Europe's Cognitive Dissonance

Tyler Durden's picture

With Spanish and Italian sovereign bond spreads back at 19-month lows (admittedly driven by OMT 'promises' and self-referential buying from any and every domestic fund possible), many are arguing that all is well, crisis averted and the world can go on its merry way to Dow 30,000. However, the reality is extremely different in the real economy - and the optics of the spread compression have done nothing but armor the politicians to stall any needed reforms for now. The ultimate cognitive dissonance is highlighted nowhere better than in Italian GDP (whose 2013 forecast was just slashed further to -1% - and remember in Jan 2012, the 2012 GDP forecast was -0.4% and it is currently running at a 6x miss around -2.4%); and Spanish bad loans, which are now running at ever-new record highs of 11.6% and accelerating year-over-year. The chasm between the facts on the ground (reality) and the market's optics have never been wider as data point after data point indicates stagnation at best (core and periphery) and depression at worst.

 

Everything is fixed in Europe - as Italy and Spain bond spreads compress to post-crisis lows...

 

In Jan 2012, Italy's government 'believed 2012 GDP would come in at -0.4% (via Reuters), only a 6x miss...

 

and the forecast for Italy's GDP in 2013 is being pegged lower every month (will they be as accurate this time?)...

 

and in Spain, things are going from worst to worsterer, as bad loans continue to accelerate to massive new record highs...

 

Charts: Bloomberg