I’ve been very clear about my position on Europe for the last year.  Further integration can work and European leaders should seek to move towards completing their flawed monetary union so as to rectify the trade imbalance at the root of this crisis.  This position hasn’t been well received for many reasons, but it’s now looking increasingly popular.  After last week’s turmoil and what appeared like increasing defection talk, European leaders are clearly working on some sort of plan that will lead to further integration which could pave the way for further ECB action and eventually a completion of the EMU in the form of E-bonds and ultimately a central treasury.

The latest reports come from several sources.  Welt online is reporting that the Bundesbank is increasingly open to intervention:

The Bundesbank no longer rules out common European bonds – so-called Euro-bonds – but not immediately. The prerequisite, however, is closer financial integration of the euro countries. “This means joint control over the budgets of the member countries, including pass-through rights, individual countries should violate the agreed rules,” said Bundesbank President Jens Weidmann of the “Berliner Zeitung”.

Whether Eurobonds would be introduced, should decide the policy. “You’d be well advised, however, only at the end of an integration process to think about it,” said Bundesbank chief.

Reuters and the WSJ are reporting similar rumors about further integration (see here and here).   The timeline here is for the December 9th summit so it wouldn’t be shocking to see a face ripper rally in equities in the coming weeks leading up to that meeting.  There are A LOT of investors caught flat footed right now betting on the end of the world scenario.  Remember, this is the global government put at work.  Getting in front of this via short positions has been the equivalent of stepping in front of a bullet train.

But more importantly, we should applaud Europe for beginning to acknowledge the depth of their problems and taking the necessary steps to follow-thru on fixing the problems.  Let’s hope they actually take firm action in the weeks ahead.  The global economy literally hangs in the balance.  A bazooka is required and markets will not wait long for EMU leaders to act.  I’ve been waiting for a great European leader to step forward, take control of this environment and eliminate this unnecessary solvency crisis.  To European leaders, I say – be bold, be proactive, be leaders.  The entire world is relying on you.


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • chris

    cullen is this the third or fourth euro bazooka post you have written?


    Make haste, Europe! Fire that ‘zooka! You’ll be so glad you did!

  • Anonymous

    Sorry, Cullen, I know know I’m economically challenged, but there are times when it seems you’re optimistically challenged. From the Reuters story:

    The European Commission, the EU executive arm, put forward proposals on Wednesday to grant it intrusive powers of approval of euro zone budgets before they are submitted to national parliaments, which, if approved, would effectively mean ceding some national sovereignty over budgets.

    “Ceding…national sovereignty”? Marry Christmas.

  • troll

    It’s that anonymous thing again.

  • chris

    it will be interesting, though, to see the italian fireworks when monti, an unelected official, proffers to turn over italian budgetary and fiscal authority over to the european commission, a bunch of unelected eurocrats, and burlusconi makes his triumphant return to save italian sovereignty! LOL.

    seriously, folks, let’s se how the italian auctions do this coming week, and see whether, as i suspect, ms. merkel has to shoot down another planted piece of “save the euro” journalism. this won’t be the first time some ec dunce has tried to save his beloved job by leaking a story about what merkel and buba are willing to do, only to have angela and jens put out a slightly different spin.

  • esb

    This is just ANOTHER of the endless iterations of the markets, rumors, reality three step.

    Markets fall, crash at hand.

    Rumors of “secret deals” fly preventing crash.

    Reality intrudes as decision makers deny.

    This iteration is really funny in that the denials actually frontran the rumors by a day or two.

    ZeroHedge has the best understanding of the process and purpose of this endless three step and dismisses this iteration in a single opening line in a rcent post.

    They have been spot on each step along the way and they will be spot on this time as well, and you will know that it is finally “juego fin” when the markets actually fall in response to one of the rumors.

    And at this point in the debilitating endless game, juego fin would actually be something of a relief.

  • Trixie

    The Welt Online translation is a bit rough. I don’t subscribe to WSJ and the Reuters articles concludes with:

    “This could lead to joint debt issuance for the euro zone, where countries would be liable for each others’ debts.

    Germany strongly opposes the joint issuance idea fearing spendthrift countries would piggyback on its low borrowing costs – meaning no gain for the virtuous and no pain for the sinners.”

    To me this is more of the same, they are just biding their time. More rumors of “saving” Europe. Merkel won’t commit until the markets force her to. And when they finally do, I have zero confidence in any of these “leaders” to act in a manner that represents all of the Eurozone, based on their previous actions. Or lack thereof.

  • irish18

    If they do this across the entire Eurozone with out votes, is this democracy? It seems that the populous in several countries have no voice, which may be good short term, but I am not so certian about the long term.

  • ZeroBrains

    Zero Hedge is worthless. Their flow chart works something like this:

    Economic environment
    Bad OR Really bad
    | |
    Recession OR Depression
    | |
    Worlds ends OR World ends in flaming ball

    That is literally the most worthless website on the entire internet. They have lost more money for people over the last 3 years than any website in the world.

  • anon

    Correct – Zero Hedge has also been preaching hyperinflation and other libertarian, Austrian monetary nonsense since 2008, non-stop – unfazed by facts and logic.

    ZH perma-shorts have lost a ton of money because they don’t know MMT and are unable to differentiate the troubles of gold standard Europe from that of sovereign currency issuers like the U.S. or Japan.

  • ZeroBrains

    They pretend to care about their readers, but they don’t give a crap. I followed the site religiously for a few years getting burned by the stock market at every turn and buying into their apocalyptic BS. They sound like they know what they’re talking about, but they’ve been so wrong about so much stuff that it’s hard to believe that they actually know anything.

    I soon realized that the only useful way to benefit from the site is to read the research they steal (literally steal) from the big banks and avoid the additional commentary at all cost. They only add their own comments to provide their repetitive political slant. It’s the same small government world is ending BS day in and day out.

    Anyone who acts on their advice has had their face bashed in time and time again. Besides, you can tell from the comments that their readers are mostly morons who don’t know their ass from their elbow. Only slightly dumber than the authors.

  • ZeroBrains

    If you’re interested in understanding just how stupid Zero Hedge is then please review these three stories from their old website in 2009. They not only predicted imminent hyperinflation, but also said treasuries were a bad investment and that stocks were a suckers play almost exactly at the 2009 low. These aren’t bad calls. There are literally some of the worst macroeconomic and investment predictions that anyone in the history of markets ever made.

  • NK

    I am surprised that a non-democratic option of fiscal consideration is argued for without any consideration whatsoever for it’s authoritarian nature.

    PS. ZeroHedge: don’t like it, don’t read it!

  • NK

    A recipe for riots and worse, that’s what it is. Geniuses.

  • Jo

    Hey ZeroBalls, who are you, really?

    No, who are you, really?

    You AA rated country critters are all the same!

  • Andrew

    Don’t get too excited about Eurobonds. The Euro system is deliberately designed so democratically elected governments can be stage managed by a handful of unelected bank executives and their crony pals.

    They will not relinquish power easily. If there is any bazooka action it will be too convulted for the peons to understand. When the dust settles it will be to the benefit of private banks. The stranglehold on “profligate and wasteful” governments will be firmer than ever. Which impertinent fools think otherwise.

  • Alberto


    where are you living ? What do you know about Italy, or France, or Spain. Their history, their real economy, current polls (if they really matter). I guess nothing looking at the superficial and monotone tone of your posts. I bet you are short something and want to convince you that you are in the right side of the trade. Good luck. I’m trading since 25 years and I learned one basic lesson: foolish is going against powerful goverments in a fiat monetary system.

  • Alberto

    … and also you should know that Ben Bernanke has no interest to see a strong dollar and so the TBTF that have trillions not just on CDS but also on currencies and exchange ratios. Fighting FED and ECB together ? Not for me. I look at the economic data and nothing else. Too easy loosing money now. I made some money shorting italian and european stocks this summer and a little more on a very tight short on the euro a few weeks ago when it reached 1,42. It was an easy bet. But not now, not at 1,32 and with the DOW on a mega support.

  • J Dukate

    When Zero hedge said this every contrarian placed bets they were wrong. Now that everyone says Zero hedge is wrong the contrainians will prove them right. Got to love this game or else you have to have Zero Brains. :)

  • alan

    The problem is not the ECB or European leaders.
    Unless the French agree to retire at 67, the Italians open their labor markets like Hong Kong and
    the Greeks have a tax collector like the IRS the Euro is doomed.
    Buying sovereign debt en masse and issue Eurobonds will not buy time, only increase the imbalances
    and make the inevitable unwinding more violent.
    Re-read Mr. Sarkozy’s recent “austerity” plan (Cullen, you did read it didn’t you?). All tax increases and
    no spending cuts.
    For the people of Europe, realism is for somewhere else.

  • jt26

    Don’t base your analysis on anything in the German press. What I find is that Germans (perhaps Europeans, and the Euro elite in general) have that classical philosophical education (eg .. not sure if it is still true now, but 15 years ago they still taught latin in high school). Lots of talk, lots of philosophising, lots of posturing to appear profound, but true action happens very very slowly. In many cases, that is a strength (vs. the US’s friend-for-a-week or “let’s just manage this company for the next quarter, and flip it” attitude). For the Euro crisis, it’s a weakness.

  • chris

    @ alberto

    as you say in another post, alberto, i am an american living on food stamps

  • chris

    @ alberto

    as i have said, i post from a point of view mainly to elicit feedback and counter argument so i can gauge the quality of the response against the logic of my post. usually, what i post resembles what i believe, but since i want to test what i believe, i push it a little bit to see the merit of the counter.

    this site has alot of mmt’ers (duh), and i find their argument that the ecb (without a central treasury backstop) can print away with impunity to be less than persuasive…or i am willing to bet that the ecb governing council would find it less than persuasive.

    what do i really believe? clue #1: the eurozone has bank assets equal to almost 300% of total gdp; us has bank assets equal to about 80% of us gdp. the us recapped its banks in 2008; the eu not so much.

    if you want to see where the action will lie, let the sovereign debt situation play out. in my view, assuming as i do that the eu will fall into a recession in 2012 that will have various effects in the eu, ranging from inconvenient to devastating, the sovereign crisis will morph into a bank crisis…and that is what the ecb really fears.

    so yes i am short, and i acknowledge cullen’s wisdom by acknowledging that i am a nervous short, and i do post from a short point of view; i am just waiting for someone to make sense on the other side of my somewhat exaggerated posts.

    and alberto, don’t begrudge the germans too much; although i wouldn’t move your money to a german bank…

  • Alberto

    To much people that speak about things they don’t know. Italy for example has many problems but pensions have been reformed much more and better than France. The fact there are still people retiring at 59 or so is real (but it will disappear soon) but pensions are much lower than in Germany and in the medium term the so called unfunded liabilities in Italy are lower then Germany, much lower than France and less than 1/2 than in Great Britain. What’s really wrong in Italy is fiscal evasion, too much taxes on work (and too low on capital and real estate) and an horrible burocracy. The same in Spain but at least Italians have a still working production machine (second exporter in Europe) and have a positive primary account. To all people speaking just to warm up the air please go to the BIS (Bank Of Internationa Settlements) and study their reports, then express INFORMED opinions. There are a lot of scientific papers with all the numbers you need to understand the reality and not living in the world of fantasies you are living now. Otherwise you are just cluttering an otherwise quite good blog like this.

  • chris

    @ alberto

    good points all. since you appear to be italian, let me ask you a serious question.

    how are the italian banks doing?

    is there any informed discussion in italy about their solvency? are corporations moving their deposits elsewhere? do you have your deposits in an italian bank, and if so, how comfortable are you about this?

    is your point of view that the ecb should buy buy italian sovereign debt (10yr=7.2% now) influenced by the holdings of italian banks?

  • Malmo

    Another sure thing bazooka just around the bend? LOL. How many of these Zeppelins have to go up in flames before people realize the EMU, as presently constituted, is a goner? Sheesh.

  • chris

    one more point about eu banks. it is not clear to me that eu banks are treating derivatives correctly.

    erste certainly wasn’t when they announced that big loss last quarter due to a sudden recognition of derivative losses.

    if anyone has any views on the matter of eu bank treatment of derivatives, i would love to see the post or link!

  • Malmo

    Yves Smith nailed what this “Bazooka” really amounts to:

    “And the undertone of the new Bundesbank position is ugly. “Joint control over the budgets of the member countries, including intervention rights” is an effective end of democracy. You have considerable restrictions on the sovereignity of nations, with no democratic processes or greater accountability being put in place at the Eurozone level, which is where real power will lie. Doubters need only to look at what happened to Ireland and Greece to see what is in store for transgressors. This isn’t a rescue plan, it’s a Eurocoup.”

  • Nils

    I’d venture to say that borders on treason.

  • Nils

    They are still teaching latin and a whole heap of other useless crap.

  • Ben

    This fiscal integration process will require treaty changes and will need to be voted on by each member country of EMU.

    How long did it take the EMU to approve the EFSF? This will take much much longer, and the market may not be able to wait that long. As I have previously mentioned here, this is no longer a financial crisis, but rather a political crisis.

    Sure the European elites want a more integrated EU, but the voters may have a different idea.

    Going forward, a smaller core EU may just be the optimal path in the longer run.

  • chris

    question for those who favor ecb bond buying: won’t that make the next move (restructuring) more difficult?

    look at greece. when the ecb and imf own bonds, they can’t be a part of a restructuring at a discount. this puts more pressure on the banks, so-called psi involvement. they have to take a bigger haircut to compensate for the ecb and imf sitting out. look at what is going on now, with greece suddenly saying we want a 75% haircut, not 50% (easy for greece to say this as greek banks are part of the bailout).

    so play this out with italy. assume for a moment that italy will need a debt restructuring at some later point. i know most of you think that if the ecb buys italian bonds in bulk now, all problems go away…but you probably thought that about greece too at one point.

    doesn’t the ecb intervention just increase the ultimate discount the banks will have to bear on the next step? doesn’t this make it more likely that banks will be selling their bonds, making ecb intervention more crucial, making the whole spiral continue?

    it just looks to me like ecb bond buying is a part of the magical thinking that has characterized this euro drama for the past year or so.

  • Tradeking13

    They also will have to start singing “Deutschland, Deutschland ueber Alles” in place of their national anthems.

  • Alberto


    you totally missed my point. I’m not telling you that italian or other european bonds are safe. What I’m telling you is that everything is linked so deeply that no one is safe, expecially because you just look at the italian public debt as Italy was a disconnected entity on another economic galaxy. You can look at it in many ways: if greece was a canary in the coal mine so what is Italy ? Why people are unable to concentrate on the forest instead on the leafs albeit big leafs like italy. I don’t even want to mention CDS and so on. Look at another data: lendings in the emerging markets: from EU is over 2,5 trillions, from US less than 1, from Japan a few hundreds. A disorderly break up in the EU means retrewal of that money, EM go down down down, say good-by to all the stock exchanges all over the world. Wanna short the EU break-up: fine, but short the right market. I’m in cash parked mostly in neutral currencies like CHF and NOK and waiting for the errors of people like you. I did it in 2008-09 when people sold GE and City and Allianz bonds like junk. When TARP was ready I bought hands down at 70 or less, sold in 2010 at over 100 and since then I’m waiting the right time.

  • Alberto


    …again, if I want to short the Euro break-up I’ll go long the USD and short AUD not the Euro currency at least now.

  • Nils

    Why must people always play the Nazi card when nothing could be further from the truth? Even the actual Nazi parties in Germany don’t want to own the rest of Europe.

  • Tradeking13

    OK, then, maybe “Wir alle sind Berliner” instead?

  • anon

    The macro path is not very sensitive to traders making bets one way or another – so what matters is to know reality and see when many bet against that reality.

  • Dr. Oliver Strebel

    Bundesbank’s Weidmann said: “Eurobond are not the instrument of the hour. They will come at the end of an integration process.”

    So I dont expect Eurobonds this year and not in the next year.

  • Leverage

    Democracy has no place in all this, and markets rally and financiers applaud.

    This is so sorry and disgusting I don’t even have words to describe the situation and all the people pushing for it.

  • EB

    Zero hedge is biased like most people. They have their theory and they view new facts and evidence through that filter. I like their charts and some of their reporting. The bottom line though is that all investors have to make their own decisions. Have a theory and stick to it, its a total copout to blame losses on someone else. (Not to mention zero hedge could be proven largely correct in the next few months.)

  • Arturo
  • Oroboros

    Well here’s one way euro banks can “deleverage”: loan money to third parties so that they can buy the distressed assets from the bank’s book. What could possibly go wrong …

    European Banks Get ‘False Deleveraging’

    “The use of vendor financing to de-lever defeats its own purpose,” said David Thesmar, a professor of finance at HEC Paris, a business school. “The assets may become safer because the buyer injects equity, but the actual gain in core Tier 1 capital ratio for the bank isn’t as great as if it was purely and simply sold. It shows banks’ deleveraging is going to be tougher than planned.”

  • Mountaineer

    Munchau at the FT just nailed it today; 1) immediate ECB backstop 2) Eurobond 3) credible timeline for fiscal union. Gotta give credit to the FT during this fiasco, head and shoulders above the mainstream American and European financial press.

  • Cullen Roche

    Agreed. FT has been phenomenal. Best finance news bar none.

  • Cullen Roche

    This time it finally sounds like they might be serious. After all, the markets aren’t going to wait.

  • jt26

    Only part of the debate is what the “correct answer” is. The other is what can be done with positions that are dealt. The obvious answer to war is peace; easier said than done. The obvious solution to the prisoners’ dilemma is … ; easier said …

  • JWG

    “Credible timeline for fiscal union” is a classic fig leaf. Once the pressure is off the Greeks and Italians will return to their profligate ways, but by then the markets will be chasing another trend. In a deflationary environment the bond vigilantes WANT central banks to print. It is the great irony of the 2008-09 crash.

  • Malmo

    This place has as many gullible/wishful thinking folks as Zero Hedge does. NOTHING has been decided. There is no fiscal union. It’s all jawboning. It’s been all jawboning for 18 months and counting. Until there is DEFINITIVE ACTION this is all merely hot air. Period!

  • Apt Capital

    Fiscal integration is just not going to happen.

    These proposals come out of the European Commission. You have to understand that the EU Commission is hated by the people of Europe.

    To understand the impact of these proposals, imagine the United Nations proposing that the US government must get the approval of Canada and Mexico before passing any spending or tax measure.

    There is simply no way that this proposal would get through the national parliament of any ‘real’ country such as France, Denmark, the Netherlands etc. Also, such a proposal would have to pass the parliament of the UK even though it is not in the Euro.

  • Malmo

    Oh, and this so called rescue is a quid pro quo–bailout in exchange for austerity. Since when is austerity a good thing in a deflationary scenario? Cullen?

  • Cullen Roche

    It’s not. But it’s better than a bankruptcy of several sovereign countries.

  • Autobahn Bismarck

    Who cares if the bazooka rumour is true? Just the blossoming of this new rumour might be enough to levitate markets. As you say, everyone’s betting on Armageddon. Every 1% rally’s been beaten back down. Armageddon’s the crowded trade. Worry enough people that the market’s not going down and it might pop back up fast.

    I was shaking my head reading articles last week that suggested Germany wasn’t going to print money until they saw bank runs and liquidity collapse on home soil. It really looked like the market believed that crap, too.


  • Michael Covel

    How do technocrats outside of sovereign nations force fiscal union? IMHO that can only be done under the cover of back room darkness as the nations of Europe are too diverse and independent for anything approaching fiscal union. So if fiscal union of some sort is indeed engineered there would be some opposite reaction (read: not positive). It would be a reaction not currently pondered in EU game theory if/then scenarios.

  • chris

    @ apt

    there have been reports that there might be bilateral agreements proposed by the ec that fall short of treaty renegotiation. sort of like a core eurozone that would start fiscal integration, on the hope that the ecb would be “induced” to print.

    sounds like another eurocrat cluster-you-know-what to me.

  • Malmo

    Better for who, Cullen?

  • Larry

    Mountaineer: “Munchau at the FT just nailed it today; 1) immediate ECB backstop 2) Eurobond 3) credible timeline for fiscal union”.

    Won’t these three parts of a new plan require a change to the EU treaty, to be voted on by all 17 member nations? What if even one member nation votes against this new plan?

  • chris

    truly great synopsis of the just released efsf guidelines on zh (by peter tchir):

    my take away:

    1. looks like efsf is being planned to replace ecb secondary market purchases (which is interesting in light of recent rumors that ecb is inching to greater smp)

    2. each default insurance certificate will be unfunded until bond default (which is insane)

  • chris

    this article quoting the german finance minister seems to be at odds with the bilateral agreement short of treaty change approach being reported by wsj:

    i guess it all depends on whether you interview a french or a german official

  • Trixie

    You know, I recognize posturing is survival in politics, but this is getting ridiculous. I used to think that behind the scenes they must have some sort of end-game plan in place. Now I’m convinced they are making this up as they go along, they have to be.

  • Larry

    Ben answered my question: “This fiscal integration process will require treaty changes and will need to be voted on by each member country of EMU.

    How long did it take the EMU to approve the EFSF? This will take much much longer, and the market may not be able to wait that long. As I have previously mentioned here, this is no longer a financial crisis, but rather a political crisis.

    Sure the European elites want a more integrated EU, but the voters may have a different idea. – – thanks, Ben.

    The equity markets may levitate for 1 to 3 days, but once this realization sets in, the euphoria may fade… secondary mkt purchases by ecb in bulk may be only temporary.

  • GreenAB

    you have to keep in mind, that a eurobond would drastically raise rates for Germany, Europe´s last economic engine that is showing some cracks too.

    of course it could hold the eurozone together.
    or not, when you look at the problems the EFSF has raising capital.

    to rush to such a decision isn´t bold, at least from a german leaders standpoint.

  • DVWilliams

    When ever any of the German officials discuss the possibility of Eurozone bonds has added the quaifying remark that they would have to be accompanied by reforms.

    I don’t think that any of the countries that are currently experiencing funding difficulties are all that keen on the reforms that the Germans are suggesting.

    When Germany was re-unified, the people on either side of the wall were prepared to go through tough times economically to make the union work. Both sides wanted the unification and was a grassroots movement.

    I don’t see the EU in the same way. When people from within the Eurozone suggest solutions, they rarely say that they are prepared to go through significant hardships themselves, but are only too happy to suggest ways in which other countries should suffer.

    The Eurozone looks like a Union of disparate counries where the people do not feel a common purpose and are not prepared to endure difficulties to make it worse. Further integration might create a larger version of Yugoslavia.

  • Malmo

    Looks as if global credit markets are calling bs on the so called bazooka. Anyone really surprised?

  • Nils

    Not only that, some constitutions will need to be changed/rewritten.