Italian Deficit Chart is Terrifying
Finland has, once again, pointed out that there is still an elephant in the room.
The finance minister has stated, in what used to be called 'frank terms', that his government doesn't trust the big four not to stitch up the smaller members.
This is explosive stuff and one must hope that it is just posturing for his domestic audience.
This is after Jyrki Katainen, the Finnish Prime Minister in an interview with Der Spiegel
, said "Europe is like a family in which all the members promised to respect the rules. The crisis has revealed that this hasn't happened. We Finns find this unfair."
Italian Debt Levels
Italian debt levels are continuing to worsen at an alarming rate. Even if you ignore any ongoing deficit, with a GDP/debt ratio of over 100%, average yields still close to 5% and zero growth, it's hard to see how this is going to be reversed any time soon.
As a rough estimate, GBP/debt ratios seem to increase by the average interest/expiry rate.
Of course, much of the Italian debt is at lower rates than the market is currently offering, but eventually the new issuance will drag the averages higher.
The debt pile is increasing by around €10 billion a month. That's €10 billion month after month after month.
If we equate that to the free float on the Facebook IPO
, it would be the same as an equivalent sized issuance every month.
The total deficit chart
is, frankly, terrifying. Whilst nothing much appears to be happening in the way of solutions, the problem is silently getting worse.
Eventually one of an increasing myriad of nasty scenarios is likely to happen. These range all the way from multiple euro exits to a euro fortress that locks in endemic structural weaknesses on an altar of zero growth.
The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced.
By Simon Denham, 17 August 2012