Eurogeddon

Death of a currency as eurogeddon approaches

The defining moment was the fiasco over Wednesday's bund auction, reinforced on Thursday by the spectacle of German sovereign bond yields rising above those of the UK.

If you are tempted to think this another vote of confidence by international investors in the UK, don't. It's actually got virtually nothing to do with us. Nor in truth does it have much to do with the idea that Germany will eventually get saddled with liability for periphery nation debts, thereby undermining its own creditworthiness.

No, what this is about is the markets starting to bet on what was previously a minority view - a complete collapse, or break-up, of the euro. Up until the past few days, it has remained just about possible to go along with the idea that ultimately Germany would bow to pressure and do whatever might be required to save the single currency.

Andrew Bailey: 'UK banks must brace themselves for euro break-up'

Andrew Bailey, deputy head of the Prudential Business Unit at the Financial Services Authority (FSA), noted that British banks are not heavily exposed to the eurozone, but said they must prepare for some countries to exit the single currency – or a complete break up.

"We cannot be, and are not, complacent on this front," Mr Bailey said. "As you would expect, as supervisors we are very keen to see the banks plan for any disorderly consequence of the euro area crisis. 

Hmmmm, aren't Barclays, Royal Bank of Scotland, Bank of Ireland and Allied Irish 'British'?

Europe Short on Cash as Bond Fears Deepen

The euro zone is stuck in a double crisis. On the one hand, investors are no longer interested in purchasing sovereign bonds. On the other, banks with such bonds on their books are being treated with extreme caution. A massive financial crisis threatens -- and it could be worse than the last.

Prepare for riots in euro collapse, Foreign Office warns

As the Italian government struggled to borrow and Spain considered seeking an international bail-out, British ministers privately warned that the break-up of the euro, once almost unthinkable, is now increasingly plausible.

Diplomats are preparing to help Britons abroad through a banking collapse and even riots arising from the debt crisis. 

The Treasury confirmed earlier this month that contingency planning for a collapse is now under way.

A senior minister has now revealed the extent of the Government’s concern, saying that Britain is now planning on the basis that a euro collapse is now just a matter of time.

“It’s in our interests that they keep playing for time because that gives us more time to prepare,” the minister told the Daily Telegraph. 

20 Banks That Will Get Crushed If The PIIGS Go Bust

We took a list of the largest European banks by assets and compared their market cap, common equity, and total exposure to PIIGS debt (thank you for the bank statistics, EBA!). Then we calculated exposure to PIIGS debt (sovereign and private) as a percentage of the banks' common equity. (Notice that HSBC, ING, and even Societe Generale are all absent from this list.)

So far our track record is pretty good--we predicted that Dexia was the most vulnerable bank outside of the PIIGS back in July. If the eurozone crisis continues to escalate, we will see more and more banks bow to the pressure of exposure and become unable to borrow money.

The List: Banks That Will Fail (A must read)

Foreign News: Eurobonds and contagion to Poland and Slovenia

The other major story is contagion. The English-language press has had considerable coverage of downgrades in Portugal, France and Hungary. What they have not got a lot on is the contagion into eastern Europe. Poland’s currency is tanking as a result. Moreover, the halt of Austrian loans into central Europe is creating a credit crunch there which will negatively affect the economy irrespective of the macro fundamentals (which are poor due to real economy effects out of Euroland). Slovenia, a former model country in the east, is the other major target of contagion.

I think we will have one more can kick to satisfy the markets temporarily. An IMF loan or some such bullshit that will put off Eurogeddon until early 2012. We can't let The Grinch steal Christmas via the Credit Default Swap sell App on his iPhone.

Edit Update. See what I mean (from Bloomberg as to why markets are up today)....

The IMF is preparing a 600 billion euro ($794 billion) loan for Italy in case the country’s debt crisis worsens, La Stampa reported, without saying where it got the information. As of Nov. 17, the Washington-based IMF had about $390 billion available for lending, which Managing Director Christine Lagarde has said may not suffice to meet loan demand if the global outlook worsens.

PS Meanwhile on the Debtstar...
Is the U.S. About to Invade Syria … and Pick a Fight with China and Russia?