The Clock is Ticking on the "Europe is Saved" Narrative

Phoenix Capital Research's picture



ECB President Mario Draghi, understands the importance of verbal intervention better than most Central Bankers. After all, he “saved” the entire EU and its banking system simply by promising to do “whatever it takes” in the summer of 2012.


Since making that promise, the two biggest problem countries for the EU, Spain and Italy, have both seen the yields on their bonds fall.


Draghi’s promise also lit a fire under EU stocks, with Spanish, Italian, and German markets roaring higher.




It is critical to note that Draghi accomplished this without actually doing anything. All he did was make a verbal commitment.


The only problem with this is that while sovereign bond yields have fallen and EU stocks have rallied, the EU economy has not recovered. GDP growth for the EU as a whole was a measly 0.2% in 2014… the same as fourth quarter 2013.


Indeed as the below chart indicates, the supposed “recovery” Draghi had hoped his promise would create has failed to manifest.


This issue is confounded by the fact that the overleveraged EU banks are still not willing to lend into the economy. As a result of this, the ECB has its back against the wall again:


Bank lending to euro-zone businesses fell in April, marking nearly two years of declines and indicating that a scarcity of credit is still a drag on the currency area's weak economic recovery.


The figures also showed that money supply growth eased in April, while separate data releases showed German jobless numbers rose unexpectedly in May, while French consumer spending fell in April.


Taken together, the data releases suggest the euro-zone economy is unlikely to grow much more rapidly in the second quarter of this year than it did in the first, underpinning expectations that the European Central Bank will ease policy when its governing council meets June 5.


On Monday, ECB President Mario Draghi noted that credit weakness is contributing up to a third of economic slack in countries struggling to emerge from the crisis, adding to disinflationary pressures. Earlier this month, Mr. Draghi said the governing council would be "comfortable" taking action at the next policy meeting, once staff projections on inflation and economic growth are available.



Desperate, the ECB leaked that it had modeled a €1 trillion QE program at its last meeting. This leak was quickly retracted, but it had the hoped for effect of boosting stock prices and pushing sovereign bond yields even lower.


However, Draghi knows his verbal efforts to prop the EU you up are running on fumes. The ECB is largely expected to announce either an interest rate cut or a QE program at its June 5 meeting. It has even leaked this to the press. And now that the ECB has announced negative interst rates and another LTRO program, there's nothing left but outright QE.


The clock is ticking on the "Europe is fixed" narrative. It's only a matter of time before the banking crisis resurfaces.


This concludes this article. If you’re looking for the means of protecting your portfolio from the coming collapse, you can pick up a FREE investment report titled Protect Your Portfolio at


This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.


Best Regards


Phoenix Capital Research



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Thu, 06/19/2014 - 04:29 | 4872694 no more banksters
no more banksters's picture

"The system threatens societies with a new crisis, since things may change rapidly against the desirable conditions. In case that euro elections give significant power to the anti-neoliberal forces in euro parliament, this could mean that "markets" would prepare for a new big economic crisis, starting from Europe this time, since the global neoliberal dictatorship wants to complete the experiment in Greece by all means and expand it, for a start, to the whole eurozone, even to Germany."

Thu, 06/19/2014 - 02:43 | 4872624 Marco
Marco's picture

Why would QE trigger a flare up of the banking crisis? Buying up periphery debt would replace untradeable sovereign debt for cash.

Wed, 06/18/2014 - 18:41 | 4871408 AdvancingTime
AdvancingTime's picture

 If things get rough across the globe expect eyes to return to problems in Europe, where they continue to talk. I have not written much about the Euro-zone as of late because nothing is really happening. The Euro-zone is engaged in a talkathon.

With fear of an immediate collapse off the table the members of the Euro-zone much like their political counterparts in America just talk about solutions without any action. For us in America news from across the pond dribbles out in small doses with almost daily media boost of promises that things are getting better. For more on all of "what is not happening" see the article below.

Wed, 06/18/2014 - 18:31 | 4871360 Bindar Dundat
Bindar Dundat's picture

He pretty good.  He has forecasted six of the last two recessions and eight times he haspredicted doomsday is is Christmas.

Wed, 06/18/2014 - 16:55 | 4871080 RaceToTheBottom
RaceToTheBottom's picture

War, its what is for dinner.

Wed, 06/18/2014 - 16:21 | 4870954 orangegeek
orangegeek's picture

Same old "there's a shit storm coming" but not right now.  Been going on since 2011.



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