ECB Issues Ultimatum To Italy, Threatens To Halt Bond Purchases

Tyler Durden's picture

Three months ago, in exchange for the ECB's expansion of its sterilized monetizations of bonds to include Italian BTPs, allegedly the only backstop that has prevented Italian bonds from experiencing an all out collapse to date, Italy was presented with a list of strict "austerity" demands, among which were spending cuts, higher revenues and labor reform. Since then none of these has occurred... or will occur, simply because Berlusconi has no control over the government, yet neither does anyone else, although everyone in the local government enjoys having a scapegoat for the total chaos. It appears that the ECB has just made it clear that the status quo is about to end, unless Italy does in fact push with something. And unlike other cases, where politicians on both sides of the table are happy to spout rhetoric while knowing well that nothing will change, in this case, courtesy of Italy largely untenable debt profile in which €166 billion in debt and interest are due in 2012, the ECB will have no choice but to play hard ball. Reuters has just confirmed that, reporting that  The European Central Bank often discusses the possibility ending the purchase of Italian government bonds if it concludes Italy is not adopting promised reforms, ECB Governing Council Member Yves Mersch said. "If we observe that our interventions are undermined by a lack of efforts by national governments then we have to pose ourselves the problem of the incentive effect," Mersch said according to extracts of an interview with Italian daily La Stampa to be published on Sunday. In other words on Monday the market will have to not only digest the implications of what the implications of the Greek vote of confidence are (last we checked G-Pap is still PM, and likely will be for quite a while), but also what happens now that the ECB has issued an ultimatum to Berlusconi to get his house in order. The problem is that he can't. Not without stepping down, that is. At that point the Italian pseudo stability that everyone has been taking for granted knowing full well it is nothing but an illusion, will fall and expose all the rot underneath. At that point we will truly see just how "hedged" all those Primary Dealers are, who have perfectly offsetting short positions to all their longs.

And here is what an ECB ultimatum sounds like:

Asked if this meant the ECB would stop buying Italy's bonds if it did not adopt reforms it has promised to the European Union, Mersch, who heads Luxembourg's central bank, replied:


"If the ECB board reaches the conclusion that the conditions that led it to take a dec

ision no longer exist, it is free to change that decision at any moment. We discuss this all the time."


Since the ECB resumed its bond buying programme (SMP) around three months ago it has purchased some 100 billion euros of government bonds, a majority of which are thought to be Italian BTPs.


Mersch said the ECB did not want to become a lender of last resort to help the euro zone solve its debt crisis and said it was concerned that its job could be made more difficult by governments that "don't meet their responsibilities."

And the punchline:

"Our job is not to remedy the errors of politicians," he said.

No, it is merely to issue long overdue "or else" statements. Yet since the EFSF is unable to raise even €3 billion EURs to fund the Irish bail out, we are fairly confident that the ECB will be purchasing Italian bonds for a loooong time, because Berlusconi has figured out all too well just who it is that has the Mutual Assured Destruction trump card, and who stands to lose the most if said Destruction is indeed Mutual.

As a reminder, here is what the Italian debt/interest repayment schedule looks like. Good luck.

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Mike2756's picture

Long only cme margin trade, eh? lol.

The Big Ching-aso's picture

Mama Mia thatsa no apizza pie!!!

Eurodollar's picture

No, it is definately not. It is just another empty threat. The ECB will have very little choice. They will keep buying into the sunset. The alternative for them as they see it is likely to be worse. If worst comes to worst (again, as they see it) it could even threaten the existance of the ECB. Let the expert game theorists figure this one out. Should be very applicable.

Buck Johnson's picture

Can't raise a measley 3 billion for the ESFS and now they are saying we will stop buying italian bonds if they can't get their country in order, yea right.  They are figuring out that the US, Germany, France, Netherlands, Luxembourg etc..  Are afraid of anyone failing because if they do, it will be worse for them than Italy or Greece or Ireland.  Because from the way things are being done, we are very close to the end of the game and they know it.  How do you explain to most of the US investors or customers who use these financial institutions for trades that they can't get their money out of it.  Even though like MF, they by law shouldn't have mingled customer accounts with the companies. 

Silver Kiwi's picture

why would the US want Germanies gold? It's a BR afterall...

TK7936's picture

Not the US, the Banks. US President represents the Banks.

Raskolnikoff's picture

you gotta love Barry for having the audacity to at least try to have his cake and eat it too. Let's see, gets in office with Wall Street money, tries to stay in office by organizing protests about Wall Street. Wall Streets have become pawns for the political establishment. Let's face it, the government has been calling the shots for the last five administrations. 

Bring the Gold's picture

If by government you mean the families that own the central banks then yes, if you mean some figure heads that rotate in and out of power periodically then no. Government = Central Banks (old money roth/warburg/rockefeller etc.) = Mega-Corps. People who don't understand that equation don't understand the world. There is no seperate entity that is the government. It is merely one apendage of a vast interlocking concern.

DormRoom's picture

If we go back to the gold standard the two most powerful organaziations on Earth will be the Vatican, and the Mormon Church.  Both hold huge amounts of undocumented gold.


For further study look @ the inflection points of when Britain & US went off the gold peg (~1932 & ~1970), and the decline of Catholic global influence.


The conspiracy theorist in me says the Vatican may be pushing internal Italian politics towards a path in which the Euro will collapse.


Also having a Mormon president will be interesting, since his loyalties are to the Church first & foremost. 

infinity8's picture

If it all goes back to religion in charge, I'm grabbing the next high-speed asteroid outta here.

AldousHuxley's picture

religion = politics = system of control of masses throughout history


Mormons....non-profit tax exempt center for your assets with BILLIONS in revenue.


and you wonder why Mormons kids are overrepresented in Harvard Business School....They got the money!

infinity8's picture

I can't say I've known many Mormons but, the 10 or so that I have, except 1, have been very well off. And all 10 were at least 1/2 fucking crazy.

infinity8's picture

but I think that about most people, I guess.


john39's picture

Mormonism is a mix of christianity and free masonary.... Its founder, Joseph Smith was a mason and literally copied many masonic ceremonies and beliefs into mormonism.  free mansonary is also a cornerstone of the NWO.   The matrix is all encompasing, including the catholic church.  an institution of any sway is infiltrated and controlled over time.  

I know many fine upstanding mormons....  but, with respect to most of them, I can safely say that their ability to critically think about the church leadership and "conservative" political leaders has effectively been eliminated.  and that is the point afterall, you can see why that would be useful.

infinity8's picture

serious cog-dis issues - guess that's why they seem crazy to me. The only family I've ever know that identified as masons was dirt poor and extra stupid.

Raskolnikoff's picture

Puh-lease, Catholic & Mormon gold will get stollen with the rest of the gold of the world by people with the bigger and better guns. LOL, in this day and age the only religion with political might is Islam. Judiaism isn't even a religion anymore, it's a social gentlemen's club by invitation only.

The first thing the Italian leader does when his economy starts to faulter and his leadership abilities start being seriously questioned is he starts ragging on the Pope and the Catholic Church. The Church as any type of political power is a big joke, especially in the United States.

when is the last time any major political figure actually took the Catholic church seriously? ....crickets, no?

nick elsworth's picture

You might want to dig a bit into that statement.  Check out some VP links of this and past administrations for some clues.

Bring the Gold's picture

LMFAO, did you say the only religious group with political might are the muslims? Then you proceed to write off the three most powerful religious groups in the world in favor of basically a third world hodgpodge rife with interecine conflict and which stands against usury and banking? That's where the power lies? LMAO! Wow!

CH1's picture

If it all goes back to religion in charge, I'm grabbing the next high-speed asteroid outta here.

I'm sympathetic, but are we supposed to believe that having politicians in charge has been better?

Honestly, that's political propaganda, and the case for it is damn thin... aside from "everyone knows," of course.

infinity8's picture

put the bottle down - sympathetic but what?! did I say that?! Wha. . ?! Propaganda, blah, wha?! everyone knows what?

Yamaha's picture

I think Tyler is a Mormon.

Long Mormons
Short Vatican.

UP Forester's picture

Tungsten.  Titanium is used in high-temp/high-strength stuff like jet engine compressor blades, tungten is wrapped in a sheet of gold foil and stacked in some Army base in Kentucky....

DeadFred's picture

Good, we have a strategic stockpile of this useful industrial metal and they were smart enough to disguise it as that useless relic metal.

dalkrin's picture

Thanks for that heads-up!  I had been following FAZ in light of the unique positions the Germans find themselves in as the Deep Pockets of last resort.  As I have studied German and spent time in Germany and Austria, I was also able to read the mood from the commentary.

Just registered and posted my first comment.  My skills were rusty, but I got across the gist of my message:  Don't trust the banks.  Both the Euro and dollar are at risk of inflation, and the currency devaluation that entails.  Best advice:  buy gold and silver, keep it to yourself.

kaiserhoff's picture

The Pope and the Mafia will not be amused.

pain_and_soros's picture

Anyone ever ask how much gold the Vatican has, or should I say, ever get a straight answer when they asked?

I suspect they have more gold than most imagine and perhaps more than any other "country".

Vatican to become the world's central bank?

Piranhanoia's picture

Wonder who would come to the Vatican's rescue if the Italians came knocking and said;  "hand it all over".  No one.  They would all come looking for a share.  That instantly solves Italy's issues,  screw off EU.  Italy is now the powerhouse of Europe because they have the riches from longest running looting scheme in history that they get to examine back to its dirty beginnings.

mynhair's picture

The Vatican is a sovereign nation.  Mess with it, and the Swiss Guards will stomp yer ass.

Bam_Man's picture

100 Swiss guards with pikes versus the Italian Army.

Would be an interesting contest.

Bring the Gold's picture

A little more relevent would be the reaction of 1 BILLION + Catholics.

CH1's picture

The Vatican has more friends than you would suppose. They've been playing that game for a LONG time.

CPL's picture

Usury is strictly forbidden by the Catholic church, at least at one point in time, hording however has been a many millenial long project.

TwelfthVulture's picture

Yeah, and vows of poverty were de rigueur.  So tell me, how then did they acquire all that gold, silver, precious gems and real estate?

Desert Irish's picture

The last person who tried to fuck the Vatican's finances over was hung by the neck off London's Blackfrairs Bridge by the don't underestimate them

Nate H's picture

Could be bluff/posturing/poker by ECB. In the end there are few avenues open to them. They MUST support Italian bond mkt

Mike2756's picture

Worked on Greece, how much longer can they keep it up?

DeadFred's picture

Right, this is a bluff with no credibility. Do what I say or I'll shoot myself. Somebody supply the appropriate youtube clip.