There was some overoptimism in the early part of the week when Spain managed to sell €10bn worth of government paper and also Italy achieved it’s target.
In truth banks bought up this paper with cash created and lent to it from the ECB at 1% for 3 years. At around 4% yield these 3 year bond investments chalk up a decent margin ‘sans risque‘.
The markets were cheered a little only to face the reality later on that the fundamentals of the Eurozone economic problems are dire.
Spain alone has to repay or more likely rollover €300bn of debt this year, Italy something similar. Debt repayment in the Eurozone in 2012 amounts to around a staggering trillion Euros.
Add to that talks to resolve the Greek crisis and persuade EU banks and hedge funds to accept a voluntary 50% hair cut on their debts have stalled. No surprise there, have anyone really seriously considered asking their bank to write off half their debt whilst not offering anything in return?
If an agreement cannot be reached by March then the next tranche of bail out funding to Greece cannot be paid.
A disorderly default will result and Greece will be ejected from the Euro.
That dear friends is only the beginning. I like this prediction from Louise Armitstead.
The US buying up Europe, Sarkozy being returned as French President? As likely as Scotland entering the Euro. 😆