Citi Chief Economist Willem Buiter: A Spanish Or Italian Default Could Happen In A Few Short Days

Tyler Durden's picture

Citi's Willem Buiter whose succinct analysis a few weeks ago sealed the coffin of the worthless EFSF, has just come out with another knock out punch this morning after telling Bloomberg TV what everyone else knows is true, but is terrified to say out loud: namely that, "time is running out fast." He adds: " I think we have maybe a few months -- it could be weeks, it could be days -- before there is a material risk of a fundamentally unnecessary default by a country like Spain or Italy which would be a financial catastrophe dragging the European banking system and North America with it. So they have to act now." In sum -  a rehash of the Deutsche Bank pitchbook to the ECB we posted earlier, only in Mutually Assured Terms that would make even Hank Paulson blush. At this point Germany has an option: tell Europe to take a hike, or go balls to wall in bailing out 250 million European's early retirement packages. The ball is in Merkel's court, who unlike Citi, JPM, DB, and everyone else, has to worry about this fickle, and potentially pitchfork bearing, thing called "voters."

Full transcript via Bloomberg TV

Buiter on Europe's crisis:

"Time is running out fast.  I think we have maybe a few months -- it could be weeks, it could be days -- before there is a material risk of a fundamentally unnecessary default by a country like Spain or Italy which would be a financial catastrophe dragging the European banking system and North America with it. So they have to act now."

"The only two guns in town, one is only theoretical, and that is increasing the size of the EFSF to 3 trillion.  It should happen but it can't for political reasons.  The other one, the only remaining share is the ECB.  They may have to hold their noses while they do it, and if they don't do it, it's the end of the euro zone."

On why the ECB hasn't acted yet:

"Because after the error of the Bundesbank, they consider central banks purchasing sovereign debt outright to be like swearing in church.  It's just not done.  This has been in fact to a certain extent embedded in the treaty which forbids the ECB from lending directly to governments or buying stuff in the primary market.  But there is no restriction at all on them buying any amount of sovereign debt at any time in the secondary market, so they can do it."

"This crisis is the result of the failure to provide the minimal institutional underpinning for a monetary union in the euro area and also a result of the ECB unfortunately being the heir of the Bundesbank and therefore not understanding and rejecting the role of central bank as lenders' last resort to sovereigns.  They certainly are a central bank.  They just are a central bank that prefers to fight with both hands behind their back.  If they just let go of one hand, that would be enough."

On Italy’s situation:

"This is already challenging.  If this was the rate at which they are going to fund themselves, even over the medium term, that becomes an explosive debt deficit spiral…This is clearly unsustainable. You can live here for awhile, they're not going to keel over tomorrow, but this is not sustainable…The only way they can get back there is for the ECB to provide the liquidity while Italy does the hard work for years, in fact for the rest of the decade quite possibly, of restructuring their economy and tightening the budget in a major way."

On whether he's concerned about France:

I think France definitely has its work cut out for itself. It has a government budgeting problem which is structural to a large extent. And then they have a large banking sector. Do not forget that the U.S. banking sector balance sheet is less than 100% of GDP. In Europe and France, it is 300%. Their banks are under fire and so their sovereigns are under fire. I do not think the sovereign will keel over, but they have their work cut out for them.

On what he'd like to see in Europe to get the fiscal house in order:

Clearly some minimal federal fiscal structure would be desirable, but it is completely unrealistic.  They best they can hope for is that the ECB will indeed ring fence the euro area sovereigns in exchange for basically glorified IMF programs. So that they will temporarily transfer a significant amount of fiscal sovereignty to some super-national body, but then when they get restored to health, they regain this.  That is not a long-term solution.  Ultimately there will have to be some form of fiscal union that creates a federal solution, but that's for the next crisis, not this one.

On whether Europe is an AIG waiting to happen:

No for several reasons.  First of all, AIG happened and everybody learned from it. Whereas the sovereign CDS, the regulators by and large know who wrote it, who issued it and who holds it.   Unlike quite a bit of the CDS written by AIG.  This stuff is all collateralized.  So nothing is ever completely safe, even sovereign debt, but I think it's a lot safer to trigger them and use their insurance value than to kill the market."

On the quality of the German economy right now:

"It is a mixed bag. It has a very productive manufacturing exporting sector. Much of the rest of it is not very efficient at all, including the services sectors. Germany had the world's largest corporate takeover in 1999 when West Germany took on East Germany. That has not been fully digested yet. It is a country that is very much a dual economy. It is very strong at the moment strong at the moment as an export-oriented economy, which of course is vulnerable to cyclical slowdowns...it is structural and cyclical. The German demographics are terrible, even by European standards."

On whether the U.S. should use its currency to help with exports:

"No, I think to pursue competitiveness policies by manipulating or steering down the nominal values of the exchange rate is a loser's game. In the limit, it gets you to Zimbabwe, which didn't exactly become a hub of competiveness. It's a gross misalignment for historical reasons…I think we shouldn't get too upset about the Chinese manipulating their currency.  There's also no reason to attach great importance to the ability of the U.S. in manipulating its currency. Both are second order instruments."

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mayhem_korner's picture

 

 

Italian Bonds = muffin stumps; ECB = Newman

BaBaBouy's picture

Anyone Know What Pellossi's trades are today ???

redpill's picture

Germans are known for being logical and calculating.  Great engineers and craftsmen.  However, if you piss them off a little bit too much it's like you flip a switch, and suddenly that skill and ability is used in aggression, and you're left with a rabid, fire-breathing Germanic horde trampling down everything in its way with Rammstein blaring in the background.  The last time this happened was when David Hasslehoff cancelled a concert.  Let's just say it got ugly.

Good luck, Angela.

allocater's picture

This time we will let Poland in peace. The Panzers will roll south and take out Switzerland and Liechtenstein. The Luftwaffe will take care of Monaco and Andorra.

unky's picture

The German army is a joke

redpill's picture

--Belgium, May 1, 1940 

Harlequin001's picture

'will temporarily transfer a significant amount of fiscal sovereignty to some super-national body, but then when they get restored to health,' - by selling tickets for rides on magic unicorns one presumes...

It's always the weak point in the plan, how they "just get fixed'...

jeff montanye's picture

good point.  another possibility is german withdrawal from the euro, instituting of a new dm for german use, converting german euro debt to dm, inflating euro debt "away" without extracting fiscal resources from germany, and, possibly, having germany rejoin the euro zone at some "future time".  please see http://www.hussmanfunds.com/wmc/wmc111114.htm

LeonardoFibonacci's picture

sorry blue haired girl, you got that totally wrong!

cossack55's picture

No!!! Not Andorra!!!! Where would one get cheap Cubans if not Andorra!!!!

eatthebanksters's picture

I heard she's taking massive doses of estrogen to keep her balls from growing back...

Pondmaster's picture

....and implants , chest and butt ones

Ted K's picture

Personally I think I would short the particular BOTOX maker she uses.  She got the Al Pacino thing where her lips are now 2 feet from her nose.  I wonder when it's going to dawn on these idiots 6 months of good looks for the rest of your life as a zombie isn't a good trade off.

I'm a Democrat, and that's one thing I have to concede to Republicans---Pelosi is the ultimate hypocritical BITCH.  God help us if she's supposed to protect the middle class from the 1%.

sabra1's picture

Dildos and extra batteries! you don't want those batteries to die when you ain't finished! janet napolitano learned it the hard way!!!

Mugatu's picture

His comment:

"No, I think to pursue competitiveness policies by manipulating or steering down the nominal values of the exchange rate is a loser's game. " 

If this is true, how come the chinese have been doing it for years?  It has not been a loser's game for them.

BigJim's picture

It has been a loser's game - for Chinese workers who would have seen the purchasing power of their wages appreciate along with the Yuan if their government hadn't been suppressing their currency.

ub40onlyonce's picture

She traded her vagina in for a Mao Tse Tung

GeneMarchbanks's picture

What are Spanish bonds in that case? TurKramer?

mayhem_korner's picture

 

 

I was thinking of merging Spanish and Italian into a single word, but didn't want to give up the shot at the pole position. 

GeneMarchbanks's picture

SPITalian has a nice ring to it, no?

CrazyCooter's picture

Oh, how about SH (SpanisH) and IT (ITalian).

Regards,

Cooter

arizona11912's picture

EURO BONDS will be the catch phrase on ZH. Just watch. Euro bonds cant be implemented unless there's sheer panic in Europe. I'm selling pre-order Euro bonds. Come on China and Japan, I know you want in on some of this action.

arizona11912's picture

EURO BONDS will be the catch phrase on ZH. Just watch. Euro bonds cant be implemented unless there's sheer panic in Europe. I'm selling pre-order Euro bonds. Come on China and Japan, I know you want in on some of this action.

vast-dom's picture

Got Default?

No Fucking Shit!

Mooooooooooooo!

Comay Mierda's picture

BAC = FIVER, BITCHEZ

Hedgetard55's picture

Waterfall in all the bankster stocks!

Comay Mierda's picture

quick someone get cramer to start pumping!

DoChenRollingBearing's picture

Another $500 comes out of the ATM on my way home today.

WonderDawg's picture

Late day sell off, Dow just tanked 100 points in minutes...

GeneMarchbanks's picture

FlashSmash. Sovereign downgrade imminent?

bartek's picture

Give us 3 trillion or the world will end and half of population will die.
Yea, right
Scumbags wailing for their $5 million Christmas bonuses

MassDecep's picture

The sky is falling, the sky is falling. Bet ya, they don't default!

Print the money!

SheepDog-One's picture

Dont look to bet me, bet in the market! May I suggest all-in on 00 black? Good of a bet as anything else....go bet!

SheepDog-One's picture

Noooooooo! Not when everything was just going so great and the FED's just came out and said theyre 'bout to print more and hand it to ECB and banks and all is well arrrrgghhhhhhhhh!!!

Hedgetard55's picture

Buiter = one more worker bee in the bankster hive. Fuck him.

Lord Welligton's picture

No mention that Greece and Italy cannot compete within the Eurozone.

Just take your medicine for 10 years like good boys and girls.

Then we, Citi and Friends, will own the very ground you walk on.

Calmyourself's picture

That is pretty much it isn't it.  France, Italy and the rest we loaned you money we never had and now you can buckle down and slave away to enrich the banker class in perpetuity.  Ohh and the CB's will print to make us whole forever, MMMMhhhhaaa, evil laugh..

Elorant's picture

Of course they can compete. Besides machines you have to eat something. Try eating a tomato from Germany and one from Greece and then you'll know. The problem with Greeks is that they lack the marketing to export their products.

SheepDog-One's picture

'Why hasnt the ECB 'acted' yet'...

Well thats all the ECB and FED does! ACT! As in a fucking puppet show! Phony actors!

SDRII's picture

Buiter speaks with forked tongue. This is the same pink paper prodigy who never missed a chance to bang the barbaric relic meme. His proposals included a thought exercise to impose negative interest rates by destroying random serial number currency. First rate shill who should be applauded only for his ability to add.

sitenine's picture

Agreed. This dipshit sounds like Krugman. EFSF 3 trillion how?! The ECB should start printing?! If this is success, we should PRAY for failure! Debt is not an asset when you're the one that owes, and debt is not an asset when your debtor can't pay. Don't know how to say it any simpler than that.

zhandax's picture

Let's elaborate on that a bit more.... how do you like this quote, "No for several reasons.  First of all, AIG happened and everybody learned from it. Whereas the sovereign CDS, the regulators by and large know who wrote it, who issued it and who holds it. "

The ECB may know who in Europe wrote, issued, and holds it, but do they even care who in the US wrote, issued, and holds it?  Not their problem, perhaps?  Perhaps they think that surely the US regulators will stop watching tranny porn long enough to do something before TSHTF.  Perhaps they know that the US banks will take the hit and uncle sugar will pull another Hammerin' Hank bailout.  Only thing is, Hammerin' Hank is out to pasture and lil' timmay ain't gonna get the job done this time around.  Congress decided in '08 that they would rather face the wrath of the voters than the wrath of Hank.  timmay seems to lack that same gift for suasion.  When TSHTF, everyone wants to believe that their uncle is rich.

partimer1's picture

Ray dalio, the hard-head truth-seeker told you this long time ago. default will happen, and once it happens, it cannot be stopped easily. Reality works in certain way. This is not Larry Summer's tomorrow is beeter than today shit. If you don't have the money to pay the bill today, you are in default. its just that simple.