This page has been archived and commenting is disabled.

ECBCTRL+P: The Next Steps In The European Implosion

Tyler Durden's picture




 

Wondering what is next for Europe? Don't be. With Jurgen Stark, aka the last real hawk at the ECB, gone, here comes "the printing." SocGen's Dylan Grice explains.

From SocGen:

Suppose that Italy or Spain get caught up in the whirlwind like Greece, Ireland and Portugal, as threatened to happen last month. Maybe the Italian political situation deteriorates, maybe Ireland defaults, maybe Greece will go revolutionary, or maybe an ill-advised wayward comment from an influential European politician will spook markets and send them into renewed tailspin. We don't know which of these will happen, if any. All we know is that these are some of the many plausible triggers for a further deterioration in this fragile situation.

Let's say one of those triggers is activated, leading to an intensification in the runs on the securities of eurozone governments and banks, probably Italian and/or Spanish, but who knows? In all likelihood, every bank will get further pummelled regardless. And let's also say that the panic is fuelled further by concern that Italy and Spain's multi-trillion-euro balance sheet banks are simply too big for their already fiscally strained governments to save. Fear that they will try creates more panic in the market for those government bonds, the viability of the euro is perceived by the markets to be threatened and so all eyes switch to Germany and France to provide further bail-outs.

But then everyone realizes that France and Germany's own banks are being dragged down. And, in France and Germany at least these banks would take priority over those of other countries. So the trillion-euro bank balance sheets of many of the eurozone's financial institutions seem too big for even the core governments to save. Runs develop in the core government bond markets too as investors take fright that they might try. Meanwhile, the continued absence of any coherent pan-European political leadership ensures any opportunities to get ahead of the panic are missed, and so one/some European banks fail.

Thus the entire financial system fails. The 1931 Credit Anstalt crisis is rerun and the depression that follows is too much for austerity fatigued peripheral eurozone members, whose electorates succumb to the siren call of  anti-euro populists promising deliverance from the economic misery imposed by Berlin. The euro ends not with a whimper, but a bang ....

Now, personally, I don't think this will happen. I think the ECB will get the printing presses rolling before we get to the stage where markets seriously panic over the solvency of the eurozone's core, or of its banks. And when I say I expect the ECB to get the printing presses rolling, I mean QE of the unbridled unsterilizable sort, and of which The Ben Bernak is so fond.

This action won't be taken lightly. In fact, I doubt it will be taken at all until the market puts a gun firmly to the ECB's head and forces it to choose between its two great loves: the euro or its Germanic belief in hard money. "You can't have both" the market will say, as it cocks its gun and slowly squeezes the trigger. And my guess is that the ECB will let its principles go and sell the strategy to Germans as a hard-money sabbatical. After all, if the hard-money Swiss National Bank can commit to unlimited money printing, so too can the ECB.

I also suspect such an action would be the final kick of the can. Money printing buys time and nothing else. But I think it could buy the eurozone quite a lot of time, certainly enough to be open-minded towards owning the cheap assets the episode might throw up. Let's face it, equities would likely become very cheap in the sort of panic that would force the ideologically Germanic ECB to print with the abandon of a Ben Bernanke.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Fri, 09/09/2011 - 09:35 | 1650362 Yen Cross
Yen Cross's picture

Baltic Dry! So Laxidasical? 

Fri, 09/09/2011 - 09:47 | 1650405 Joshua Falken
Joshua Falken's picture

Look at the Dow Jones Transportation Average

see http://www.marketwatch.com/investing/index/DJT/charts

Fri, 09/09/2011 - 10:02 | 1650483 ratso
ratso's picture

The solutiom will be the same for the big banks as was applied in the US and earlier in Sweden.  Insolvent banks with be nationalized, broken up and set free after their bad bedt has been detached.  Taxpayers in Europe as happened in the US will gradually absorb the bad debt over a decade or two which implies slower growth and lower interest rates along with gradually increasing inflation.  "Just as it ever was"

Fri, 09/09/2011 - 10:12 | 1650507 Construct
Construct's picture

Hey I got an even better idea, it's called capitalism. You know 'let them go fucking broke'. What do you think? We don't deal with Lehman brothers anymore do we? That is how capitalism should work.

Fri, 09/09/2011 - 10:31 | 1650624 Carbon Penguin
Carbon Penguin's picture

But then it's not capitalism - it's a free market. Two *very* different beasties... http://www.mutualist.org/id4.html

Tue, 11/08/2011 - 20:09 | 1858882 Neidhammel
Neidhammel's picture

The Commerzbank clients who got ripped off by "absolutely safe" Lehman "certificates" have to deal with this financial disaster for the rest of their lifes. Banks were bailed out, small investors got nothing.

That is how capitalism should work?

Fri, 09/09/2011 - 09:37 | 1650365 Mussolim
Mussolim's picture

On the news Unicredit, -6%.... suspended as usual....

Fri, 09/09/2011 - 09:56 | 1650445 Zedge Hero
Zedge Hero's picture

Hey Moose, my show this week was on the Italian protest and the European debt crisis. Made me think of you, and maybe someone similiar rising up soon if the politicians cant blow the people while giving a reach around to the banks.  Here's the broadcast.

http://www.youtube.com/user/zedgehero

Fri, 09/09/2011 - 09:37 | 1650366 HedgeFun
HedgeFun's picture

DISCLAIMER:  LONG PAPER AND INK

Fri, 09/09/2011 - 09:37 | 1650369 Robslob
Robslob's picture

LONG HP PRINTERS!

Fri, 09/09/2011 - 09:38 | 1650371 GeneMarchbanks
GeneMarchbanks's picture

Eurozone can't shake itself free from the yoke of Ancient Rome. Devalue or bring in price controls your playbook is... um... well not really a book at all.

Whats that quote about history again?

Fri, 09/09/2011 - 09:40 | 1650372 Debtless
Debtless's picture

I think the right crooks need to start being assassinated. We the people need to end this.

Fri, 09/09/2011 - 10:45 | 1650697 Zola
Zola's picture

I am surprised it has not happened , probably still a lingering belief you can change things the right way. The 2012 election may be the last chance

Fri, 09/09/2011 - 09:39 | 1650373 FunkyMonkeyBoy
FunkyMonkeyBoy's picture

Maybe we should be worrying about the folks who have no PMs?

Can you set-up some kind of donation service so we can distribute some of our PMs to the "have-nots" please Tyler.

Please give generously fellas.

Fri, 09/09/2011 - 09:39 | 1650377 Minoan
Minoan's picture

It's easier for a German to tell a succesfull joke,than it is to print.

Fri, 09/09/2011 - 15:54 | 1652249 Simon Endean
Simon Endean's picture

Vy does Paris haf tree-lined boulevards? Zo ve can march in ze shade!

Danke! Danke! Try ze schnitzel!

Fri, 09/09/2011 - 09:40 | 1650379 oogs66
oogs66's picture

SocGen wants the ECB to print money?  Shocking :D

Fri, 09/09/2011 - 09:41 | 1650385 Joshua Falken
Joshua Falken's picture

Article 21. 1 of „THE STATUTE OF THE EUROPEAN SYSTEM OF CENTRAL BANKS AND OF THE EUROPEAN CENTRAL BANK“ prohibits the ECB from printing money and giving it to central governments

 

Has this been changed?

Fri, 09/09/2011 - 10:07 | 1650502 GoldenEye
GoldenEye's picture
German chancellor Merkel says EU treaty change inevitable to preserve Euro
Fri, 09/09/2011 - 09:41 | 1650386 tempo
tempo's picture

Buying time...With the internet all labor (except for the brilliant and unions)are competing at about $5/day w/o benefits. Those w Govt/teaching/union jobs want to extend and pretend so they can continue with making 100 times the going labor rate. Its in their best interest to wait as long as possible to adjust to the facts. With the US$ as the world currency, the US can run trillion $ deficits for a few more years. EURO land can't extend and pretend as long. Millions are working for near slave wages to support a few who own the plantation (the world reserve currency). Wages and life styles will equalize over time between the millions workers who produce and reserve currency owners. Its all a matter of time.

Fri, 09/09/2011 - 10:33 | 1650633 Carbon Penguin
Carbon Penguin's picture

We are all mTurkers now...

Fri, 09/09/2011 - 09:43 | 1650388 rambler6421
rambler6421's picture

Gold and Silver Bitchez!

Fri, 09/09/2011 - 09:44 | 1650394 mfoste1
mfoste1's picture

got liquidity? bitchez

Fri, 09/09/2011 - 09:44 | 1650396 Yen Cross
Yen Cross's picture

 I love GBP! That government has " Austerity Balls!!!     Good on ya!

Fri, 09/09/2011 - 09:54 | 1650442 dpr10
dpr10's picture

austerity at this stage wont get you anything..the uk is bankrupt..

Fri, 09/09/2011 - 10:02 | 1650475 Yen Cross
Yen Cross's picture

 I feeel your pain. Thanks for responding.  I promise you I'm long the cable trade off of the {8} handle .

Fri, 09/09/2011 - 10:05 | 1650498 Mitzibitzi
Mitzibitzi's picture

Yeah, but we're a bit less bankrupt than the rest of Europe!

For today, anyway. Tomorrow, maybe not so much.

Fri, 09/09/2011 - 10:09 | 1650511 dpr10
dpr10's picture

+1

Fri, 09/09/2011 - 10:10 | 1650517 Yen Cross
Yen Cross's picture

You my friend are ( CORRECT) ! Good work....>

Fri, 09/09/2011 - 09:47 | 1650407 maxmad
maxmad's picture

Implosion bitchez!

Fri, 09/09/2011 - 09:52 | 1650409 DefiantSurf
DefiantSurf's picture

I'm pretty sure I heard Bernanke call Trichet a cocksucker....

or maybe it was Stark,,,dunno all CB guys look the same to me....asshats

Fri, 09/09/2011 - 09:49 | 1650410 Karl Napp
Karl Napp's picture

ECB confirms, that Stark steps down, personal reasons

Fri, 09/09/2011 - 09:49 | 1650413 RobotTrader
RobotTrader's picture

Gold now going totally parabolic in foreign currencies.

When this "Fear Trade" reverses, the unwinding is going to be ferocious.

Fri, 09/09/2011 - 09:59 | 1650470 gwar5
gwar5's picture

Fear trade will accelerate into the Implosion trade.

 

Fri, 09/09/2011 - 10:03 | 1650485 gwar5
gwar5's picture

Fear trade will accelerate into the Implosion trade.

 

Fri, 09/09/2011 - 10:57 | 1650762 nathan1234
nathan1234's picture

What unwinding?

Is Ben going to stop printng?

Are Govts stopping spending?

Will Banks become solvent?

Of course you will have corrections on the way up. But till such time as you get a new financial system, Gold will continue to move upwards.

Fri, 09/09/2011 - 10:59 | 1650777 Zola
Zola's picture

Gold is the punisher finally going to administer reality to the delusional policy makers and investors

Fri, 09/09/2011 - 13:15 | 1651492 woolly mammoth
woolly mammoth's picture

What evidence do you have that says the "fear Trade" has even begun?

Fri, 09/09/2011 - 09:51 | 1650420 Yen Cross
Yen Cross's picture

New York is a :Haberdashery

Fri, 09/09/2011 - 09:59 | 1650471 snowball777
snowball777's picture

Bespake?

 

Fri, 09/09/2011 - 09:55 | 1650444 Bahamas
Bahamas's picture

The Germans already were handed a juicy opportunuty  when the Euro was conceived back in 1992. The Italian lira lost half it's value overnight and Germans were storming the Chianti region and all the best real estate locations in Italy with a big 50% off discount planted on all what was to be bought. Needless to say, you can't compare the beauty of Italy's country side and seaside to the grimy and cold German land. This time I think it's only fair for the Germans to pay back some. Especially since they are the only ones who have kept their currency (the Marc).

Fri, 09/09/2011 - 09:57 | 1650449 gwar5
gwar5's picture

EU implosion and Eurogeddon is now allowed to be mainstreamed. Disaster sure to follow, soon enough. 

 

Fri, 09/09/2011 - 09:59 | 1650457 Flounder
Flounder's picture

From French web page Boursorama Forums top comments

http://www.boursorama.com/cours.phtml?symbole=1rPCAC

"You have paid 250 euros per person for Greece"

Vous venez de payer 250€/p pour laGrèce

Auj. à 09:54

15 milliards, (je ne pose pas la question qui croit au remboursement...)
Pour un couple + 2 enfants, cela fait 1.000 €

Vous venez donc de payer 250€/personne pour la Grèce.
Pour rappel, les impôts ne sont pas plus levés qu'avant, la part non "officielle" de l'économie s'accroit avec la crise,

Alors merci pour votre générosité (nota, je contribue moi aussi)
On reviendra vers vous car d'autres occasions de solliciter votre bienveillance sont présentront

translation:

15 billions, (I do not ask the question which believes in refund...)
For a couple 2 children, it makes 1.000 €

You have therefore just paid 250€ / person for Greece.
For recall, levies are not more levied than before, the not "official " part of economy accroit with crisis,

Then thank you for your generosity (note, I also contribute)
They will come back towards you because other opportunities to solicit your benevolence are présentront

Fri, 09/09/2011 - 10:22 | 1650576 Don Diego
Don Diego's picture

lucky French, we in Luxembourg are supposed to contribute for Greece 6500 euros per taxpayer that works out 2 billion euros divided by approx 300.000 taxpayers (including foreign residents working in the country and excluding civil servants).

The rescues of BNP and Dexia cost us already another 10.000 per taxpayer (assuming we will get nothing from the "investment").

Granted, the country benefitted from the global Ponzi like no other, however, not everybody here works in finance...end of rant

Fri, 09/09/2011 - 09:58 | 1650463 buzzsaw99
buzzsaw99's picture

What just happened to my EUR/USD play??

Fri, 09/09/2011 - 10:08 | 1650506 Yen Cross
Yen Cross's picture

Fade the trade. Look @ the July trend line. Sell rallies!

Fri, 09/09/2011 - 10:21 | 1650573 buzzsaw99
buzzsaw99's picture

just kidding. i never leave the "safety" of the us dollar. ;)

Fri, 09/09/2011 - 09:58 | 1650466 ReactionToClose...
ReactionToClosedMinds's picture

sorry to say .. this is exactly what I have been theorizing the last 2 weeks ... this is Summer of 1931 methinks ala comparisons ...

from Grice:

Thus the entire financial system fails. The 1931 Credit Anstalt crisis is rerun and the depression that follows is too much for austerity fatigued peripheral eurozone members, whose electorates succumb to the siren call of anti-euro populists promising deliverance from the economic misery imposed by Berlin. The euro ends not with a whimper, but a bang ..

Am reading the biography of Andrew Mellon ....(good) ...... reading this gave me a timeline feel I never got from all the recent economic/historical research have been reading ... especially the Depression.

And not to lecture ... but a lot of people seem to almost want this to happen ............ if Summer 2011 is comparable to Summer 1931 ... then the future is very bleak and there will be incredibly human idiocy to follow ...even among the very smart & educated (maybe the most idiotic by this segment of humanity as they are deluded by their seeming 'rationalism' and sense of 'control' over events/circumstances).

And gold will protect you for a while ... as will guns/ammo/supplies .. but eventually there will be no place to hide.

Fri, 09/09/2011 - 10:04 | 1650493 pappyhlace
pappyhlace's picture

better boot up the backup HFT's for Monday....

Fri, 09/09/2011 - 10:09 | 1650504 Construct
Construct's picture

deleted

Fri, 09/09/2011 - 10:28 | 1650611 Bahamas
Bahamas's picture

Not only did the Germans buy Italian property in 1992 fo 50% discount...also when the Euro was introduced in 2001 the value of scriptural Lira was halved in purchasing power while that of real estate doubled. Practically German real estate investors haven't paid a dime for their Italian possessions

Fri, 09/09/2011 - 10:35 | 1650649 Belarus
Belarus's picture

SocGen, Dexia, Unicredit....and tanking yet again today. If it's not time to panic yet, then when? 

Fri, 09/09/2011 - 10:58 | 1650768 stormsailor
stormsailor's picture

so they pump the monkey for another couple of weeks.  i sold my short from 1198 /es position at 1158 now i'll let them pump,pump,pump and look for another entry.

think it will drift up the rest of the day, and do the up 10 from sunday night to mondays open.  i'll look to short it again when it hits 1180 or thereabouts.

i don't care much about their kabuki theatre, i just want to make money

Fri, 09/09/2011 - 13:52 | 1651666 e_goldstein
e_goldstein's picture

You know, the Bernank gets all the press; but he's never done anything that he didn't learn from Gideon Gono's playbook.

Mon, 11/07/2011 - 23:05 | 1855396 oogs66
oogs66's picture

kill the people...long live hedge funds and banker bonuses!

Do NOT follow this link or you will be banned from the site!