While a lot of time is spent scrubbing through the details and nuance of each and every macro data point, auction result, earnings comment, central-banker hint, and politician's demeanor, from the top-down the imbalances created by the euro between the North and the South are, in Michael Cembalest's opinion, skyrocketing. They are far greater than any that preceded the Euro, even during the bouts of inflation and devaluation which beset the South in prior decades. Nevertheless, the region appears committed to soldiering on with it, despite the costs. These developments are amazing for a project like the Euro, which was designed to harmonize and sustain Europe’s post-war social, political and economic integration.
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The JPMorgan CIO's perspective is that "Europe will slog through a period of low growth and complicated politics, and that the ECB may have to resuscitate both its 3-year bank repo operations (LTRO) and outright bond purchases (SMP) later this year" and we remind readers that every bond that the ECB purchases is now creating lower recoveries and higher default/restructuring risk for Spain - hardly the win-win that markets are expecting. Be careful what you wish for.