The EU's ponzi scheme is running on tough times. Every time they bailout one country, another country seems to default, requiring more cash to kick the insolvent can down the road. With a second bailout for Portugal already guaranteed, the last thing the socialists in Brussels need is a collapse in Spain and more importantly Italy. It seems the market was not to happy about what Trichet said at today's news conference. Even though the ECB pretty much waived the white flag of surrender and dropped all measures of credibility regarding collateral requirements, the market was disappointed. And you would be too if you owned PIIG debt. What these unfortunate EU banks want is nothing short of a complete guarantee by the ECB that it will print money to support Portuguese, Spanish, and Italian bond markets. After all, this is PONZI 101.
Below is a chart of Spanish 5yr CDS, which is currently in the lift-off phase of 294bps. One important note: we generally consider anything above 400 bps as an early sign of an imminent EU bailout and gutting of the debtor country's sovereignty. So the Spanish people better get ready to bend over and take some hardcore austerity from the EU elite.
Below is Italian 5yr CDS, where concerns seem to be increasing with rumours circling of trouble with Italian banks. 5 Yr CDS for the basket case also known as Italy has surged from 171 bps on 6/30 to 218 bps today. Still low by most PIIG standards, but the trajectory is going in the wrong direction. When it comes to the EU debt crisis, an Italian default would an armageddon moment for the entire EU project. The only solution would be outright ECB monetization of all PIIGS debt forever. No wonder gold is making new highs in Euros.
Black Swan Insights