EUROZONE DEBT REDEMPTIONS WILL FORCE THE EMU TO ACT IN Q1 2012
It’s still uncertain if this week’s summit will finally resolve the Eurozone sovereign debt crisis, but early reports certainly leave some doubts. If it should turn out that EMU leaders are not ready to fire a bazooka then the first quarter of next year will almost certainly fore the issue.
As Credit Agricole recently noted (see the chart below), the debt issuance calendar in early 2012 is heavy. But it’s particularly heavy for Italy. As we all know by now, Italy is where the road ends in this crisis. If Italy defaults the EMU as we know it will never be the same. In 2012 Italy has total debt redemptions of almost $300B. In the first 4 months of the year Italy has redemptions of $115B. This is going to kick the EMU crisis into overdrive early next year. If we don’t hear a sustainable and permanent fix later this week then prepare yourselves for early next year. This crisis is almost certain to reach a new crisis peak as EMU debt redemptions force the issue.
Source: Credit Agricole
Cullen, what exactly makes you continue to think Merkel is going to change her mind on some version of a Eurobond? Are you one of those still convinced Christie is going to run for president?
and why will a Eurobond even work? I really don’t see how going “joint and several” among all nations fixes anything. Germany has 80something% debt to GDP and a hopelessly undercapitalised banking system to deal with. Formally assuming periphery debts would seem to only make things worse…
Bah, hell if I know. I was just trolling. Personally, I hope the Euro dissolves since I don’t see any other resolution given the politics.
250 billion euro bank debt needs to be rolled over in 1q ’12. i think you are going to see the ecb focus on this, and let the imf/efsf/whatever deal with the sovereign debt issuances.
interesting post makes the point that the ecb will be transitioning to funding banks by trying to extricate itself from being the intermediary among member state central banks: http://ineteconomics.org/blog/money-view/first-ecb-then-imf
good luck
2012 wall of refinancing €govt 1trn€ & same for €banks i think…
Smart tihkning – a clever way of looking at it.
DthxQx lxhumxrwmkju
In a glass half full half empty world the European debt has been a wonderful wall of worry for the market to climb and I dare say that will continue. However,leaving Greece aside govt debt in Europe is already allowing adequate returns on risk because I think there is virtually no probability that the Eurozone will split up in a major way. This is no wild West of risk takers we are talking about anymore.No frontier style psyche. Europeans are by and large in love with the idea of a state nannying them and the bigger the better.They do not have the behavioural patterns anymore that would lead them to ‘breakout’ and take their chances alone.Simply won’t happen. All we are really discussing here is how they will stay together ,not whether they will.Start from that end goal and work backwards.If they need 250 billion they will get it because not getting it is not an option.Betting that they will fail is to fight the fact that they will write the rulebook to get to their end goal not vice a versa.
@SC, very good points. Re-writing the EMU rulebook to get to their end goal requires that the details of the new rulebook be agreed upon by 17 member nations. I agree that the Europeans are quite willing to stay together, but are they able to agree on the new rules in a timely manner, with the clock of re-funding needs bearing down on them? Any disagreements, objections, etc that hold up the new fiscal union rulebook beyond Feb ’12 could cause a disaster when Italy and other sovs, and European banks, go into the credit markets in Q1.
I wrote the following yesterday in an earlier EMU post. Europe started green and the euro up but it is now reversing course. Let’s see how the US turns. Trying to make a one day market prediction is the best by of ending up looking like a fool:-)
Octavio Richetta
If this is finalizes the preview of what is coming this Friday (I.e., the S-M Monday meeting plus this); then, markets worldwide should start showing the beginning of the BiG disappointment as early as tomorrow:
December 6, 2011 7:19 pm
EU talks on doubling financial firewall
http://www.ft.com/cms/s/0/839e6eac-202e-11e1-9878-00144feabdc0.html#axzz1fmjsfr4i
The whole thing is under a trillion €.
Reply12/06/2011 at 6:37 PM
Octavio Richetta
More details from a free site: http://www.marketwatch.com/story/us-stocks-falter-in-gauging-europe-2011-12-06?dist=afterbell
Reply12/06/2011 at 6:52 PM
So with QE3 coming most likely in Q1 of 2012, combine with this will setup for a mother of all rallies in Q1… but first the market will have to fall hard after the Eurozone issue fails to be resolved this weekend follow by trouble economic data in the US after the inevitable temporary bump after ECRI recession call. At least that’s my play book for the next 3 months.
On and this morning’s WSJ has a pessimistic article on the EU summit this Friday:
“Germany Doubtful About Euro Meeting”
“BERLIN—The German government has all but given up hope of persuading all 27 nations in the European Union to rally behind a Franco-German proposal for limited treaty changes to safeguard the euro currency and help stem the euro-zone debt crisis, a senior government official said Wednesday. “
I don’t think there was ever an expectation that they would get all 27 countries in the EU (the UK was always going to reject the German proposals). What matters is whether they can convince the (14?) members of the EMU..
In the meantime, US sells bonds paying ZERO %, 8x as much demand as bonds for sale.
http://mikenormaneconomics.blogspot.com/2011/12/phony-debt-crisis.html
Do you guys know how it is actually possible? Why would people buy bonds paying 0% if reserves pay 0.25%?
Because banks cant just take savings accounts and turn them into reserves to get the .25%
does that even cover FDIC insurance?
On US Risk to Europe:
http://market-ticker.org/akcs-www?post=198650
El Viejo-
Karl Denninger??? Ok..I’ll one up you with a post from the Tom on skidrow…if I can get him to the internet cafe tonight.