Saxo bank chief economist Steen Jakobsen pinged me with an interesting set of comments regarding Italian interest rates….
World has Major Funding Gap
Our estimation shows that on the 2012 interest payment alone Italy now needs to find additional 10 billion EUR to pay for the rise in interest rates.
Some independent trading houses have calculated that the combined funding need for Spain and Italy combined (banks, and national debt) is 400-500 billion EUR per year for next two to three years.
This does not include already in-place money “guaranteed” to Greece, Portugal, and Ireland.
Thus, the world has major funding gap – the cash-flow need flowing into EU bonds is 400-500 billion EUR. The petty cash from China, Russia, and EMG will be 10-25 billion EUR each, far less than needed.
A bigger issue is how do you buy EU debt? Which paper, who is guaranteeing it? What is the EFSF capital structure?
This is what you get when you continue to produce plan-for-plans. The Grand Plan has no specifics, and it certainly did not create a fire-wall for Italy.
Italy and Greece Demand Deposits Collapse
But as concerning as higher yield is…. Looking at the deposit base in Italian banks vs. Greek banks…. You could seriously get concerned (Red line: Italy – Blue line: Greece)
Christine Lagarde is in China “begging” for support for increased fire power for the IMF, but it’s again it’s a race against time.
IMF Begs China for Money
That last comment from Steen piqued my interest and a quick search lead me to IMF chief holds talks in China amid eurozone turmoil.
International Monetary Fund chief Christine Lagarde held talks in Beijing Thursday against a backdrop of worsening economic turmoil in Europe that has rattled financial markets around the world.
Lagarde, who is on a two-day visit to China, has warned that Asian economies are not immune to the crisis that has engulfed the eurozone, saying the world risked a “downward spiral” if it did not pull together to tackle the crisis.
Details of the IMF chief’s visit were being kept under wraps, but it is all but certain to focus on the crisis in Europe, whose leaders have already called on China to contribute to a fund set up to support troubled eurozone economies.
Last month Klaus Regling, the head of the European Financial Stability Facility, travelled to Beijing to try to persuade China’s leaders to help.
Europe has been discussing establishing a special purpose investment vehicle to persuade China and other potential contributors, and is exploring the possibility of linking it to the IMF.
Lagarde visited Moscow before heading to China, and on Wednesday the Russian government said it was not prepared to invest directly in the EU rescue fund and would prefer to help the eurozone through the IMF.
Men Jing, chair of European Union-China relations at the Belgium-based College of Europe, said in a comment piece published in the official China Daily newspaper that Europe needs to behave in a “responsible way.”
“It is ridiculous that rich European nations have their begging bowls out and want money out of the pocket of China, whose per capita income is only about $4,000,” she said.
China has also been burned before on risky overseas investment. It bought stakes in investment bank Morgan Stanley and asset management firm Blackstone only to see values collapse in the 2008 global financial crisis.
Act of Desperation, Rise of the Borg
Begging for money from Russia and China is an act of desperation. Why would or should either country invest in European bonds other than Germany when Europe has not fixed its structural problems?
Six week ago Merkel and Sarkozy promised a comprehensive solution. We do not even know terms of the EFSF yet. What is the leverage? How is it structured? What is the guarantee?
None of that is set, Italy and Greece have prime ministers who agreed to step down (with no replacements other than Technocrat Borgs in sight), and the IMF has the gall (and stupidity) to go begging for money. Sheesh.
For a discussion of “The Rise of Technocrat Borgs” please see Beware the Technocrati; The Next Delusion is Technical Government; Borg Cannot Save Europe
Has a Run on Greek Banks Started?
It would appear so. ZeroHedge reports Greek Bank Deposits Plunge By €5.5 Billion In September: Biggest Monthly Drop Ever
According to just released data by the Bank of Greece, the September collapse in gross deposits from €188.7 billion €183.2 billion was the largest ever, and took the total to an amount last seen in June 2007. Indicatively Greek deposits peaked at €237.8 billion in September 2009. Said otherwise, in addition to being massively undercapitalized, banks cash in the form of deposit liabilities has plunged 23% from its all time highs. Look for this number to continue dropping month after month as more and more Greeks move their cash offshore. Additionally, the ECB announced that financing to Greek banks in September was €77.8 billion while Greek reliance on the “temporary” Emergency Liquidity Assistance program hit €26.6 billion according to Bloomberg. With every additional deposit outflow, expect ever more money to be needed to keep the Greek sham of a banking system afloat.
click on chart for sharper image
How Long Can Greece Hold Out?
Inquiring minds may be wondering how long Greece can hold out. For one possibility, please see History Suggests Greece Will Freeze Bank Deposits, Exit Euro by Christmas; Spain and Portugal to Follow Next Year; What’s the Rational Thing to Do?
Whether it happens by Christmas is debatable. What’s not debatable is the rational thing for Greek depositors to do is pull every cent of their money out of Greek banks immediately.
If depositors act rationally, the Greek banking system will not last long.
Mike “Mish” Shedlock
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