Is the end nigh for the Euro? [vol. 3]
Discussion
stongle said:
Very good sir.
Basically, they hiked rates quicker than they previously said they would (which spooks the market).
Doing that adds pressure to indebted states, especially those with approaching debt rollovers (Italy is about 500bn by 2024), bond yields there spiked to 3.58% - way higher than Germany; so they promised the market a Transmission Protection Instrument (TPI). Basically a guarantee that the ECB will act to protect monetary transmission (or buy up bonds of countries in the s
t). TPI is really Trying (to) Protect Italy. I don't think anyone is that convinced, as EUR is virtually flat vs USD.
It's a tough gig at the ECB. Lagarde is trying to choreographe a silent disco with 19 channels. Everyone dancing at a different beat and a few of the dancers on the disco biscuits.
It's going to make internal EU politics super interesting.
How long before the ecb own all of Italies debt?Basically, they hiked rates quicker than they previously said they would (which spooks the market).
Doing that adds pressure to indebted states, especially those with approaching debt rollovers (Italy is about 500bn by 2024), bond yields there spiked to 3.58% - way higher than Germany; so they promised the market a Transmission Protection Instrument (TPI). Basically a guarantee that the ECB will act to protect monetary transmission (or buy up bonds of countries in the s
t). TPI is really Trying (to) Protect Italy. I don't think anyone is that convinced, as EUR is virtually flat vs USD.It's a tough gig at the ECB. Lagarde is trying to choreographe a silent disco with 19 channels. Everyone dancing at a different beat and a few of the dancers on the disco biscuits.
It's going to make internal EU politics super interesting.
Edited by stongle on Thursday 21st July 15:19
Vanden Saab said:
How long before the ecb own all of Italies debt?
Well, that's a very good question.The sketchy details about Transmission Protection Instrument probably didn't do much to calm market fears (given the near 20bps jump in bond yields). If i was being ultra cynical, I'd say it was something the hardmen at the ECB sketched up on a napkin to get the 50bps hike. Before they checked the details with legal and compliance. If they use it to game credit, expect a legal challenge from the Bundesbank at somepoint.
Fragmentation is a massive risk the ECB have to contain. The Euro isn't going to collapse, but peripherals now have to find a lot more money (tax take) to fund interest payments on rolled over debt (so that's tax money NOT feeding growth). I reckon today cost Italian tax payers 3billion p.a + from 2024. Its like hiking created the need for TPI.
That's the 1 day impact, it might get better. Remember, they haven't hiked in about 14 years and been negative for 11; so no one really knows. Someone will be along in a minute to say the market is wrong and its raining unicorns in the EU.
FWIW, I do feel sorry for the ECB and Lagarde. I thought she tried hard to blag the details, and today looked a lot less orange than normal or Trumps sister.
stongle said:
Well, that's a very good question.
The sketchy details about Transmission Protection Instrument probably didn't do much to calm market fears (given the near 20bps jump in bond yields). If i was being ultra cynical, I'd say it was something the hardmen at the ECB sketched up on a napkin to get the 50bps hike. Before they checked the details with legal and compliance. If they use it to game credit, expect a legal challenge from the Bundesbank at somepoint.
Fragmentation is a massive risk the ECB have to contain. The Euro isn't going to collapse, but peripherals now have to find a lot more money (tax take) to fund interest payments on rolled over debt (so that's tax money NOT feeding growth). I reckon today cost Italian tax payers 3billion p.a + from 2024. Its like hiking created the need for TPI.
That's the 1 day impact, it might get better. Remember, they haven't hiked in about 14 years and been negative for 11; so no one really knows. Someone will be along in a minute to say the market is wrong and its raining unicorns in the EU.
FWIW, I do feel sorry for the ECB and Lagarde. I thought she tried hard to blag the details, and today looked a lot less orange than normal or Trumps sister.
I wonder if winter won't be the final straw for many nations energy costs getting out of control and a war still in Europe and Germany stll reliant of NordStream - if we have a hot summer an then a by comparison equallyh cold winter how will nations be able to bring in more tax while their people freeze its alright taking it from pay packets before they get it but in more volatile nations not so easy to pacify a baying mob when they storm parliment (looking at Itally here and maybe spain)The sketchy details about Transmission Protection Instrument probably didn't do much to calm market fears (given the near 20bps jump in bond yields). If i was being ultra cynical, I'd say it was something the hardmen at the ECB sketched up on a napkin to get the 50bps hike. Before they checked the details with legal and compliance. If they use it to game credit, expect a legal challenge from the Bundesbank at somepoint.
Fragmentation is a massive risk the ECB have to contain. The Euro isn't going to collapse, but peripherals now have to find a lot more money (tax take) to fund interest payments on rolled over debt (so that's tax money NOT feeding growth). I reckon today cost Italian tax payers 3billion p.a + from 2024. Its like hiking created the need for TPI.
That's the 1 day impact, it might get better. Remember, they haven't hiked in about 14 years and been negative for 11; so no one really knows. Someone will be along in a minute to say the market is wrong and its raining unicorns in the EU.
FWIW, I do feel sorry for the ECB and Lagarde. I thought she tried hard to blag the details, and today looked a lot less orange than normal or Trumps sister.
isaldiri said:
erm....euro longer term yields closed lower over the day despite the 50bps ECB move....
I was specific about Italy (and 10year IIRC). Do read. Please. They have much more short end debt than people like to band about, about 25% of total is due to roll (and it it will be) through 2024. And they still have another 75bps of hiking to do. The weeds are irrelevant if you die (the govts in Italy will) before you get there.Depending on how Septembers election goes, there is 100% a discussion on monetary financing to keep Italy in the EUR zone. The Euro won't collapse, no one really will allow it - but the cost and group effort to keep it afloat will become all consuming. This is the federal inflection point approaching.
You cannot keep re-papering Bazooka's, kitchen sinks, APP, TPI and magic spells. Something eventually has to give and the serious question gets asked.
Brexit despite being a s
tshow, is like a gnat biting an elephants bum compared to that. Gargamel said:
Is probably the better question. 
ECB have stoute one for sure, UK should now be considered ‘periphery’ and we have our own debt mountain and near 50bn interest payments to manage.
Expect a cautious 0.25
0.25%?ECB have stoute one for sure, UK should now be considered ‘periphery’ and we have our own debt mountain and near 50bn interest payments to manage.
Expect a cautious 0.25
Best case, with the Fed looking at 75bps; I think the BoE has to be looking at 0.5% minimum.
The ECB raise today was probably the correct amount - but it looks (initially) to have done little - relief has come from commodities and possible China / US on inflationary concerns. Tomorrows Gilt auction would give an indication, 1m levels look punchy.
The UK is NOT a periphery. If the Euro explodes we get contagion, but we control our own policy - both fiscal and monetary. The Euro periphery is a different dynamic entirely. Italy etc are periphery because they are NOT driving monetary policy to suit their needs but its led by a core NOT exposed to the same issues.
The UK is deep in the s
t, we don't have a functioning government (like Italy), but we have less obstacles to overcome to control our destiny. The problem is our political class - who have basically fked us.Andy 308GTB said:
loafer123 said:
Shocking how little their surprise moved the FX market - almost as though they don't believe it.
I'm sure the dip below parity (with the dollar) won't be the last. There'll be plenty of players seeing any rally as merely an opportunity to sell.The other countries can hike faster and higher, without fragmentation concerns.
They are also wide open to the whims of Putin. It was 50/50 NS1 went back on this morning.
Still, love to know where the vocal EC fanboys are? They've promised all sorts of EU upsides. Far greater than hitching us up as a peripheral or fiscal transfer agent.
Show us the upside..... explain......
stongle said:
0.25%?
Best case, with the Fed looking at 75bps; I think the BoE has to be looking at 0.5% minimum.
The ECB raise today was probably the correct amount - but it looks (initially) to have done little - relief has come from commodities and possible China / US on inflationary concerns. Tomorrows Gilt auction would give an indication, 1m levels look punchy.
The UK is NOT a periphery. If the Euro explodes we get contagion, but we control our own policy - both fiscal and monetary. The Euro periphery is a different dynamic entirely. Italy etc are periphery because they are NOT driving monetary policy to suit their needs but its led by a core NOT exposed to the same issues.
The UK is deep in the st, we don't have a functioning government (like Italy), but we have less obstacles to overcome to control our destiny. The problem is our political class - who have basically fked us.
Interesting perspective. Natch I understand our fiscal sovereignty and ability tomaat our own. The question is, will we seek to shadow the Eurozone (acting as a periphery) or make some bolder moves. Best case, with the Fed looking at 75bps; I think the BoE has to be looking at 0.5% minimum.
The ECB raise today was probably the correct amount - but it looks (initially) to have done little - relief has come from commodities and possible China / US on inflationary concerns. Tomorrows Gilt auction would give an indication, 1m levels look punchy.
The UK is NOT a periphery. If the Euro explodes we get contagion, but we control our own policy - both fiscal and monetary. The Euro periphery is a different dynamic entirely. Italy etc are periphery because they are NOT driving monetary policy to suit their needs but its led by a core NOT exposed to the same issues.
The UK is deep in the s
t, we don't have a functioning government (like Italy), but we have less obstacles to overcome to control our destiny. The problem is our political class - who have basically fked us.We do have a functioning Govt, but we also have a complex system.
Gargamel said:
Interesting perspective. Natch I understand our fiscal sovereignty and ability tomaat our own. The question is, will we seek to shadow the Eurozone (acting as a periphery) or make some bolder moves.
We do have a functioning Govt, but we also have a complex system.
We are not periphery. We can rate set as suits, with fiscal stimulus simultaneously. The Eurozone peripheral states, only have the fiscal lever as Monetary Policy is driven by core members with greater firepower. We do have a functioning Govt, but we also have a complex system.
I have a strong feeling the 50bps raise was driven by the core ECB hardmen and the TPI was an afterthought. Poor old Lagarde seemed to struggle with it, stumbling multiple times to explain it (although who likes public speaking). I think Nagel and Co were correct, but hey thems the breaks.
I'll struggle to justify the UK is any better, I don't think the UK is much better placed. Boris squandered opportunity, and Rishi has the financial acumen of a dead squirrel. Germany were far more ruthless on fuel duty than his effort. He's a clown. Truss, who?
The govt performance (UK) suggests to me its NOT functioning. Sure Italy seems to have big issues with Draghi resigning, but is the UK govt delivering big ticket policy? Ukraine excluded.
We are in the fallout zone of contagion, but not bail-in. It's very different.
The UK whilst subject to similar external inflationary inputs (oil, $ strength), can set its own rates without worrying about Australia debt servicing. That's akin to the ECBs problem. It's not being bold, we have the flex.
It's NOT just a consideration of interest rates. Debt servicing (public and private sector) commodity price, balance of payments (net) all play a part.
The EU has made numerous claims of being the mega economy, wants to be a reserve etc. But for all the big outward numbers is internally divided. No matter how hard the ECB tries for unity and gaming credit, the prudent states won't go for it (Bundesbank WILL sue), the peripherals need support. Its the same argument Scotland has. And the SNP expects to use the £.
The UK should have been center of Europe. For reasons we are not. Now, we can't help.
stongle said:
We are not periphery. We can rate set as suits, with fiscal stimulus simultaneously. The Eurozone peripheral states, only have the fiscal lever as Monetary Policy is driven by core members with greater firepower.
I have a strong feeling the 50bps raise was driven by the core ECB hardmen and the TPI was an afterthought. Poor old Lagarde seemed to struggle with it, stumbling multiple times to explain it (although who likes public speaking). I think Nagel and Co were correct, but hey thems the breaks.
I'll struggle to justify the UK is any better, I don't think the UK is much better placed. Boris squandered opportunity, and Rishi has the financial acumen of a dead squirrel. Germany were far more ruthless on fuel duty than his effort. He's a clown. Truss, who?
The govt performance (UK) suggests to me its NOT functioning. Sure Italy seems to have big issues with Draghi resigning, but is the UK govt delivering big ticket policy? Ukraine excluded.
We are in the fallout zone of contagion, but not bail-in. It's very different.
The UK whilst subject to similar external inflationary inputs (oil, $ strength), can set its own rates without worrying about Australia debt servicing. That's akin to the ECBs problem. It's not being bold, we have the flex.
It's NOT just a consideration of interest rates. Debt servicing (public and private sector) commodity price, balance of payments (net) all play a part.
The EU has made numerous claims of being the mega economy, wants to be a reserve etc. But for all the big outward numbers is internally divided. No matter how hard the ECB tries for unity and gaming credit, the prudent states won't go for it (Bundesbank WILL sue), the peripherals need support. Its the same argument Scotland has. And the SNP expects to use the £.
The UK should have been center of Europe. For reasons we are not. Now, we can't help.
I was struck by Lagarde’s assertion that ‘we would rather the TPI is not used’. Of course they would. I think we’re seeing something more interesting: Brussels limbering up to mutualise. The problem maybe pinned on debt spreads on club med, but it’s interesting that the EU has just invoked Article 122 of Nice to propose a 15% cut in Gas consumption across all EU states, backed up by legal force if necessary. Unsurprisingly some of the more energy diverse (Spain for example) are complaining that they have no Gas exposure and they are taking one for the group. I wonder if this is the quid pro quo…I have a strong feeling the 50bps raise was driven by the core ECB hardmen and the TPI was an afterthought. Poor old Lagarde seemed to struggle with it, stumbling multiple times to explain it (although who likes public speaking). I think Nagel and Co were correct, but hey thems the breaks.
I'll struggle to justify the UK is any better, I don't think the UK is much better placed. Boris squandered opportunity, and Rishi has the financial acumen of a dead squirrel. Germany were far more ruthless on fuel duty than his effort. He's a clown. Truss, who?
The govt performance (UK) suggests to me its NOT functioning. Sure Italy seems to have big issues with Draghi resigning, but is the UK govt delivering big ticket policy? Ukraine excluded.
We are in the fallout zone of contagion, but not bail-in. It's very different.
The UK whilst subject to similar external inflationary inputs (oil, $ strength), can set its own rates without worrying about Australia debt servicing. That's akin to the ECBs problem. It's not being bold, we have the flex.
It's NOT just a consideration of interest rates. Debt servicing (public and private sector) commodity price, balance of payments (net) all play a part.
The EU has made numerous claims of being the mega economy, wants to be a reserve etc. But for all the big outward numbers is internally divided. No matter how hard the ECB tries for unity and gaming credit, the prudent states won't go for it (Bundesbank WILL sue), the peripherals need support. Its the same argument Scotland has. And the SNP expects to use the £.
The UK should have been center of Europe. For reasons we are not. Now, we can't help.
Germany being lined up to swallow formal debt mutualisation as an inevitable consequence of spreading the pain of its shocking energy policy.
Ridgemont said:
I was struck by Lagarde’s assertion that ‘we would rather the TPI is not used’. Of course they would. I think we’re seeing something more interesting: Brussels limbering up to mutualise. The problem maybe pinned on debt spreads on club med, but it’s interesting that the EU has just invoked Article 122 of Nice to propose a 15% cut in Gas consumption across all EU states, backed up by legal force if necessary. Unsurprisingly some of the more energy diverse (Spain for example) are complaining that they have no Gas exposure and they are taking one for the group. I wonder if this is the quid pro quo…
Germany being lined up to swallow formal debt mutualisation as an inevitable consequence of spreading the pain of its shocking energy policy.
Good post.Germany being lined up to swallow formal debt mutualisation as an inevitable consequence of spreading the pain of its shocking energy policy.
Gas reserves are 65% vs. Targeted 80%, hence the uplift requirement. How long NS1 stays on line is a lottery.
I don't think that is the Euro's problem now. It's fragmentation. Putun is the seagull crapping over stuff. He needs ro be made irreverent.
Italy has become a headache again, because the sensible Draghi is replaced by who the f
k knows....The more I consider the bigger picture, today's ECB gambit was doomed to fail. The Fed is doing 75bps next week (likely), we might have to do 100. 50bps from the ECB is an act of bravery that ought to be applauded. Like John McLean jumping of Nakatomi plaza.
stongle said:
Good post.
Gas reserves are 65% vs. Targeted 80%, hence the uplift requirement. How long NS1 stays on line is a lottery.
I don't think that is the Euro's problem now. It's fragmentation. Putun is the seagull crapping over stuff. He needs ro be made irreverent.
Italy has become a headache again, because the sensible Draghi is replaced by who the fk knows....
The more I consider the bigger picture, today's ECB gambit was doomed to fail. The Fed is doing 75bps next week (likely), we might have to do 100. 50bps from the ECB is an act of bravery that ought to be applauded. Like John McLean jumping of Nakatomi plaza.
fGas reserves are 65% vs. Targeted 80%, hence the uplift requirement. How long NS1 stays on line is a lottery.
I don't think that is the Euro's problem now. It's fragmentation. Putun is the seagull crapping over stuff. He needs ro be made irreverent.
Italy has become a headache again, because the sensible Draghi is replaced by who the f
k knows....The more I consider the bigger picture, today's ECB gambit was doomed to fail. The Fed is doing 75bps next week (likely), we might have to do 100. 50bps from the ECB is an act of bravery that ought to be applauded. Like John McLean jumping of Nakatomi plaza.
k if it’s 100 my mortgage is screwed 
stongle said:
Errrr, it's worse than that. The ECB just hiked 50bps.
If the article that read earlier is right, the ECB have finally raised the interest rate up to…….wait for it…….0%!! Rates went negative in a desperate attempt to get banks to actually lend the helicopter money that they were given, instead of just overnighting it back at the ECB.
They (and the rest of us by extension) are so screwed. They really have no ammunition - as commented above it’s time for honest talks about the federalisation of EU debt (are you listening Hans?) or there will be some kind of explosion on the government bond markets.
I've been reading this thread with interest - this is not my specialist area, so I'll stick to asking a question:
There is awful lot of talk of doom & how the Eurozone will become a barren wasteland. If predictions are true, how long will it take to unravel? Weeks, months, years?? Will it be a steady decline or will the whole thing go up in a bang?
There is awful lot of talk of doom & how the Eurozone will become a barren wasteland. If predictions are true, how long will it take to unravel? Weeks, months, years?? Will it be a steady decline or will the whole thing go up in a bang?
stongle said:
problem is our political class - who have basically fked us.
ked us.stongle said:
I'll struggle to justify the UK is any better, I don't think the UK is much better placed. Boris squandered opportunity, and Rishi has the financial acumen of a dead squirrel. Germany were far more ruthless on fuel duty than his effort. He's a clown. Truss, who?
Agree with the above. Sadly, it's not just the government, but the entire political class who seem utterly disconnected from economic reality. Sure, many make/have fortunes, have 'business interests' but they do not actually 'do' anything, any of them.Even now, in spite of all the global supply issues we've been through with the pandemic, the shipping crisis and now those Russian
s wrecking steel production in Ukraine and actually stealing stock paid for by European firms, the government still does not get the strategic importance of UK steel production.Orcs looting steel: https://www.bbc.co.uk/news/business-62252704
Tata Port Talbot: https://www.bbc.co.uk/news/uk-wales-62262290
Biker...its been years arriving to this point.
Unfortunately most of what a few of us on here have been discussing, worrying about and predicting over the years has slowly happened over the time because unfortunately the logic was/is - ultimately - fairly simple.
A few months back, on this thread and probably the Brexit thread, I tried to discuss Italy a couple of times. Unfortunately the Irish presumed they were more important as usual and demand we talk about Ireland. Again. And again. And again. Anyway, now that reality is kicking back in we can get back to the important stuff like the Italians trying to bugger us all up. So, previously I reported and warned about the rise of a Roman nutter called Giorgia Meloni who leads the Brothers of Italy and her likely success in the 2022 elections. She has been battling Salvini and the League for the mantle of head honcho of the Italian right. A bit weird, cos the Brothers come from a very different place to the League. Anyway, at the local elections they basically did better than most else.
With Draghi now resigning, this basically means Meloni and the Brothers are in prime position to lead the Italian govt. Be totally and utterly warned folks, this bird is a nutter. She almost wants a full on war with anything Islamic, properly Vatican anti-abortion & anything vaguely socially liberal and quite fancies a party with Orban and Trump. Speaking of parties, most people outside of Italy don't realise, but everybody's favourite Bunga Bunga boy is still around and amazingly Silvio and Forza Italia are still popular!
If this lass and the Brothers get in, Italy becomes a very serious economic and social problem inside Europe. She has no economic ability and has zero interest in the European project. This is not a female Salvini, Salvini is a pretty much a technocrat like Draghi, she isnt liberal centre right like Silvio...at best you could possibly call her a modern moderate fascist. I don't say that in the usual ignorant hyperbolic way either, the Brothers are spun out of the old Italian fascist party.
Anyway, thats my fun post of the day
Unfortunately most of what a few of us on here have been discussing, worrying about and predicting over the years has slowly happened over the time because unfortunately the logic was/is - ultimately - fairly simple.
A few months back, on this thread and probably the Brexit thread, I tried to discuss Italy a couple of times. Unfortunately the Irish presumed they were more important as usual and demand we talk about Ireland. Again. And again. And again. Anyway, now that reality is kicking back in we can get back to the important stuff like the Italians trying to bugger us all up. So, previously I reported and warned about the rise of a Roman nutter called Giorgia Meloni who leads the Brothers of Italy and her likely success in the 2022 elections. She has been battling Salvini and the League for the mantle of head honcho of the Italian right. A bit weird, cos the Brothers come from a very different place to the League. Anyway, at the local elections they basically did better than most else.
With Draghi now resigning, this basically means Meloni and the Brothers are in prime position to lead the Italian govt. Be totally and utterly warned folks, this bird is a nutter. She almost wants a full on war with anything Islamic, properly Vatican anti-abortion & anything vaguely socially liberal and quite fancies a party with Orban and Trump. Speaking of parties, most people outside of Italy don't realise, but everybody's favourite Bunga Bunga boy is still around and amazingly Silvio and Forza Italia are still popular!
If this lass and the Brothers get in, Italy becomes a very serious economic and social problem inside Europe. She has no economic ability and has zero interest in the European project. This is not a female Salvini, Salvini is a pretty much a technocrat like Draghi, she isnt liberal centre right like Silvio...at best you could possibly call her a modern moderate fascist. I don't say that in the usual ignorant hyperbolic way either, the Brothers are spun out of the old Italian fascist party.
Anyway, thats my fun post of the day
Biker 1 said:
I've been reading this thread with interest - this is not my specialist area, so I'll stick to asking a question:
There is awful lot of talk of doom & how the Eurozone will become a barren wasteland. If predictions are true, how long will it take to unravel? Weeks, months, years?? Will it be a steady decline or will the whole thing go up in a bang?
"Slowly at first, then all at once" is the usual way I think.There is awful lot of talk of doom & how the Eurozone will become a barren wasteland. If predictions are true, how long will it take to unravel? Weeks, months, years?? Will it be a steady decline or will the whole thing go up in a bang?
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