Otherwise, all normal: EU doing nothing, markets rising.

Starting no doubt as they mean to go on, the European banks exposed to the coming Greek insolvency have been underestimating how badly it will hit them – or so says the international auditors’ union, the IASB. As banks have never told the truth before, it’s a tad optimistic to expect them to start now when their backs are against the wall.

In fact, precisely the same can be said of politicos when facing the possibility of ejection from power. So we shouldn’t be surprised that Frau Merkel said this yesterday:

“Many are worried, but they don’t need to be because the currency is stable. It’s our aim to come out of this stronger than we went into it, as we did during the banking crisis. I said that in 2009, and look at where the economy is in 2011. This can be achieved again.”

Yes Geli dear, but as every Enron investor could attest, the past is no guide to the future. And your economy just slowed by half. And the euro is stable in the same way that rice pudding has the consistency of reinforced concrete.

So it’s good to see that at the MEP level, our representatives are on the ball. During yesterday’s European Parliament session about the eurozone debt crisis, Jean-Charles Juncker, the president of the Eurogroup, allegedly told his audience, “We shouldn’t believe the markets”. His reward for this encouragement for everyone to stick fingers in their ears was, I’m reliably informed, a standing ovation.

In this confident mood, the EU’s senior officials all rejected Christine Lagarde’s call for banking recapitalisation. While it was a daft idea anyway (it’s not what they need right now) it’s been rejected because of Not Invented Here syndrome: in a general sense, her observation that the eurobanks haven’t got enough money is a 180 degree U-turn from three months ago….but it is obviously true.

Buoyed in turn by this steely determination to ignore and reject, the FTSE leapt 3% in early trading. Two sources on the London markets seemed almost embarrassed as they told The Slog that good US consumer spending data and the desperate Greek bank merger had ‘allayed fears’ of a euro debt crisis.

Morals of this piece: (1) The banks are lying to Brussels. (2) Merkel is lying to the German electorate. (3) The EU still sees the entire mess as a plot cooked up by the markets. (4) EU officials are lying about the cashflow condition of their banks. (5) Traders on the FTSE must have a collective IQ only just in double figures.

Or put another way – in the spirit of this site’s mission – it’s all bollocks.

Related: Blamestorming in readiness for Crash 2 ; The shifting sands of Lagarde’s arid mind ; Impotence v Importance in political decision-making