Tuesday, December 6, 2016


The latest bunch of nonsense flying around Europe is that the Italian banking situation is really not systemic at all, it's simply a problem of a couple of institutions that can be easily fixed.  Yes Monte di Paschi and Unicredit might have a few difficulties but nothing that a patch here or there couldn't fix.  The rest are fine.  Unicredit is talking about 13 billion Euros in new capital and Monte di Paschi...well, 3.5 billion would be a good start.  One minor problem: nobody has the slightest idea where that kind of coin can come from and it sure isn't coming from anywhere until Italy has a new government and there, My Son, is the rub.  Italians are not noted for the formation of a government at the drop of a hat: killing one off, yes but forming one?  A big no to that

There is another current through all of this running north to south.  Italy really hasn't stepped up to the plate in the same manner as their norther Union members.  What wouldn't trouble the French and the Germans in the slightest is for the Italians to engage in some form of nationalization which gets them off a very nasty political hook regarding a bail-out either directly through the Union or the ECB in what is shaping up to be a very ugly election year.  Against the Charter?  Who cares when one is in survival mode.  Which brings us to the ECB.

Mario is in a hell of a spot.  We should remember that the concept of a united Europe came about not solely as the result of a desire to reduce nationalist tendencies but as a buffer against the hegemony of the United States as well.  At this moment in time  neither reason seems to be working especially in regard to the United States which is now expected by many to be the engine of economic progress in the coming year.  As a result, rates are moving smartly northward, currencies are weakening against the dollar, the Fed is certainly going to begin tightening next week and Sr. Draghi has no choice but to continue his QE operation probably targeted at Italy in direct opposition to the rest of the world.  The problem is he doesn't have enough ammunition to make a difference.  Italy's economic prospects are bleak and with them it's banking outlook is bleaker.  I don't envy the guy.  As I said the best thing that can happen is we get through next week and wait for the Christmas Season to provide a respite.  That would be the conditioned response but in times like this, who knows.

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