Moody's Unhappy With Friday Euro Summit, To Review Ratings, Warns Of "Multiple Defaults And Exits By Euro Area Countries"

Tyler Durden's picture

The main weight on the EURUSD this morning is not only the virtual certainty of S&P cutting Europe's AAA club, after it called Europe's bluff and Europe revealed a 2-7 offsuit, but a report just released from Moody's which said that the rating agency looked at the European abyss, and did not like what it saw at all. As a result, Moody's has warned that it was review the ratings of all EU countries in Q1 as the summit has failed to produce "decisive policy measures" (we emphasize this for our friends at Bloomberg TV). It says: "As a result, the communiqué does not change our view that the crisis is in a critical, and volatile, stage, with sovereign and bank debt markets prone to acute dislocation which policymakers will find increasingly hard to contain. While our central scenario remains that the euro area will be preserved without further widespread defaults, shocks likely to materialise even under this 'positive' scenario carry negative credit and rating implications in the coming months. And the longer the incremental approach to policy persists, the greater the likelihood of more severe scenarios, including those involving multiple defaults by euro area countries and those additionally involving exits from the euro area." The result, as one can imagine, a surge in Italian and Spanish yields, and redness across the screen.

From Moody's:

Pressure Remains On Euro Area Sovereigns In Absence of Decisive Initiatives

The communiqué issued by European policymakers after the recent euro area summit offers few new measures and therefore does not change our analysis of the rising threat to the cohesion of the euro area and the further shocks to which it and the wider EU remain prone. As we announced in November, unless credit market conditions stabilise in the near future, our ratings of all EU sovereigns will need to be revisited. The communiqué does not change that view, and we continue to expect to complete such a repositioning during the first quarter of 2012.

Last Friday, European policymakers issued a communiqué announcing additional measures aimed at addressing the formidable challenges facing the euro area. The communiqué discussed at a high level the direction of a variety of initiatives aimed at supporting closer fiscal coordination among euro area (and many EU) sovereigns in the years to come, and at the same time to address the more acute immediate challenges euro area sovereigns and banking systems face. The clear statements it contains affirming the commitment of euro area authorities to work towards a common economic policy provide a further indication of euro area politicians’ desire to move towards centralised fiscal coordination and mutualisation of resource and risk.

Few New Measures Beyond Previous Announcements

In substance, however, the communiqué offers few new measures, and does not change our view that risks to the cohesion of the euro area continue to rise. Measures to strengthen the governance of the EU’s Excessive Deficit Procedure were first announced in the first half of 2011. The intention to introduce measures to strengthen national budgetary frameworks and to improve coordination and cooperation, including a heightened role for the Commission, was announced in October, as was the aim of leveraging the European Financial Stability Facility.

The July package contained very clear statements regarding the uniqueness of private sector involvement (PSI) in Greece’s assistance programme. We placed little weight on those statements then. It is difficult to place greater weight on them now given, for example, the intention to complete the Greek PSI programme, to incorporate Collective Action Clauses in European Stability Mechanism documentation to facilitate orderly PSI in future, and the reference to the application of “IMF principles and practices” which often also involve burden-sharing with private sector creditors.

Highly Volatile Situation Remains – Hence Moody’s Position Unchanged

In short, the communiqué reflects the continuing tension between euro area leaders’ recognition of the need to increase support for fiscally weaker countries and the significant opposition within stronger countries to doing so. Amid the increasing pressure on euro area authorities to act quickly to restore credit market confidence, the constraints they face are also rising. The longer that remains the case, the greater the risk of adverse economic conditions that would add to the already sizeable challenges facing the authorities’ coordination and debt reduction efforts.

As a result, the communiqué does not change our view that the crisis is in a critical, and volatile, stage, with sovereign and bank debt markets prone to acute dislocation which policymakers will find increasingly hard to contain. While our central scenario remains that the euro area will be preserved without further widespread defaults, shocks likely to materialise even under this 'positive' scenario carry negative credit and rating implications in the coming months. And the longer the incremental approach to policy persists, the greater the likelihood of more severe scenarios, including those involving multiple defaults by euro area countries and those additionally involving exits from the euro area.

The credit implications of these and further measures likely to be announced in coming weeks require careful consideration against the backdrop of decelerating regional economic activity, fragile banking systems, partly dysfunctional credit markets, and the varying degree of success of country-specific measures aimed at structural change and fiscal consolidation. But in the absence of credit market conditions stabilising, the system remains prone to further shocks which would likely lead to selective rating changes. More broadly, in the absence of any decisive policy initiatives that stabilise credit market conditions effectively, our intention as announced in November is to revisit the level and dispersion of ratings during the first quarter of 2012.

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Hober Mallow's picture

I'm telling you, this house is going to burn!

I think I need to buy a gun's picture

i just want it over so i know whether i'm hunting deer every morning, taking bike to the grocery store, am i squirreling away gold and silver or FRN's after the gold revaluation. I just want to know the rules yet it seems the guys with all the gold haven't made all the rules yet

Popo's picture

Yes they have.  There is only one rule:   The house is going to win. 

Why?  Because dispite the flimsy illusion that the voters have some sort of power -- nothing could be further from the truth.   In this game between the elites and the non-elites, in which the former have 100% of the power -- does one even need to ask who is going to win?

(Unless of course the game becomes violent -- in which case, historically, the non-elites typically kick ass -- but not always)

Since violence isn't going to happen in America (You know it's just not going to.  They could hand out free cheeseburgers and stop any militia America mustered, dead in its tracks) -- All exits to financial safety wll be closed.  Food will inflate while gold and silver sales/exports are taxed/tariffed (thereby extracting their value without the need for confiscation).   The elites will be bailed out and literally handed cash. (Y'know... because it's "our" banking system that needs to be saved afterall).  Oil will shoot the moon,  and your vote will become even more worthless.  Oh, and they hope you enjoyed your civil rights.  They were fun and all, but the elites would prefer it if you had none.

Thanks for playing.

topcallingtroll's picture

Before the french revolution and also before king charlie lost his head there were dozens of failed uprisings in each case.

Poor people only win when the petite beorgioise join them.

They need our administrative abilities and funding to win and then hold the gains.

topcallingtroll's picture

Logistics is destiny.

Poor people may be able to riot and hold a city for a day or two.

They dont have a supply chain or organization. The smart industrious types have to join and give the rabble guidance and support.

The shopkeepers are joining the fight in Syria. The college educated are also on the side of the rabble.

Now the syrian opposition has a small chance.

JimBowie1958's picture

You make some good points here, but the why of it all is interesting.

The Peasants Revolt was a fail, along with the 1848 uprisings and others. It seems the lacking element was the relatively educated urban man of property, but what leads him to support a revolution?

My guess is that it comes from three factors:

1) Heavy-handedness on the part of the government robs it of moral authority in the view of most of these urbanites. Whether people believe God anointed the king or not, the reaality of a government killing, imprisoning, mutilating or making destitute large numbers of innocent other-wise law-abiding people galvanizes opinion against them, and opinion moves fast in urban areas, and these days it doesnt even need the town press as we have the internet now.

2) A significant portion of the elite themselves lose faith in the system for various reasons running from they are about to get cashed in by the other elite, they are disgusted with the obvious corruption and nepotism, and/or they see an opportunity in grabbing what falls from over-turning apple-carts. There is plenty of this sort of thing going on today and it is getting exposure on the internet in ways unheard of prior to it.

3) The townsmen get the undeniable impression that the vast majority of people in the naiton hold the same opinion and everyone has the feeling that there is nothing left to lose if they go into revollt as they are so desperate currently. Call it the Hundredth Monkey if you will, but individuals feel powerlesss typically while people in a mob feel almost omnipotent, which is an illusion.

The current technology and long history of violent revolt since World War 2 provides plenty of examples of what works and does not work. To further set the stage, we have an elite that is arrogant, ignorant of how things are on Main Street and they are too greedy to make small sacrifices for their own common good.

So the dry tender is nicely packed beneath the dry cracked and peeled wood, and a nice fresh breeze is drifting through the pile; all that is missing is a spark.


ElvisDog's picture

We need to start some wine clubs in the U.S.

i be julia's picture

I know I'm fucking crazy.

But I pray for mass exodus to prevent a war.

Those European cocksuckers love blood.

Just my two cents.

WhiteNight123129's picture

Don´t hold your breath, the war will not be bewteen teh Europeans, maybe elsewhere but not within Europe. There is not enough integration for the Euro to function, but there is too much integration for people to start a war within Europe. (From a European). I would return the compliment about loving blood, look the wars you guys have in America. And I thought people from your blog liked Ron Paul....

Ghordius's picture

don't feed the trolls, there is always some idiot shrieking for war - it's more about the simple belief that wars make the gold price go up...

remember that for some of our American Cousins war happens always "somewhere else that does not really exist"

Ahmeexnal's picture

Are you saying the wars that followed the collapse of Yugoslavia never took place?

Sure, it would NEVER happen in europe.

Now there's something for you to think about, during that splitsecond between the shotgun clicking and your brains splattering the wall.

GoldBricker's picture

Those European cocksuckers love blood.

They could be worse: at least they don't love plugging their own blogs on other people's blogs, with some throwaway comment as fig leaf.

achmachat's picture

...your opinion which is of no consequence at all...

sabra1's picture

what Moody's really meant, was:

"the summit has failed to produce "decisive policy measures"  that favor bond holders.

 am i right, or what?

gojam's picture

I think you're mistaking the purpose of the summit with the consequences if it had been successful and then suggesting that those consequences, if the summit had been successful, was the purpose.

Rating Agencies and bond holders just happen to be looking for the same things, confidence and security.


topcallingtroll's picture

Deflation to the left of me.
Deflation to the right of me.

However a number 1 supersized at mcdonalds is up a buck 50 from 2007.

Goes to show inflation in the things you need, deflation in those you dont.

GoldBricker's picture

Or maybe deflation in the purchases you've already made, inflation in the ones you still have to make. Declining income stream, increasing expenditure stream; like the ghostbusters, don't let the streams cross.

WhiteNight123129's picture

Yes that is correct, this is not atypical though. In the long stagflation end of growth cycle and limits on the population growth, basic necessities go up, discretionary stuff down. The question is what role Gold plays in such a context. I know Jim Rogers is long sugar.... Wait for hard commodities and soft commodities to crash and buy buy buy. For Gold, I guess until the carry trade squeeze is unsqueezed it will not do fantastic. If you are short VALE you are hedging a bit of that.


topcallingtroll's picture

Thingies with elastic demand and supply curves usually dont fare well in an inflation, losing the most ground.

Plastic gizmos from china.
Prostitution profit margins.

Low efficiency necessary services will fare better.
Plumbing, medicine, etc

GoldBricker's picture

Another summit, another announcement. Moody's can just change the dates and keep running this same text after every summit until something really changes, in which case we won't need Moody's to tell us about it.

DollarDive's picture



  • Europes going down
  • US is in debt
  • Foreclosures & Unemployment at home
  • XMAS is in 13 days  (Oh shit).
billybobtx's picture


rufusbird's picture

I suspect that, as the scenario as described, plays out, we will read about more suggestions of capital controls...

Esso's picture

Europe is fixed, Europe is broken, Europe is fixed, Europe is broken, Europe is fixed, Europe is broken...

Cripes, these people need to find a hobby or something.

Global Hunter's picture

If they're using that language and openly talking about Euro country exits and multiple defaults even if to say that is not their thesis but a possibility if certain conditions are not met would suggest to some of us here that this thing is about to topple over very quickly and they have no other option now but to admit it. 

PulauHantu29's picture

Deflation followed by servere inflation say Rogoff and Reinhart in their book if i understaood it correctly.

Bobbyrib's picture

I got junked for stating this opinion three days ago.. I completely agree, btw.

WonderDawg's picture

Yep, same here. There is no playbook for the current situation, so gather information, analyze it, and draw your own conclusions. Groupthink is strong here.

Calmyourself's picture

Yes, deflation first as it is necessary to set up the system for the big print followed by rampant inflation.  However, if any of you smarter than me finance types would hazard a guess at where on the timeline we are that would be useful even if only informed speculation.  I see us only 2/3rds down the deflation path, 1+ year for the inflation..

WonderDawg's picture

The timeline is the big question mark. If I knew the answer to that, I'd be a bazillionaire. I'd look more to the price action for a guide, rather than the timeline. I think once we take out the 2009 lows in the equity markets, it will be time to cash out the shorts, load up on PMs, and wait it out.

Element's picture

Nah, the MMT guys pissed all over that book's assertion that deficits and unaffordable spending are bad ... not going to happen ... we're going to be ok ... there are mouse clicks now.

simone's picture

Europe could pay down some debt by imposing a small tax on individuals' excessive capital.

topcallingtroll's picture

I think you have more capital than you need. I want the government to take it from you and give it to me.

GoldBricker's picture

Q: What is 'excessive'?

A: Anything more than what I have

France already imposes a 'wealth tax' on the 2500 or so richest individuals. Is France's govt debt paid down? You sound like someone who needs more than one guess.

"He who robs Peter to pay Paul will always have Paul's enthusiastic support"  -- George Bernard Shaw

simone's picture

Think of capital taxes as balancing income taxes.

Calmyourself's picture

Absolutely, they could also make a dent in Global warming by removing a small portion of your oxygen hence less carbon dioxide..  When Government becomes the playmaker isntead of the referee we are all in trouble as we can see.

StychoKiller's picture

Kindergarten and it's notions of "fairness":  thatta way -------------------->

DrunkenMonkey's picture

Some countries, like France, already have a wealth tax. Next idea ?

apberusdisvet's picture

The  NWO has hit a small bump in the road; the propaganda machine is working overtime.  Can they make policy without referenda; i.e. the voice of the sheeple; or will they go full fascist?

overmedicatedundersexed's picture

crime and fear is in an inflation, hope and justice is in a depression, .

Elites drink the blood of our children and smile at us with crimson teeth.

swani's picture

It sounds like they want Italy's and everyone else's gold to collateralise the new debt necessary to 'save the Euro'. These shenanigans seem just the prequel to that, pushing everyone to the edge of a cliff and hanging them there like Suge Knight and Vanilla Ice. Knight got the rights to Ice Ice Baby this way, it's very effective. They know exactly what methods to use since most people are afraid of death, political or otherwise. Who could forget Lehman's.

I doubt that they will not stop until they have all of the gold in the world in their vaults and the tax payers enslaved for life. Then, it's my guess, they'll switch to a new gold backed currency that they will control, and the games will begin all over again

midgetrannyporn's picture

Because everyone respects Moody's opinion sooo much. roflmao

eddiebe's picture

I wouldnt invest a single FRN with any of the many geniuses that listen to moody or any of their ilk.

Caggge's picture

Bankers: You need to give us all your money or the world is going to end!!

Lawmakers: If you give us a cut we will get you all the money in the world!!

Ratings agency: I will put fear into the people if I get my cut!!

Sheeple: They must be telling the truth. They wouldn't lie to us just to benefit themselves!!

The truth: The only way to get rid of a cancer is to cut it out completely. Fuck the lying bankers, lawmakers, and ratings agencies. Let their world end. They are the ones whose stupidity, corruption and greed caused this problem. They need to be the last to be paid....not the first.