55 | 1447518 hedgeless_horseman
hedgeless_horseman's picture

Circle jerk...European banker style. 

How long can they, "keep it up?"

Tue, 07/12/2011 - 09:57 | 1447533 Sudden Debt
Sudden Debt's picture

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


Tue, 07/12/2011 - 10:03 | 1447539 etrader
etrader's picture

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

Tue, 07/12/2011 - 10:04 | 1447555 Sudden 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...


Tue, 07/12/2011 - 09:54 | 1447522 Cognitive Dissonance
Cognitive Dissonance's picture

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

Tue, 07/12/2011 - 10:03 | 1447540 Harlequin001
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...

Tue, 07/12/2011 - 10:14 | 1447575 Cognitive Dissonance
Cognitive Dissonance's picture

Fresh out of the growth medium.

Tue, 07/12/2011 - 10:21 | 1447595 TruthInSunshine
TruthInSunshine's picture

Post that McBaby face pic, CD.

It's creepy and highly symbolic.


Tue, 07/12/2011 - 10:48 | 1447673 Cognitive Dissonance
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.


Tue, 07/12/2011 - 11:39 | 1447853 TruthInSunshine
TruthInSunshine's picture

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

Tue, 07/12/2011 - 11:58 | 1447921 Cognitive Dissonance
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.

Tue, 07/12/2011 - 10:44 | 1447652 Sudden Debt
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...


Tue, 07/12/2011 - 09:56 | 1447526 HITMAN56
HITMAN56's picture

on the conf call (going on now) he said ECB not ready for rate hike unless risk markets move substantially balls...smells just like QE3 wont happen until mkt moves substan lower....

Tue, 07/12/2011 - 09:58 | 1447530 SirPlayomic
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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.

Tue, 07/12/2011 - 09:58 | 1447534 Dick Darlington
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.

Tue, 07/12/2011 - 09:59 | 1447538 steve from virginia
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'?

Tue, 07/12/2011 - 09:59 | 1447541 scratch_and_sniff
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.

Tue, 07/12/2011 - 10:11 | 1447569 snowball777
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 

Tue, 07/12/2011 - 10:14 | 1447574 props2009
Tue, 07/12/2011 - 10:19 | 1447583 SheepDog-One
SheepDog-One's picture

US leading in world full-retard Special Olympics YEAAAAAAAAyyyyyyyy!

Tue, 07/12/2011 - 10:18 | 1447579 SheepDog-One
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.

Tue, 07/12/2011 - 10:18 | 1447586 Troy Ounce
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.

Tue, 07/12/2011 - 10:22 | 1447599 SheepDog-One
SheepDog-One's picture

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

Tue, 07/12/2011 - 10:40 | 1447637 SDRII
SDRII's picture

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

Tue, 07/12/2011 - 10:19 | 1447590 Jerominoo
Jerominoo's picture

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


Tue, 07/12/2011 - 10:20 | 1447593 web bot
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?

Tue, 07/12/2011 - 10:23 | 1447601 SheepDog-One
SheepDog-One's picture

Preparing their bunkers.

Tue, 07/12/2011 - 10:25 | 1447603 Troy Ounce
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?

Tue, 07/12/2011 - 10:31 | 1447614 TruthInSunshine
TruthInSunshine's picture

Beaker jumped CNBS to join Rupert Murdoch's FBN:


Dennis Kneale to Join Fox Business Network
Tue, 07/12/2011 - 11:02 | 1447727 Troy Ounce
Troy Ounce's picture

Thanks Truth

That's him!

Tue, 07/12/2011 - 10:34 | 1447619 RobotTrader
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.



Tue, 07/12/2011 - 10:40 | 1447642 tallystick
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.

Tue, 07/12/2011 - 10:56 | 1447669 SheepDog-One
SheepDog-One's picture

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

Tue, 07/12/2011 - 11:44 | 1447881 scratch_and_sniff
scratch_and_sniff's picture

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

Tue, 07/12/2011 - 12:00 | 1447936 jm
jm's picture

Best comment bar none.

If the ECB doesn't step in as buyer of last resort for these Italian auctions, the whole damn thing goes.  Even Germany knows this. It doesn't matter how stubborn they are.

Tue, 07/12/2011 - 12:12 | 1447981 jm
jm's picture

Problem is these humps may know it, so they don't much care if levered guys get margined out.

Show 'em the motto:  "Making it bidless before we ride in naked on horseback."


Tue, 07/12/2011 - 12:29 | 1448032 scratch_and_sniff
scratch_and_sniff's picture

lol could be the case, absolutely. Perhaps for no other reason that nothing much has changed in Italy other than the political skirmishes, but this is par for the course in Italy - whether it focused minds and turns this into a self fulfilling prophesy remains to be seen. Now i am hearing mumblings about zero liquidity in core markets being more responsible for the move than any other discernable reason...what ever the case, there is a lot of head scratching going on it seems. Technically it looks as if the break was clean, but for me that will take another while to take seriously too. Been here too many times.

Tue, 07/12/2011 - 12:43 | 1448066 jm
jm's picture

French banks have nearly a half trillion in exposure to Italy.  No wonder core liquidity drew up in the nutsack yesterday.

As an aside:  there is probably no country that needs to split more than Italy.  South of Tuscany is the only part of the country this is a part of the PIIGS.  Northern Italy is an amazing place that puts up with it.

Tue, 07/12/2011 - 13:36 | 1448274 scratch_and_sniff
scratch_and_sniff's picture

umm they're on the hook big time, everyone is...probably another factor in the freakshow.

Tue, 07/12/2011 - 10:35 | 1447625 jkruffin
jkruffin's picture

I was just thinking the trading today looked alot like 2008 just before the big crash....then I read this:


Panic selling hit the European credit markets on Tuesday as worries about the Eurozone peripheral sovereign crisis sent bond cash prices and indices in a downward spiral. Every single eurozone peripheral sovereign has printed new wides in credit protection markets.

Spain traded 40bp wider on Tuesday morning at 385bp, Portugal and Ireland were both 85bp wider at 1200bp and 1100bp, while Greece was 125bp wider at 2450bp prior to rumours of the ECB intervention.

This propelled the SovX Western Europe to a new record wide of 310bp, some 20bp wider on the day, although as of 0945 GMT of those losses had been pared, with the index back at the 295bp level, according to Markit.

Meanwhile, the Markit Senior Financials index hit a wide of 200bp for the first time since January 2011, although it has since recovered to 194bp. The Subordinated Financials index also reached a six-month wide of 347bp, some 27bp wider on the day, but has since retraced to trade at 337bp.

“It’s pretty ugly out there,” said a FIG syndicate banker. “It feels like the early stages of the crisis in 2008 and we are seeing similar price action. We have not seen a day like this in the market since the start of the banking crisis and I don’t know what is going to stop it. The market is viewing Europe as a dysfunctional place right now.”

“Right now, it’s difficult to see what will get us out of this rut and what bit of newsflow will make things better. I am hesitant to say it but it does have a feel of 2008 about it.”

Tier 1 hit hard

The hybrid Tier 1 market has been particularly badly hit, in line with the equity market.

“It’s a complete risk-off mentality, the Italian banks have been the worst hit but they are not the only ones,” the FIG banker said.

Italian Tier 1 paper is down five points since the beginning of the week and everything is trading around 80 cash price, or lower. French banks have also been badly hit with Tier 1 down between one and four points today and three to six points over the week. The cash market is very illiquid but 90% of the flows that we are seeing are selling flows and some of these are from domestic accounts which is a concern given that they are normally the ones that step in if there’s international selling going on,” the FIG banker said.

High-yield still open

Riskier markets such as high-yield were also hard hit. The Markit iTraxx Crossover index shot 29bp wider to 482bp, its widest level since November 2010, although it had recovered to 461bp by 0945 GMT. Cash bonds were also down 1-2 points across the board, a high-yield trader said.
“There is just no liquidity,” said the trader.   

Italy’s Fiat was particularly hard hit, with its new 2014 and 2017 bonds that launched last Tuesday just before Moody’s downgrade to Portugal, were quoted 150bp and 200bp wider respectively on a mid-swaps basis.

“Fiat would have never got done if it had come this week,” said one high-yield syndicate banker.

Other new issues that have underperformed include Aston Martin’s 2018 GBP300m bond, which was quoted at 93 and yielding around 10.5% versus a 9.5% yield at its launch a month ago.  

Tue, 07/12/2011 - 10:53 | 1447690 SheepDog-One
SheepDog-One's picture

The real problem today is theres no one to dump the pump to, so the only option is to try to keep things looking normal as long as possible. I got a hunch they dont have much time left at all.

Tue, 07/12/2011 - 12:03 | 1447947 franzpick
franzpick's picture

Fiat will be introducing their new model, the 'Wide-On'.

Tue, 07/12/2011 - 10:35 | 1447626 tim73
tim73's picture

I'd bet about one million Yank "investors" are betting once again against euro, "'cause cousin said it is gonna crash."

Italy, population 58.75 million, external debt: 2,23 trillion

USA, 310 million, 14 trillion. Relatively that is more than in supposedly piggish Italy...

Tue, 07/12/2011 - 10:51 | 1447682 SheepDog-One
SheepDog-One's picture

'USA, $14 trillion debt'....LOL REALLY? Try $600 trillion for ballpark, and a real $1.5 quadrillion actual debt way closer to reality, and the Eurozone and everything else is pegged right to it so your game playing of which turd stinks less is silly.

Everyone is bankrupt.

Tue, 07/12/2011 - 11:43 | 1447878 TruthInSunshine
TruthInSunshine's picture

SD, some people still have a hard time grasping that the the web of debt is all interwoven, with iron clad tentacles wrapped around each nation, and that once one starts unwinding the string of what one thinks is merely country A, or countries A, B, C and D, for that matter, E through Z inevitably come undone.


Tue, 07/12/2011 - 11:00 | 1447712 doggings
doggings's picture

theyre going to need a bigger gun.

Tue, 07/12/2011 - 11:46 | 1447888 Thorlyx
Thorlyx's picture

Toto, I've a feeling we're not in Kansas any more....

Tue, 07/12/2011 - 11:48 | 1447896 Youri Carma
Youri Carma's picture

Willem Buiter is a Dutch guy btw. He’s not the best economic out there and he still thinks within the system. Send him an e-mail once to talk about this crises but the arrogant basterd never answered that. He’s only a very moderate thinker.

Tue, 07/12/2011 - 11:59 | 1447931 scratch_and_sniff
scratch_and_sniff's picture

What, you mean hes not a fucking lunatic?

Tue, 07/12/2011 - 12:30 | 1448034 jm
jm's picture

Must not be a big fan of the yellow metal.

Tue, 07/12/2011 - 12:17 | 1447994 mayhem_korner
mayhem_korner's picture

In Monopoly, when the board is rife with opponents houses and hotels, jail is often the best place to be.

So I wonder how DSK is doin'?

Tue, 07/12/2011 - 12:31 | 1448042 Central Wanker
Central Wanker's picture

In the mean time...

Spanish Prime Minister Jose Luis Rodriguez Zapatero meanwhile dismissed investor jitters, saying Spain's ability to repay debts 'has every guarantee.' Mr Zapatero told a news conference that Spain's borrowing costs had risen but said there should be 'absolute calm' about the financing of the state.

From the publication of this kind of news, it has typically taken 2-3 weeks for a country to capitulate.

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