Friday 28 October 2011

How long can the eurofudge buy us?

A busy day at the coalface yesterday led me to be unable to get near to posting. Not for me this real blogging lark like Guido or others who have no seemingly gainful employment.

Anyway, between the various meeting I managed to glean that the eurofudge had indeed been born, perhaps somewhat late and not without complications, but a delivery. Even the few remains of my investments perked up a little (still 50% down on the year, sigh).

And now therefore it is the-morning-after-the-morning-after-the-night-before. And into the sunny dreamland that is the City the cold hard realities are going to start to sink in:

1- Yes, MerKozy got a deal, but the Greece debt reduction is only 50%, the leverage on the fund is 4x not 8x and the Banks are going to raise e100 billion nor e200 billion. So this is almost exactly half of what was being negotiated - a true fudge.

2- Greece is still going to have public debt at 120% - that is er, 50% more than the UK where we are in a dire state indeed. Is this a long-term solution? No. Will Countries still be better off exiting the euro - yes.

3- Berlusconi has not come up with any real meat in terms of cutting Italy's spending. Unsurprisingly Italian bond yields are not falling from their high levels. So this guarantees another part to this crisis next year.

4 - The result is that there will have to be some kind of fiscal union, which means political union in Europe too. Or a bureaucratic dictatorship. This is the start of a long, and promisingly tedious, story.

5 - Little of what has been agreed has been approved, so the half-thing, such that it is, can still unravel.

Still, it is better than no deal at all in the immidiate future as it prevents an economic collapse in 2011/12. on the other hand, more fudge pushes us further into the Japanese paradigm of zero growth prospects in return for no collapse.

Like a bunch of pretty flowers, this deal will soon start to wilt. The key question is how long will this take? I think the markets are seeking a Santa Rally to help with those year end bonuses so not before Xmas. perhaps by February the clamour for more and the realisation of the deepness of the hole will be upon us once more.


In the proverbial... said...

Beware the Greeks receiving gifts?

Sebastian Weetabix said...

Obviously in the medium term the Eurofudge is going to fall apart, but to my mind the most sinister aspect is the fact they are going cap-in-hand to Beijing. This is a very very dumb thing to do. What is the price going to be for €100bn?

Speaking as a bank shareholder (declaring my interests: HSBC & Barclays) I am astonished how much the banks went up yesterday. I don't believe the size of the deal is enough to recapitalise some of the zombie banks. HSBC has a deposit base 25% larger than its loan book, a core tier 1 ratio of 10.8%, 60% of its profit coming from Asia & only 24% from Europe & the USA, so I think they are pretty safe, but SocGen? BNP Paribas? Deutsche Bank? Hmmm

Sean said...

Its a bit like world war one in the trenches, the bullets stop for Christmas.

At the end of the day the city boys and girls are there to make money and will sit tightly at their desks until they see as well as hear the tanks coming down the road.

2012 is also election year in the US and the US debt deal was to kick the can into debate for the presidency with a new debt mandate needed next Nov.(i think)

Next year is going to be tense. These two things could play out with one another making the whole thing a lot worse.

Budgie said...

There are only two ways out: fiscal union; or dismantle the eurozone. This third bailout will not work any more than the first two. No one believes it will. Purely as a bail out it changes nothing. I give it two weeks.

However, unlike Ambrose Evans Pritchard ( I think this is the start of fiscal union by subterfuge. The EU elites will hide and deny as usual, they will refuse to test it democratically, but "surveillance" and punishment of erring nations is the start.

Elby the Beserk said...

The Slog thinks it will all collapse in a heap far sooner ...

And who knew about what the EU has in store for its Eurozone members? Did someone mention "post-democratic"?

I fear blood on the streets.

Steven_L said...

Not for me this real blogging lark like Guido or others who have no seemingly gainful employment.

I like the people who pop up everywhere saying how 'hard working' they are, when it is blatently obvious from the frequency of thir comments that they spend all day surfing the internet!

Bill Quango MP said...

I seem to remember that the last eurobailout was the fixer.
I thought it would last until..well, about now.
But it unraveled after just a week.

This looks better, but not final. So February looks good for another crisis.

Scan said...

It intrigues me why the markets respond at all to any meeting or deal that takes place between these European leaders. (And I use the term "leaders" quite wrongly). Surely, everyone in the entire world know that it's all utter rubbish and that it'll eventually end like the Soviet Union Ended. Maybe more like the Soviet Union than many of us would like to see.

Timbo614 said...

Late entry to fudge slogans,
To the Bob Dylan tune:

"if not for fudge, the sky would fall" Spivs would gather too!
if not for fudge we'd be nowhere at all, we'd be lost if not for fudge"

They are now bandying Trillions around like confetti. I say again "the numbers are too big"!*

Hah! China will screw them into the ground, it is not the time to be begging!

At 120% of GDP how does the "rescue" help Greece? and that is only by 2020!! They're 'aving a larf :(

* All Souls chaos prediction is now looking a tad shaky - they fudged it!

Anonymous said...

CU one thing I would like to know is how much of the Greek debt is owed to countries outside the Euro zone and how much is owed to those in the Euro Zone, if most is owed to Euro Zone countries it is relatively ok but if owed to non Euro countries that is where the problems lie.

Electro-Kevin said...

Yay ! The Christmas Toy Barge from China isn't going to be sent back.

Bill Quango MP said...

I keep telling you EK - the toy barge arrived at the end of September.
Its the Easter barge that needs to get through.

See if you can spot it.

Andrew Zalotocky said...

What is the price going to be for €100bn?

What will the Chinese want in return? The long term goal of the Chinese government is to replace the United States as the world's dominant power. So in the short term they probably won't ask for anything, to encourage the Eurozone nations to become dependent on Chinese aid. In the medium term they will probably want access to advanced military technology. In the long term they will try to shift Europe out of the American sphere of influence and into the Chinese one.

Anonymous said...

Certainly by 2012 we'll start to see overt State seizure of private assets to be frittered away. I regard the policy of significant inflation operating now as a covert theft. You can be sure the EU will rob-out the UK pension pot while 'call me Dave' Dave looks on.

CityUnslicker said...

The Chinese may not go for it, not much in it for them except risk.

How about if they do it shows that they were very scared about their own prospects. No western buyers, no chinese economic miracle.

Budgie said...

Look at what CMD does: he gets insulted by Sarkozy and still pays our tax money to the IMF to bail out sovereigns which helps French banks.

Can you imagine Sarkozy putting up with an insult from CMD and still paying French money to help prop up British banks?

Ivan Inkling said...

Sebastian: the market rallies indicate no more than that the spivs are anticipating the arrival of their annual end-of-year bonuses and thus the imperative of driving the numbers as high as possible over the next few weeks. So numbers should remain quite good until year end. Get out asap in January when their incentives will disappear well into the future - and the bottom falls out of the bucket. You have been warned.