If You Thought The European Crisis Was Over...

Tyler Durden's picture

Via Mint Partners' Bill Blain,

Today’s big event was Italy's 10% auction. Buyers can’t ignore yield, and I suspect many were “encouraged” to participate. But a decent Italy auction doesn't change the brutal facts. Electoral fall-out blankets the Euro battlefield, but it was decisions made years ago that have brought us to this blasted heath. Markets are caught in...


On one side you have the disbelief on the Italy election (although why markets are surprised we cannot fathom) and all that entails about rising uncertainty on the Euro. On the other is the fact buyers need to invest. In the short-term expect the pressure to invest to win out – Italian and peripheral yields will consolidate and even tighten again. Risk off will quickly become Risk-on!

From there it becomes a debate about whether the Italy election was just another minor stumble that can be glossed over, or is it part of a more significant fundamental shift? I suspect market fears, uncertainty, and the global fundamentals will likely see the Euro crisis reveal itself again in four distinct ways in coming months:

  1. The Politics of Austerity
  2. Banks
  3. Sovereigns
  4. Renewed Unwind Fears

Austerity has failed: Listen to the language Bersani is using in Italy: trying to put together an administration based on reform and “easing of austerity”. 5-Star leader Grillo has made clear his anti-austerity convictions. Euro Elites must be having conniptions.

Austerity is the very core of the Euro Elites’ belief structure and anything less is heresy. But, across Europe from Hollande (in France) to Athens the political patience with austerity, and its increasingly apparent failure, is in the air. Austerity has done nothing to improve sovereign finances (actually increasing the imbalances in most cases!), and destroying economies with the resulting high social costs. Self-inflicted recession has not worked. There is no point in clinging to a failed ideology of austerity. The Euro Elites won’t accept that without a struggle.

So Europe needs a plan B – Growth… but a commitment to growth would require a much closer fiscal and monetary union akin to the United States of Europe to avoid moral hazard and free rider risk. It would also require yet another rejig of the ECB. There simply is not the bottom-up political appetite to support any of that. Sure, some of the Euro Elites would love to inflict top down “emergency/crisis” union, but it won’t happen because it would immediately crash against national politics!

If you fancy an academic explanation of failed austerity try this: http://www.voxeu.org/article/panic-driven-austerity-eurozone-and-its-imp...

European Banks remain Rotten to the Core: If austerity has failed economies, it’s singularly failed to address the banking crisis. The US has spent the last 5-years deleveraging and recapitalising its banking system, and that is now paying off with growth in personal and commercial lending, restoring housing markets and seeding growth.

What did Europe do? Debated banker salary caps and the self-immolation of the financial system through a transactions tax! The Elites singularly failed to address bank’s previous fatboy lending practices – they remain essentially over-levered, over-regulated and dangerously exposed to European risk. Every policy response, like long term LTROs or even OMT, was a hasty panicked infusion of liquidity to keep the banks in pretend and extend mode. Draghi did a superb job keeping the illusion going.

But aside from that, all Europe has done to address the banking crisis at its core is make a series of promises about “save the Euro at all costs”. Talk is cheap. And has done nothing to make Europe’s bad banks safer. Instead, they became even more bloated and exposed to Euro risk!

Sovereigns remain in Crisis: The poor South is caught with the wrong currency – uncompetitive, unproductive and unable to deflate to compete. Even Ireland’s status as the poster boy of austerity is bogus – economic growth is largely on the balance sheet of tax sheltering multinationals.

The results of austerity are all too obvious – rising unemployment, social tensions, and electoral dismissal. Although some of the crisis economies have done much to try to restructure and redirect their economies, in the teeth of the Austerity gale it’s proved pretty much impossible. It takes years for economies to become as lethargic as the south has become, and it can’t be turned around overnight.

Renewed Fears for the Euro: The core tenant of belief of the Euro – austerity is failing. There is no easy way to redirect the institutions of the Euro to create growth. The bloated Brussels bureaucracy would be a highly imperfect tool to sponsor European growth – although I am sure they will tell us otherwise.

The ECB’s reluctant acceptance of its de-facto role of lender of last resort is heavily qualified by the need for countries to sign up to austerity prior to ECB OMT support – that is increasingly politically unacceptable in the wake of the Italy election. A new easier OMT will be required with all the national votes and treaty changes that will require.

If you thought the European crisis was over... it’s probably only just beginning. Sure, we may not see bond yields immediately rack back up into the stratosphere, but a period of further political panic and change is coming! What’s done cannot be undone..

And notice, yet again, I never mentioned Germany once in the above analysis.

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GetZeeGold's picture



If You Thought The European Crisis Was Over...


I didn't.

Ghordius's picture

me too. so boyz and girlz, short that EUR, sell it, whatever, keep it down, down, down

then even if we try we can't spend the way Uncle Sam does

except if we rearm, that is

damage's picture

Austerity has failed


What austerity? This article sucks. Why do you post this shit?

GetZeeGold's picture



Perhaps he was trying to point out the duality of man?


It's like when you know you're dieing but you just can't accept the cure.

Bicycle Repairman's picture

There will be no "austerity" anywhere (outside of higher taxes) it is largely  a head fake.

Any attempts by "democracy" e.g. voting, markets or individual use of wealth to derail the plan will be resisted firmly and with great patience, if needed.  The "people's" ability to stop the process (in Europe for sure) is transitory.

The goal is the political unification of Europe.  Then they can count German ballots on one side and everybody else on the other.  All hail democracy.

Accounting101's picture

The austerity that causes 30% unemployment overall and 60% youth unemployment and at the same time drives GDP into the toilet, which then forces more austerity. Or maybe it's the austerity that causes individuals to burn their furniture and chop down trees in parks for heating purposes. Better yet, it could be the austerity that has people jumping to their death as the local authorities are pounding on the door to foreclose on the property. What do we make of the self-immolations in public squares?

Is that the shit you are referring to? Rube!

bank guy in Brussels's picture

Indeed, there is a ZH word game on the concept of 'austerity' -

Two extremely DIFFERENT meanings

austerity (a) - lower gov't spending overall. This is NOT what is meant here, or in almost any article about Europe

austerity (b) - ravaging, life-destroying cuts in worker incomes, worker pensions, or minimal benefits for a decent life, while government debt is loaded up increased to pay interest to banks and banksters - THAT is the MEANING of 'austerity' as millions of Europeans know it and suffer it

And austerity (b) is the reason why Berlusconi and Beppe Grillo got so many votes in Italy

Tho it was actually Tyler himself who has been instigating this word game on ZH, pretending it is austerity (a) and not the life-destroying austerity (b)

NoDebt's picture

Not to pick nits but the chess piece graphic on the story is actually showing Checkmate.  Oh, wait...... I get it.

kurzdump's picture

Thats not mate if its blacks turn. White stalemated.

UGrev's picture

mate this, mate that..  somebody is ALWAYS getting fucked..

NoDebt's picture

Look again.  It's Checkmate regardless of whose turn it is.

Brit_Abroad's picture

Yup, plenty of evidence that America is on the right track......not.


GetZeeGold's picture



It's like watching a horror movie....you're screaming for them not to go in there....but it's exactly what they do.

Peterus's picture

Let's all split up and look for growth in all the rooms of this spooky mansion. This way we will find it right away and we can take it back home!

Goner's picture

To bad they did not spend all the time simply giving thier money to banks like the US did. Giving all our money, property, freedom and children to banks is now paying off in the fact that banks will lend some of our money back to us, at interest of course.

I would hope I don't need a /sarc but just in case

"If austerity has failed economies, it’s singularly failed to address the banking crisis. The US has spent the last 5-years deleveraging and recapitalising its banking system, and that is now paying off with growth in personal and commercial lending, restoring housing markets and seeding growth."

Terrible article

overmedicatedundersexed's picture

chris cox, h paulson, mazzillo,timmy, hillary what does it matter?, sorry my memory becomes blurred with the creaps who have never come to justice, oh ya corzine.

q99x2's picture

Steady steady. Don't blink. Almost got it.

Peterus's picture

So... lowering spending ("austerity") is not an option and the only other way to go is to "create growth" (translation - pump another bubble of malinvestment to get a few years of optimism and end up with stuff and services people don't want being produced be entire usless industries)?

If this anlysis was correct, than complete crash is a given. How will it go when these irreducible public programs that austerity tries to cut back get driven down to 0? What will happen when institutions that can only live with constant transfusions, but are absolutely essential, get just cut off at one day?

kridkrid's picture

The analysis was crap, but your conclusion is spot on.  A complete crash is a given.  Period.  It's simple mathematics, really.  Your question... what will happen when SNAP gets cut off (or whatever they call it in europe)?  DHS isn't buy billions of rounds of ammunition for shits and giggles (Europe implodes a few days before the US).  Everything between now and then is just theater.  Enjoy the show.

Accounting101's picture

I agree that in order to "create growth" since 2008 governments created bubbles by malinvestment. The US has pumped $23 trillion of taxpayer money into the insolvent financial services industry and the result will be an even bigger crash when the current bubble pops. Having said that, inflicting austerity on those very same taxpayers is an economically illiterate and illogical proposition.

The 2008 financial crisis was the biggest financial crime in the 4.5 billion year history of the world. Governments throughout the western world socialized trillions upon trillions of private big bank debt. Now they demand ecoomic austerity from the victims. Tragic and utterly stupid!

waterdude's picture

Mint? A new low for ZH.  

FranSix's picture

OT:  A timely escape for Carney after hectoring Canadians on household debt, while the economy was focussed on expanding credit with low interest rates:


Tsar Pointless's picture

The Tylers must get paid by the post.

Else, why this?


"If you thought the European crisis was over..."

...you are an idiot.

Dead Canary's picture

What's this crap doing on Zero Hedge.

GetZeeGold's picture



Negative Reinforcement?

Mercury's picture

The graphic actually looks like a *checkmate* to me.

 And this: There is no point in clinging to a failed ideology of austerity. The Euro Elites won’t accept that without a struggle.

So, living within your means is a failed ideology now?
Since when is shrinking the size and scope of the state the battle cry of the Euro Elite?


King Dong's picture

"The US has spent the last 5-years deleveraging and recapitalising its banking system, and that is now paying off with growth in personal and commercial lending, restoring housing markets and seeding growth."


kridkrid's picture

Total crap, for sure... but unless one understands the bigger picture, you could make this argument.  Of course the "Curve" that we would need to return to is impossible... exponential curves are funny like that.  But we are having a wile-e-coyote moment at the moment... his narrative for what's behind the wile-e-coyote moment would sound reasonable for most who are still trapped in their normalcy bias.  His next article will read something like, "nobody saw that coming" or "if cooler heads would have prevailed in the sequester talks" - or some such red herring. 

Mercury's picture

New home sales are up quite a bit actually...but by what means is another story:

Builders Fuel Home Sale Rise

kridkrid's picture

ah... the perfect article.  This is what our economy is based on... the absolutely need to expand credit at all times.  Someday this war is going to end...

rustymason's picture

Our current situation had its debut in 1913. All of the current economic mess can be traced back to that event.

yogibear's picture

Woodrow Wilson realized it afterwards.

You have the bankster bought and paid for congress and senate treating these criminals in the Federal Reserve like royalty.


yogibear's picture

Guess the Central banksters installed leader couldn't do his job and flood them with more printed Euros.

How's the idea of  printed money fixing everything working out?

NoWayJose's picture

The real difficulty for Europe is that austerity IS the solution, but austerity in the EU becomes much more difficult when Central Banks across the globe are stomping on the accelerator. Austerity should mean declining home prices, declining wages, and declining prices - until they reach some equilibrium with reduced spending. But instead, the other Central Banks are forcing up food prices and commodities like oil - making austerity that much more painful for the EU.

Tango in the Blight's picture

Austerity in Europe means raising taxes but not cutting government spending, except the benefits of the sick and the poor (except for migrant groups who might otherwise create problems). For the rest the government gravy train just keeps riding on. So how can this have a positive effect on the economy?

venturen's picture

lets compare our money printing to theirs and see who reachs the bottom first. We have printed or borrowed nearly $8 Trillion to make sure our bankers can still command top bonuses with little to no reduction in government. What will be the straw that breaks the camel's back. Now that housing price are headed toward exceeding the last bust's prices. Crooks no matter where you turn. Remember the implosion of the world economy was lead by Lehman and Bear and the other leverage to the moon. Well we are more leveraged than ever with the full faith and credit of the USA!

GetZeeGold's picture



Pretty much it in a nutshell.

Winston Churchill's picture

The  G20 meeting in Moscow in September is shaping up to be historic.

A Wile E Coyote meets ground type event.

The end of the begining,and the begining of the end.

TNTARG's picture

And let's not forget the export of inflation considering those printing's rates!

Cycle's picture

The US "recapitalized" banks by expanding the Fed balance sheet and getting to the point of buying 80% of all issued Treasury debt. Because if it didn't, interest rates would rise and the "recapitalized" banks would all fail. So maybe the ECB could try buying 80% of issued Euro sovereign debt. Seems to work in the short run, right? And the hyperbolic discounting of the future continues...

Volaille de Bresse's picture

The Euro crisis is over... when the Euro Union is over! ;-)

Oldwood's picture

You have accurately summarized our circumstances by using by saying;

"On the other is the fact buyers need to invest"

This "need" is what is and has been driving everything. The need to make money from money rather than work or productive activities. There used to be a saying that a watermellon never tasted sweeter than one that was stolen. Today all wealth is not equal. That that is actually earned is of lower value than that which was stolen or derived from any other source other than one that would be perceived as work. Work is the chump's game. Work is for the loser who isn't smart enough to scam the system. Work is blue collar, low class and undesirable at any price. You can make a million dollars by digging gold from the earth, but you will never be equal to the guy who made a million by trading it to someone for paper. Class is all that is important and the farther you are removed from labor, the higher the class you are. The "need" for easy money is everything modern society is about.

semperfi's picture

There is no crisis.  It is only your mind that bends.

100pcDredge's picture

It never even started. So - keep that in mind;)

sunny's picture

You can see the utter panic in European and US markets at the crisis in EU-land.  All European and US markets are rallying higher and higher.  In these days the markets are not only stranger than you imagine, they are stranger than you can imagine.


poldark's picture

Over the last three or four decades we have been paying ourselves more than we earned. Our standard of living has been maintained by the FRBS. Now the banks have crashed we have made up for it by printing $3T.

Total US debt is $58T we are printing $85bn  a month, how long can we keep on like this? Austerity is a dirty word but it is coming to all of us. To say that it does not work is ridiculous, there is no other long term option.