In
case you were experiencing some mild concern, doubts, anxiety, palpitations,
fainting episodes or even panic over the fate of the Euro and its Club-Med
fraternité, Ambrose’s latest offering will moderate your symptoms if you
believe fervently in dem Weihnachtsmann. We read “The European Central Bank
has vowed to do whatever it takes to hold the Euro (€) together after the
North-South gap in borrowing costs reached fresh extremes (today – July 9th),
pushing the two halves of monetary union closer to breaking point”. (How close can they
get? – Ed). The occasion for
such pledge can be found in all the signs of full, hair-tearing panic breaking
out across Madrid. Plus the bond vigilantes pushing Spanish 10 year yields back
over the witching 7% level. The Italians know Spain is the hors d’oeuvre and
they are the main course.
It
really just is not about Greece and Cyprus, Portugal nor Ireland any more. The
water is pouring over the transom again for the two big Club-Med whales. So
their respective Cap’n Ahabs are screaming for the Euro-Panacea of “massive ECB
intervention to cap our yields, buy our worthless IOU’s which no one else will
touch, please, pity please, guys, the ECB is the only finger left in the dyke
with the money, fire-power, bazookas, (all aka the great printing press in the
sky - Ed) to SOS. Now would be a good time to start SOS’ing because otherwise
tomorrow we’ll have to ban the import of Mercedes Benz, BMW’s, machine tools,
leder-hosen, brat-würst und sauer-kraut".
However,
before you dispense (sic) with the Valium, there’s a bit of a snag. The keys to
Super-Mario 2’s printing presses in Frankfurt are locked up in the Bu-Bank’s
vaults in Berlin and schon die Kanzlerin den Schlüssel hat. If need be she
knows how to turn out the lights at the ECB for non-payment of the bill.
So
the crowing of le petit coquelet (nain, peût-être? – Ed) français François, des
deux concubines, Mariano and Super Mario 1 (les concubines sont Valérie et
Ségolène) after sandbagging Frau Angela at the last summit (which one was that
– Ed?) was perhaps a trifle premature. Now they’re all arguing about who
sandbagged whom and with what. Spain (the sovereign – Juan Carlos) will not be
on the hook for its new €100 bil bank bailout from the ESM (doesn’t exist yet)
says Brussels – oh, yes it will says Herr Schäuble – oh no it won’t says Mme
Lagarde – oh yes it will … oh, no … first we have to create the supra-national
banking supervisor, then you have to put all Spanish obligor assets in a bad
bank (cf the Irish), then take the cripples out and euthanize same and then,
but only then, if the ESM has been ratified by the Bundestag and if Herr Gauch
hasn’t vetoed the legislation on account of a ruling from the wise guys and
gals in Karlsruhe, and if the Dutch, the Austrians and the Finns agree in
writing and are satisfied all Spanish gold has been shipped to the BuBank as
collateral, we’ll authorize Super Mario 2 to buy a few bonds; recognizing
always that all other Spanish (and Italian) creditors, bonded or otherwise, are
thereby ipso facto, de riguer, do not pass Go, subordinated to …. No CAC’s, no
haircuts, no pack drill, no …. Where was I? At least the bond vigilantes and
little Georgie Soros are mighty impressed.
So
when reading about an ECB pledge to do whatever it takes to -------- (insert
your Euro-Fantasy here), please remember our lawyers are still drafting the
small print, the (inordinate) cost of which will be added to the bill of all
mendicant applicants, payable in cash, on the barrel-head, at the BuBank, in a
hard currency of its choosing (probably CHF? – Ed) before your application will
be accepted for processing. No refunds. Foreclose first, make the loan later –
says the Queen of Hearts!
Here’s Wolfie Münchau writing for the Financial Times of London. I think he’s onto something here. He concludes that at the last sand-bagging summit, the Euro-pols of the EZ did agree something – to wit to sand-bag one another. Honour is then even. I lie to you and you lie to me and we both know we’re lying when we see one another’s lips move – so that’s OK. We’ll say you agreed to bail us out but we all know, that you know, that when you get back to the BuBank bunker in Berlin, you’ll get a wigging from Herren Glauch und Weidmann and create all sorts of sine qua non’s and conditions precedent to initiating a discussion to come up with a plan. But that’s fine, because by the time the bond vigilantes twig to the ruse, it’ll be Monday and we’ll have enjoyed another weekend in the sun. Wolfie quite perceptively compares this behavior to the alcoholic, who by promising to himself and others that he’ll be in a position next week to give serious consideration to working out a plan to go on the wagon, can then with a clear conscience indulge the mother of all weekend benders. The whole Euro discourse and strategy boils down to presuming, ad arguando, that Monday won’t come. It’s quite subtle, dupes the masses and would impress George Orwell. The Aspidistra flies yet on the Road to Wigan Pier and Down and Out in Paris and London has been deferred, sine die. The probability that Monday won’t ever come is non-trivial given that one medium sized asteroid arriving in Europe could render the whole issue a nullity.
Münchau’s
headline, however, strikes as being a non-sequitur. “Euro crisis will last for
20 years”. Hopelessly optimistic – by definition a crisis must break one way or
another, and that quite quickly, or everyone gets bored with waiting and goes
home. But he is quite right that no one can be seen to be contemplating the
inevitable, with a view to mitigating its consequences, for fear and dread that
so to be seen will itself precipitate the dénouement and Monday will dawn over
a desolate landscape. It’s perhaps analogous to a super-saturated solution. The
system has achieved an apparently stable quasi-equilibrium. But introduce one
microscopic crystal and zap – everything goes pear-shaped in an instant.
Also
from the FT, Martin Taylor former CEO of Barclays Bank recounting his
experience of Diamond Bob as a subordinate. In a few more words he describes
him as an insubordinate crook. How will they provision for the legal costs
alone of defending against every ambulance chasing tort bar spiv from the USA
and beyond, hot on the trail of damages suffered by legions of widows and orphans from L’Affaire LIBOR de Barclays?
The
road ahead appears as bumpy as ever.
Simon
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