EU DEBT CRISIS: Poppa Piccolino’s cash concertina hits the highnotes.

Mario Montipinnochio

Just so we all have this clear in our minds, Italy this week auctioned almost 20 billion euros of government bonds. Or, put another way, borrowed a further 20 billion euros.

“The fact that they managed to sell this much at the end of the year should be taken as a positive sign,” said Eric Wand, a fixed-income strategist at Lloyds TSB Bank Plc in London. If you say so Eric. However, let’s just follow the provenance a little here, huh? The ECB has lent Italian banks a shedload of money at low rates, and obviously bought a sizeable chunk of these bonds. It also lent other banks further shedloads of money, so they too could buy some of the bonds. Thus the bonds that the banks were strongarmed into buying can now go to paying back those same banks the 53bn euros Italy already has to repay them during Q1 next year, prior to then borrowing a further half trillion euros during 2012 just to keep its mouth above water.

Eric love, all I can say is that you are easily rendered positive about such things.

After today’s sale, the yield on 10-year Italian notes climbed back above 7%. But Mario Monti declared that the worst was over, and his country had “stepped back from the precipice without a railing, moving in a north-westerly direction away from Greece”. He did not say whether it would now proceed over the Alps of economic growth and thence through the valley of fiscal discipline on its way to the Sea of plenty armed with water-wings, but no doubt he will tell us in due course.

However, in a tone contradicting his optimism somewhat, Signor Monti called for the biggest bazooka possible to be put together. Given that Italy just dived back into recession, I know what result my money’s on.

11 thoughts on “EU DEBT CRISIS: Poppa Piccolino’s cash concertina hits the highnotes.

  1. Dear, dear.

    Their collective removal of themselves from any form of reality should, in any sane world, render them liable to be immediately sectioned.

    Bit of a problem right now, when the old cliché about the loonies running the asylum is actually an astute summary of Europolitics.

    I am beginning to despair – other than barricades in the streets and AK’s all round, what can one do?

  2. OT, belongs with “Garnering the Unaware Majority.”

    Pay Politicians for Fiscal Discipline

    A study of direct democracy (auto & citizen referendums) across the Swiss cantons has shown that they reduce government spending. You can find an article at Handelsplatt with search “Direkte Demokratie hält den Staat schlank”. The study itself (warning 50 pages & academic) is available in English from

    https bitly com/bundles/handelsblatt/22 (edit with dots slashes & colons)

  3. Howitzdun, not howitzer, Mario. Check-out http://www.golemxiv.co.uk/2011/12/the-miracle-of-solvency/
    howitzers were for the last big european war, remember? freedom and democracy are daily being torn apart by lies and bombast. The collective conveit of a small group of power hungry anal retentives currently being over-remunerated by the EU. Time to take away their toys – they haven’t shown any sign that they know how they work anyway. Lock them down and give them a copy of Thoreau’s Walden to read. They may end up nicer people.

  4. I am an economic simpleton. I must be, because when I have been in debt, I have tailored my spending to be less than my income and put the surplus to paying off the debt. Do it long enough and the debt disappears.
    Clever and educated economists obviously don’t consider this an option. They play a different game, a version of ‘pass the parcel’. Instead of being a treat inside, there is a time bomb. Instead of ripping paper off, they add layers of paper such as CDOs and fiat currency. They pass the parcel of debts around at an increasingly frantic rate hoping not to be the one holding it when it goes off. But it really doesn’t matter. They are all in the same room and more layers of paper won’t save them.

  5. And now we have Schauble declaring that the crisi will be over within 12 months! Who needs a bigger bazooka if that is the case.
    Just goes to show that the ‘..running around like headless chooks’ show is due to start again from 9th January 2012, I believe.
    As for the Loyds Bank fixed income startegist, I would recommend he gets another job, at the EC PR department perhaps, as his understanding of a good versus poor auction seems to be missing…a mandatory requirement for a fixed-income startegist, I would have thought.
    A good auction would require 2.5 to 3 as a bid/cover ratio ( the higher the better). The Italian bonds across the board only had a 1.36 bid/cover ratio which raises the question as to whether there was any real private investor interest or whether the bids came from quangos such as the EIB or the EBRD perhaps?

  6. I think it was a partial roll-over at maturity, JW, not wholly incremental borrowing. Nonetheless, the whole thing was, and is, a disaster. Countries need to borrow to finance (eg) capital infrastructure investment with benefits spread over many years. That makes a lot of sense. They do not, or at least should not, need to borrow to cover recurring annual spending, which is exactly what they are doing. They especially do not need to enter the realms of total deceit known as PFI. All this crazy stuff needs to stop but nobody knows how to get off the train without stopping it dead in its tracks. Such is the legacy of many decades of dishonest government and, frankly, belief in the Labour tooth fairy of endless economic growth.

  7. Remember, the main “strategy” of a fixed income strategist is to sucker fools into buying the crap from their fixed income sales desk….with an approptiate “cut”, of course!!

    • “Tireless, Dangerous Demagogues” from Mish…

      Rehn and Verhofstadt are tireless, socialist fools as well as dangerous demagogues dedicated to the destruction of sovereign rights of every nation in the EMU. They ought to scare the bejeebies out of any sane person who is not in favor of a European Nanny-Zone.

      Their brainwashing event, marketed as a seminar on eurobonds is already filled up.

      The primary thing stopping these socialists and their nanny-zone ideal is the German supreme court.

      This past Wednesday, German Constitutional Court Judge Udo Di Fabio said in a Spiegel interview “It’s a Mistake To Pursue a United States of Europe”.

      Please note that Di Fabio sees Euro-bonds as illegal.

      However, the judge proved his naiveté with his statement “no politician really intends to transfer their power of disposition over the substance of the national budget at an EU level”.

      On the contrary, the European Parliament is loaded with nanny-zone proponents who are conducting seminars on how to do just that.

      Mike “Mish” Shedlock
      http://globaleconomicanalysis.blogspot.com

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