In yesterday’s article, “Where will all the new money come from?” we concluded the brief analysis with the Sovereign Debt Maturity profiles (otherwise known as the Debt Structure) of both the USA and Italy, noting how similar the two profiles looked at first glance.
Digging a bit deeper today, we would like to compare those charts to cliff edges. We trust that the sentiment of the article is that we perceive Central Banks across the globe fretting about the ‘New Money’ we were referring to. With general economic confidence waning and the outlook for a sustainable long-term solution to sovereign over (indulgence) spending fading, the landscape is looking very bleak at moment.
New money will have to be printed (Quantitative Easing or QE) if investors in the capital markets cannot be found to bear the burden of purchasing new Bond and Treasury issues.
Some headlines over the few weeks alluded to Bond auctions in Portugal, Italy and Spain being well supported (see related article at the bottom of this post), but these were not major refunding and roll-over exercises. Greece is continuing to be a welcome distraction for politicians and Central Bankers in both taking investor’s eye off the bigger problems coming along the line in Q2 2012 and in winning time to hopefully come up with a credible longer-term plan to reduce debt levels and then return to growth.
Let’s take a look at some of the crucial Sovereign Debt auctions coming up in the next few months:
The link below provides a time table schedule issued by the US Treasury for T-Bills, T-Notes, T-Bonds and TIPS, for at least the next six months.
To get the equivalent Eurozone calendar is not so easy. (Partly because each individual country issues Bonds, as there is no Central Eurozone issuer of Bonds, but at least a central purchaser, namely the ECB – European Central Bank)
We are currently investigating sources of information for Eurozone Sovereign Debt Bond auctions and will return to this theme in very near future.
- Italian Debt Auction Sends Yields Tumbling: What Investors Need to Know (fool.com)
- Investors eye European bond auctions (bbc.co.uk)
- Successful debt auctions give boost to Spain and Italy (independent.co.uk)
- Italy borrowing rates drop again in bond auction (newsok.com)
- Italy sells more bonds as Greece struggles with debt (ctv.ca)
- Italian Debt Auction Sends Yields Tumbling: What Investors Need to Know (dailyfinance.com)
- Stock Market To Cast Confidence Vote On Eurozone Monday After Disastrous German Debt Auction (jhaines6.wordpress.com)
- Italy’s borrowing costs tumble after debt auction (guardian.co.uk)
- S&P cuts French rating to AA, hurting eurozone confidence (ctv.ca)
- Eurozone faces tough hurdles early in 2012 (sfgate.com)
- EU Faces Debt Hurdles Early in 2012 (abcnews.go.com)
- The road ahead for the struggling eurozone economy (oregonlive.com)
- Eurozone faces tough hurdles early in 2012 (seattletimes.nwsource.com)
- The eurozone’s borrowing costs may stay lethally high (bbc.co.uk)
- Buba’s Jens Weidmann Voted Against ECB’s Decision To Undermine The Sovereign Bond Market (zerohedge.com)
- Eurozone will pivot on Italy in 2012 (cbc.ca)
- Eurozone faces tough hurdles early in 2012 (ctv.ca)
- Stock Market Plunges On German Debt Concerns (huffingtonpost.com)
Are the European and more specifically the Euro-zone problems purely a matter of cultural differences, engrained in generations of ‘Nation Staters’ or something deeper in each nation-people’s psychology?
It cannot purely be a difference of political ideology between the leaders and individual nations of Europe that has lead us to the brink of the Euro abyss. But, yet maybe the way the debate and challenges facing Europe are being framed, has a great part to play in it.
Europe always seemed to be a halfway house between cultures, trade, ideologies, beliefs and norms. And the fact that the Euro single currency zone was stitched together based on these ‘halfway house’ ideas should therefore not have been a surprise.
How long does it take to build a vision? Or rather, why did Europe take so long to get to the chasm, build a rickety Monetary Union bridge, without firming up the foundations that holds together the infrastructure once the traffic crossing that bridge started increasing in volume?
If there is something Trade theory should have taught us, it must be that once opportunity (to trade and create wealth) is established, the trickle would eventually turn to a steady stream and the steady stream to an eventual throng. Yet not one European leader or institution foresaw this? Takes us full circle to the original question, namely: “How long does it take to build a VISION?”
The truth might lie somewhere in the nature, establishment and deep rooted psyches of the Europeans themselves. Europe might be the collective noun; yet staunch nation state individualism (the communities we all hunker after) is the actual bedrock and foundation of the people who live in Europe. Unlike the USA, with a common language, full monetary and federal fiscal union, Europe is and will always remain a loosely led together community (but not a collective) of nation states and peoples.
Fairness, freedom, equality and openness, some of the most fundamental tenets of a market and community to function properly, are not necessarily on the agendas when ideological political, rather than economic (for the greater good), issues are considered by both politicians, technocrats and bureaucrats in the institutions and fabric at the heart of a (dis)United Europe.
Therefore, until and unless we can prize Europeans from there deeply held ‘national interest’ debates and frames of reference, in terms of establishing a common and united front; we feel that there is no hope of sustainably solving the Euro-zone sovereign debt and monetary union problems.
A possible mechanism might have to be the establishment of a ‘fourth branch’ of governance, outside the Executive, Legislature and Judiciary, being an outside force or rather an Adjudicator comprised of non dominant European member countries and quite possibly with an Advisory Board consisting of non Europeans themselves, to allow for the establishment of a fair, free and an open implementation of the Legislature’s policy decisions, hence and overseer of the Executive, but an equal to the Judiciary, with a final veto by the citizenry of Europe themselves, as a balancing mechanism, should a stalemate ever arise.
The enabling driver of such an European Adjudicator must surely be the Digital Economy with its various platforms and reach extending now and in the future across the ‘Net’ that is European integration.
- Crisis On The Continent (thedailybeast.com)
- What S&P’s Downgrades Mean for the Euro’s Future (curiouscapitalist.blogs.time.com)
- No Country Will Exit the Euro Zone This Year: Jim Rogers (wallstreetpit.com)
- “Euro Zone Crisis is Germany’s Fault” (twistedeconotwist.wordpress.com)
- Euro zone jobless hits highest level since birth of euro – Reuters (reuters.com)
It is with a little amusement that we scanned through the Economic headlines today, following Standard & Poor’s decision to finally downgrade France’s and other Eurozone nation’s Sovereign Debt rating. France lost its prestigious triple A (AAA) grade to AA+.
Sarkozy and French anger? Indeed!
But the problem is timing as far as Mr Sarkozy is concerned. This is a Presidential election year in France, so this comes as a slight humiliation to Mr Sarkozy. And so it should be! He should be shamed out of office! Therefore, hopefully S&P’s decision will help the voters and tax payers of France sit up and realise that incompetent leadership and decision making in the Eurozone economies now urgently needs to be ‘punished’.
Thank you S&P, for taking this action, because the actions (or rather inaction) of the Eurozone bureaucracy and leadership so far in addressing the root causes of the multiple crises, is continuing to drag the global recovery off course.
Decisions to circumvent exiting (inadequate) European Institutional frameworks and pulling the wool over European Citizens eyes over the inadequate administrative burdens the bureaucrats have imposed on its Citizenry must finally come to an end.
Hopefully, we’ll see some slightly more competent new faces in the Eurozone leadership pool and summit photo call line ups very soon… Innovation in Europe might have to start with a new set of leaders?
- Eurozone crisis: ratings agency downgrades nine countries (newstatesman.com)
- French president Nicolas Sarkozy sends his PM to face cameras after credit rating is downgraded (dailymail.co.uk)
- French PM vows reforms after ratings downgrade (ctv.ca)
- It’s Official: S&p Announces Mass Downgrade of Eurozone Countries (tarpon.wordpress.com)
- France to pursue reforms after downgrade (thehindu.com)
- AAA No More: Credit Downgrade Hits France (npr.org)
- Credit rating slashed, France promises reforms (csmonitor.com)
We decided to summarise our learning from 2011 into two brief thoughts:
- The pains and strains of the economic sovereign debt melt-down in 2011, should stand us in good stead to deal with even more debt and sovereign strain in 2012, as More and Bigger Europe continue to miss the point; this being that more bureaucracy and more government and regulation will not get the INNOVATION engine started again to Recapitalise Europe!
- Translational differences will matter. The CLOUD is a huge business and business model transformation opportunity. IT ‘Geekery’ and language could scupper this potential opportunity and we need to develop more ‘CLOUD TRANSLATION’ services so that a broader community and eco-system can get involved in an aspect of “INNOVATION ignition” in 2012.
All the best and good luck in 2012.
- ‘In the Real World Creditors will Always Have the Whip Hand with Debtors’ (wallstreetpit.com)
- Europe sovereign debt crisis: A lot of bad ideas, a few good ones. (livinginpp.wordpress.com)
- Ruminations on Greece’s Sovereign Debt Crisis (zerohedge.com)
- Aaron Hing: In a debt-swamped world investment caution is key (nzherald.co.nz)
Continuing the conversation and analysis on the ‘fall-out’ of the British Veto being exercised at the most recent EU Leaders (crisis) summit, it is interesting to observe two specific angles to this:
Our article on ‘Recapitalising Europe’ kicked off the discussion around Innovation. It appears that the leaders of Europe (a summary of Angela Merckel defending the Brittish position – see this link) have cottoned on to Innovation as a driver of value, because as the Today programme on Radio 4 reported on Wednesday 14 December 2011; the Czech president stated today, as the details of the agreement slowly start to trickle out, the agreement 26 ‘insider’ European countries signed up to early on Friday morning (minus Brittain), is ‘nothing but a blank sheet of paper’.
Fantastic we say, this is exactly where innovation can begin; not building crooked structures on the existing legacy of half baked institutional solutions, however, starting with fresh new ideas. Something European leaders will find an unfamiliar exercise.
Fear, Uncertainty and Doubt (a great big FUDge).
It is amazing to observe some of the conversations by pundits, stakeholders and other interested parties on the supposed damage this veto has done to Britains standing in Europe. And our brief analysis on this is that the commentators are mostly all adding to the FUDge factor of sowing fear, uncertainty and doubt in the minds of the general public, in order to NOT address the fundamental issues, but rather play the old politically and ideologically motivated games of CONFUSING the argument.
Caveat (beware) the public, the answers are more complex and interwoven than the fuzzy analysis and explanations offered to us at the moment…
It is worth remembering that the crisis or rather series of crises over the Euro is not over yet. The work has merely begun to try to save the common currency. The fall out and potential consequences is discussed in an article by Bruce Crumley in “As the Crisis Refuses to Calm, Scenarios of Euro Collapse Appear”
- Recapitalising Europe (themarketsoul.com)
- More and Bigger Europe…Is that what we really want? (themarketsoul.com)
- More and Bigger Europe – Part 2 – It is MORE… (themarketsoul.com)
- East Europe balks at helping indebted richer West (seattlepi.com)
Irrespective of how the twists and turns of the Greek political system plays out over the next few days and weeks, we believe that the Big EU (Eurozone more specifically) players and their leaders only have themselves to blame for Greece‘s seemingly petulant behaviour.
If at the fundamental level we cannot understand that ANY form of bail-out will always support and lead to Moral Hazard, then we have learnt nothing from the past and the more recent debt and financial crisis of the 2008.
Previously we mentioned the ‘Credit Quake’ with lots of after tremors (attributed to Dennis Cox of Risk Reward), will last for a number of years and this is exactly what we have playing out as daily deadlines in front of our eyes at the moment.
However, to return to the point at hand: The age of economic dilemma of Moral Hazard has reared its monstrous head again and is in danger of ‘nabbing us in the butt’ (yet again), because the leaders of the EU (more specifically the Eurozone 17) do not want to understand that all their actions in supporting Greece is only leading to a more dangerous form of Moral Hazard and flies in the face of the Austrian School‘s ideas of ‘Creative Destruction‘.
Without effective mechanisms in place to deal with European regions at different cycles of development (not even to mention the basic lack of sound fiscal management), is to ask for problems (on a continuous basis).
Until a sound framework of either full fiscal and monetary union with appropriate checks and balances are rolled out in Europe, with a single capital market instrument (Gilt / Bond or EuroBond) and mechanisms for dealing with localised ‘failures’ of the market to clear itself effectively (never mind efficiently); we will continue to wretch and lurch about with market confidence eroded and leaders running around like headless chickens trying and implementing inappropriate tools for the job a sound framework is supposed to deal with.
It is not more regulation we want. It is simply BETTER regulation. It is that simple.
- The ECB’s Trillion Euro Bet (wallstreetpit.com)
- Remember Black Wednesday and Be Happy, Greeks (adamcollyer.wordpress.com)
- How Moral Hazard Learned to Stop Worrying and Hate Santorum (esquire.com)
- The Global Moral Hazard Dawns: Merkel Says “It Must Be Prevented That Others Come Seeking A Haircut” As Ireland Cuts GDP Forecast (zerohedge.com)
- Eurozone: Why does the crisis linger, deepen and spread? (wallstreetpit.com)