MidnightWatcher – Prophecy in Motion

By Wolfgang Münchau – “In virtually all the debates about the eurozone I have been engaged in, someone usually makes the point that it is only when things get bad enough, the politicians finally act – eurobond, debt monetisation, quantitative easing, whatever. I am not so sure. The argument ignores the problem of acute collective action.

Last week, the crisis reached a new qualitative stage. With the spectacular flop of the German bond auction and the alarming rise in short-term rates in Spain and Italy, the government bond market across the eurozone has ceased to function.

The banking sector, too, is broken. Important parts of the eurozone economy are cut off from credit. The eurozone is now subject to a run by global investors, and a quiet bank run among its citizens.

This massive erosion of trust has also destroyed the main plank of the rescue strategy. The European Financial Stability Facility derives its firepower from the guarantees of its shareholders. As the crisis has spread to France, Belgium, the Netherlands and Austria, the EFSF itself is affected by the contagious spread of the disease. Unless something very drastic happens, the eurozone could break up very soon.” Read more.

The Eurozone Has 10 Days At Most – “If you’re looking for some good Euro-scare meat, look no further than this column from the FT’s Wolfgang Münchau. The basic gist: No really, now we’re getting into endgame. Why now? Because the increase in core yields, the failure of that German bund auction, and the increase in Spanish and Italian short-term yields, as well as the tightening of money for the banks, means it’s all almost over unless Europe immediately cooks up some kind of ECB-backed/Eurobond/fiscal union concoction. ‘I am hearing that there are exploratory talks about a compromise package comprising those three elements. If the European summit could reach a deal on December 9, its next scheduled meeting, the eurozone will survive. If not, it risks a violent collapse.'” Read more.

Italy Is Closer To Collapse Than Anyone Realized, And So Is The World – “Some stories in the European press (La Stampa – Zero Hedge link) suggest that Italy is working on a very big loan package from the IMF. I have no doubt that there are ongoing discussions. There have to be. Either someone puts a finger in the dike or Italy goes tapioca. That thought is difficult for me to fathom. How could we be so close to the brink? At this point there is zero possibility that Italy can refinance any portion of its $300b of 2012 maturing debt. If there is anyone at the table who still thinks that Italy can pull off a miracle, they are wrong.” Read more.