Eurogeddon Postponed Again as ECB Gains Three Weeks!

• Despite all the happy talk about the ECB buying Italian and Spanish bonds, the reality is more sobering. The ECB does not have the money to buy these bonds in sufficient quantity to solve the problem. After the announcement CDS for both France and Germany rose. The market is signalling that France and Germany may go bust trying to bail out Italy and Spain! This is perhaps the real intention of the Illuminists ie. bankruptcy of France and Germany the lynchpins of the Eurozone! Politically, I doubt German politicians can convince the Germans to bailout Italy and Spain (and the rest of the PIIGS) to the tune of possibly US$2T! Merkel will be voted out!
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• This respite in the collapse will only last a couple of weeks. I expect the Eurozone sovereign debt crisis fears will rear its head again in Sept/Oct. We may see the collapse of the Euro in Q4 this year!
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  Eurogeddon postponed again as ECB gains three weeks
  By Ambrose Evans-Pritchard, http://www.telegraph.co.uk/
  Eurogeddon is postponed again. Jean-Claude Trichet has saved civilization. There will not be a spiralling bond crisis in Italy and Spain in early August after all. An imminent disintegration of Europe’s financial system has been averted.
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  On balance, this is good, though not optimal. (Lancing the boil immediately by organising an orderly German exit from EMU would be better: it would halt the Fisherite debt-deflation spiral in Club Med and clear the way for recovery.)
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  Spanish 10-year yields dropped 85 points to 5.2pc, Italian yields fell 76 points to 5.32pc in the first hour or so of trading after last night’s announcement.
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  Now for the hard part. Unless the ECB is willing to back up its new role as lender-of-last-resort with massive purchases of Italian and Spanish debt, it will inevitably be tested by markets. Weak hands will take advantage of rallies to offload holdings onto the ECB, i.e. onto eurozone taxpayers. Frankfurt will find itself underwater very quickly without a legal mandate or EU treaty authority.
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  RBS calculates that the ECB will have to buy roughly half the outstanding tradeable debt of the two countries to defend the line. RBS calculates €850bn. I would put it nearer €1 trillion. This is currently impossible. The ECB is acting as a temporary back-stop until the revamped EFSF bail-out fund is ratified by all parliaments over coming months. The EFSF will then take the baton.
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  Yet as we all know, the EFSF has no money. The parliaments have not even ratified the earlier boost to €440bn. As of today, the fund has barely €80bn left after all the commitments to Greece, Ireland, and Portugal. It remains a fiction.
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  As for boosting it further to €2 trillion or more – as suggested by Citigroup, RBS, and the European Parliament – we face a little local difficulty across the Rhine. Bavaria’s Social Christians said they will not back one bent Pfennig for extra bail-outs, and the FDP Free Democrats are almost of the same mood. Angela Merkel’s CDU base is more mutinous by the day. In any case, such an expansion of the EFSF would set off its own chain-reaction as France and then Germany lost their AAAs and slithered into the swamp.
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  So, obviously markets will turn very nervous once ECB purchases approach the level that corresponds to the EFSF ceiling. They know that the ECB’s Teutons will die in a ditch rather than cross that line, taking the bond risk directly onto the ECB’s own balance sheet. That moment could come within three weeks.

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