A theory to "chew over" … An excess of savings over investment helps to create a credit boom in a current account deficit country and legitimizes pro-cyclical fiscal policy. And then a sovereign debt crisis in the deficit nation kicks off when the government is hit by weak growth and incurs the liabilities of the private sector. The solution requires painful exchange rate adjustments and sparks political acrimony between creditor and deficit nations. This is the current-account-imbalance argument for the global crisis – i.e. deficit US vs. surplus China – yes? Hold your horses: a consensus is emerging that the euro-zone crisis is also at its root a pure balance-of-payment crisis. Hidden behind an opaque monetary wall that requires inflation in Germany and deflation elsewhere to stem the rot. In short, without the freedom to adjust nominal exchange rates, relative price changes within the EMU — i.e inflation in Germany — is needed.

A poit of view...

There is a pile of liquidity (risk capital) floating around and that needs to be invested. So if you are an investment manager you have to go long something and short something else, as simple as that. Now you also know that there is a big hole in the balance sheet of the Euro-area because in the run up to the 2007 blow out, credit was given to borrowers who cannot repay. Now, Italy's sovereign debt comes from before that time, as it did its over-borrowing mostly in the '80s and magnified it by converting lira to Euro at an overvalued rate. But nonetheless it was among the big debtors at the start of the troubles in 2006. Now lets see who the other big debtors were: other peripheral sovereigns and households, who both had gone on a spending splurge in the previous 10 years (unlike italy who was and still is running a massive primary fiscal balance surplus and a current account surplus), households in UK, US and Ireland and to a lesser degree the Netherlands. The creditors were the banks, mostly in surplus countries like Germany, France AND Italy (Italian households are big savers, e.g. see recent report by Credit Swisse that ranks them as among the ones with the largest net wealth in Europe). So an investor with liquidity/risk capital to spare, back in 2007, would have wondered: what do I buy and what do I short? Well, we all knew there was a big hole in the aggregate balance sheet, i.e. assets that were not worth their book (or market) value. The crucial issue was to figure out who would be carrying the can. Well, the UK and US essentially let their currency devalue, thus giving their creditors a hefty haircut, and everybody with a bit of wit knew they would have done that because it was the rational thing to do. So we all figured out they were not the guys to be shorted and, after they devalued, they became the thing to buy. Now, let's see who else we have from the list above. Well, Ireland became the prime candidate for shorting because they had a pile of private sector debt AND the strategic need not to screw-up Europe', as what Ireland does for a living is to act as a tax-lite platform for US multinationals to do business with Europe (can't bit the hand that feeds you)...and also had initially very week political leadership that gave in very easily to pressure from ECB to transform the Irish banks exposure towards their overstretched households into an exposure of the Irish Sovereign, by getting the Irish state to bail out creditors of Irish banks. So, Ireland became one to short. But Ireland was not very big and also, after some initial silly mistakes, they played their cards very well (considerably softening and shifting in their favour the terms of the arrangements with EU/IMF, also thanks to a very healthy national debate on whether the EU was taking the lead). So where to look next? It came to a choice between shorting the banks in the creditor countries and shorting the sovereigns, especially the more indebted ones. Why? Because in the Euro area they were in a similar position. Due to the absence of national central banks who can print money, sovereigns are subject to the same risk of 'runs' as banks, because the asset side of their balance sheet is intrinsically less liquid than the liability side, even for solvent sovereigns. Well the ECB, with its actions but in part also with words, made clear that they were ready to act as lender of last resort to backstop the banks but not the sovereigns, especially not those in the frivolous Club Med. So to many in the markets it became crystal clear that the rational thing to do was to go long risky assets (mostly equity) in countries like US/UK who had already wisely sorted out their debt exposure (mostly through devaluation), about neutral or lightly underweight on banks in creditor countries (waiting to see how the whole thing pans out) and VERY SHORT sovereigns with high debt. That is, policy stance stacked the odds against one player (indebted sovereigns) in favor of equally fragile players (banks in creditor countries with bad credit exposures to both sovereigns AND households corporates). This explains why the Sovereign of a country like Italy became the one to short. In spite of it being solvent, as implied by the large net wealth of Italian households (which means ability to pay tax) and willing to pay back, as demonstrated by the willingness to endure a RESTRICTIVE fiscal policy for the last 15 years (yes, the Italian state runs a very tight ship, with has a massive primary budget SURPLUS, i.e. before interest tax intakes are greater than expenditure by over 70 bio if I am not mistaken). To me at least, that was very clear and that is why I started selling all Italian assets months ago, and moved every last cent out of Italy. Now however I start to wonder. After 15 years of RESTRICTIVE fiscal policy, and after all this mess, wouldn’t the Italian equivalent of the average Joe Soap (i.e., Signor Mario Rossi) start to wonder whether it is worth at all being fiscally disciplined? So the big question now becomes whether the Italians will play along and accept to carry the can for everybody. Let’s see. What should the Italian establishment do? I mean the real establishment…not Berlusconi - it should be clear by now that he’s not the guy in charge in that country. The rational reaction would be to almost encourage a heated internal debate which not only would let out some steam but more importantly would put the Italian government (whoever will be in charge) in a position to tell 'Europe' that it will not be easy to convince the Italian to carry the can all by themselves...so to bargain slightly better and manageable conditions, like say the Irish have done. Will they be so smart to so this? Personally, I don’t think so. I have very little esteem of the Italian elites (again not just Berlusconi, probably the smarter guy among a bad lot). What I am afraid they’ll do is to supinely try and administer the medicine that is being prescribed by their European friends, and they’ll do that in earnest...simply due to incompetence. Some pack mentality now obvious amongst European peers (who BTW are way more competent) will make the medicine only harsher in the face of Italy's weakness, which would be great and solve the bad debt problem once and for all for everybody...except that Italians may decide not go along for the ride. That seems very likely to me after 15 years of fiscally restrictive policies. So the BIG risk, and not so a low probability one either, is a big blowout with some sort of radical shakeup of Italian politics (and perhaps even deeper than that) leading, at best, to a renegotiations of the terms of engagement with Europe and possibly all out abandonment of the Euro with de facto default (redenomination of liabilities in Liras or something along those lines). Then, the can would go straight back to ‘core’ Europe. A good time to start buying volatility on borrowers of these countries? Out of the money puts on their banks are a bit expensive but maybe not so much, and caps vols on Bund yields are very cheap…

Europe has been plunged into a fresh crisis after France admitted it had been stripped of its coveted AAA rating in a mass downgrade of at least half a dozen eurozone countries by the credit ratings agency S&P. Share prices plunged, the euro dropped to a 16-month low against the dollar and the European Central Bank was forced to step in to buy Italian bonds after European sources admitted action by the credit ratings agencies was imminent. Bringing an abrupt end to the uneasy calm that has existed in the eurozone since the turn of the year, the heavily-trailed S&P move rekindled financial market anxiety about a Greek default and possible break-up of the single currency. Nicolas Sarkozy was due to go on national TV to explain the humiliating loss of France's top-rated status, leaving Germany as the only other major economy inside the eurozone with a AAA rating. French finance minister François Baroin downplayed the move, saying it was "not a catastrophe". Germany and the Netherlands were quick to make it clear they were not on the list of targeted countries circulated by S&P to European capitals ahead of an announcement that was expected to be made after the close of business on Wall Street. Investors piled into safe haven assets such as the dollar, while the UK was rewarded with even lower borrowing costs as 10-year bonds slipped below 2%. Britain is not at imminent risk of a downgrade. Mr Baroin was talking on France 2 television. More on what he said: I confirm that France has received, like most eurozone countries, a notification of a change of its rating [...] It's a downgrade, a one-notch change, it's the same agency that downgraded the United States [...] It means we must follow and amplify reforms. We must be bold. We must preserve employment. Mr Baroin says most eurozone countries have been notified of an S&P downgrade.

Any downgrades would also tarnish the credibility of the European Financial Stability Facility (EFSF), the eurozone's €440bn bail-out fund that Angela Merkel and Nicolas Sarkozy fought so hard to secure (and the one that was nearly brought down by Slovakia). If France loses its AAA rating, then Germany would be the only top-rated main backer left. The EFSF is also currently on downgrade review. In December, S&P said: Our 'AAA' long- and 'A-1+' short-term ratings on EFSF are based on (i) the unconditional, irrevocable, and timely guarantees from EFSF members (guarantor members) rated 'AAA' by Standard & Poor's that support EFSF's obligations (bonds, notes, commercial paper, debt securities, or other financing arrangements) and, (ii) the 'AAA' rated securities that constitute EFSF's liquidity reserves. Standard & Poor's has placed the 'AAA' long-term issue ratings on EFSF's guarantor members Austria, Finland, France, Germany, Luxembourg, and The Netherlands on CreditWatch negative (see "Standard & Poor's Puts Ratings On Eurozone Sovereigns On CreditWatch With Negative Implications," published on Dec. 5, 2011), indicating our view of their increased credit risks. In other words, the EFSF is only as good as its backers.

Paper makers must be making a fortune at these rates....

Results from Spain's bond auctions are in. The government managed to get the sales away at lower yields than last time (better value-for-money for the taxpayer). The average yield on April 2016 was 3.748% down significantly from 4.971% last time in July 2011. Overall it raised €10bn form the auction of three bonds.

I predicted that both bond auctions will go better than anticipated - not because of any improvement in economic fundamentals in Spain or Italy, but because the ECB will not and cannot permit either auction to fail.

Italy got its bonds away at half the interest rate it was paying last year. The yield on Italian 12-month bills fell to 2.735%, from the near-6% yield Italy paid to sell one-year paper at a mid-December auction. It's the lowest since June 2011. Italy sold €8.5 billion euros of 12-month BOT bills and €3.5bn of bills maturing at the end of May. The 12-month sale was covered 1.5 times, versus a bid-to-cover ratio of 1.9 at the slightly smaller sale in mid-December. The 10-year yield spread between Italian and German bonds fell below 500 basis points for the first time this year.

There is much excitement in Financial circles at reports coming in from NORAD.

In short : European leaders have been criticized for failing to take meaningful action to address the region's debt crisis. However, the European Central Bank’s decision to lend to banks is being applauded by many who had predicted doom, including euro bear Carl Weinberg, chief economist at High Frequency Economics. Weinberg consistently warned that the sovereign debt woes facing Europe would lead to a banking crisis and depression, CNBC reported. But following Wednesday's long term refinancing operation by the European Central Bank (ECB), Weinberg believes the eurozone and its banking industry finally have something to celebrate. Yahoo’s The Daily Ticker reported that the ECB kicked off its new borrowing facility with a bang Wednesday, lending $645 billion to 523 banks at 1 percent for up to 3 years. Both the dollar volume of loans and the number of banks seeking funds exceeded expectations. According to Bloomberg, the banks borrowed enough cash to refinance almost two-thirds of the debt they have maturing next year amid concerns that markets will remain frozen. This may not be enough in the end, but it is a significant step in the right direction, he added. The injection of liquidity converted bear into an optimist. And, according to Forbes.com, the news gave European stocks, especially financials, and the euro a boost. But not everyone agrees that it is time to break out the champagne. Skeptics said the high level of demand for loans is a sign of how desperate European banks are for financing, says the Daily Ticker.

There is much excitement in Financial circles at reports coming in from NORAD. First reports indicte that Father Christmas is closing in on planet earth with an unusually large sack. Rumpy von Lickspittle ( the much derided EU stooge) confidently predicts that santa is bringing a couple of Billion Euros to bung at indebted countries in the EU. Rumpy has gone on the record as saying that a policy of relying on Father Christmas was a darn sight more credible than any other policy the EU has yet formulated!!

Let us all fervently pray for a failure to find a solution so that we can have the end of the European Union.

Where are they going to find over 2 trillion when they couldn't manage it before?... The EFSF cant manage to raise money.. The Germans are against Eurobonds and Printing because it is unconstitutional..... The IMF is not a tool to be used like this and the shareholders will not allow it....Tell us where are they are going to get the money from !!!...Torn between the need for stability and the desire for solidarity, EU leaders have to find an immediate fix for the broken euro zone and embrace a longer-term plan for fiscal union by Friday night. Portuguese premier Pedro Passos Coelho set the tone for the week in an interview on Sunday: "We have to find a response, a much stronger response than so far. If we don't, clearly that could represent the end of the European Union." Senior opposition politicians put severe pressure on French president Nicolas Sarkozy and German chancellor Angela Merkel ahead of their pre-summit talks in Paris on Monday to approve a "grand bargain" or, at least, workable plan that will gain the support of partners such as the US. Timothy Geithner, Treasury secretary, will be in Europe for talks all week. Sarkozy's main opponent in next spring's presidential election, socialist leader François Hollande, accused him of caving into German demands for a new EU treaty on budgets that was bound to fail, exacerbating French weakness in an unbalanced relationship with Berlin and ignoring the need for immediate solutions. "We cannot wait," he told Le Journal du Dimanche, setting out his stall for a "pact of governance and growth," greater scope for intervention by the European Central Bank, turning the bailout fund, the EFSF, into a bank "to help out the most vulnerable countries" and huge investment in infrastructure. At the social democrats' (SPD) congress in Hamburg, ex-chancellor Helmut Schmidt warned Merkel against a "show of strength" or leadership role for Germany that would simply isolate it. CONCLUSION : The Euro zone crisis is demonstrating what any sub A level economics student should have said when the Euro was launched - you can not have monetary union without central fiscal policy control. So events have proved. Hence the choice is clear. Either the Euro zone breaks up or Europe is ruled by Germany.

Europe has accepted the inevitable and the Euro is being dismantled.

On Wednesday, before the New York stock market opened, regulators invoked special powers that would have enabled them to suspend trading if share prices were to begin swinging wildly. The Federal Reserve said it was intervening even though “US financial institutions currently do not face difficulty obtaining liquidity in short-term funding”, because of fears that the euro crisis could derail markets in America and Asia. In a statement, the Bank of England said: “The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing co-ordinated actions to enhance their capacity to provide liquidity support to the global financial system. “The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.” In another day of turmoil in Brussels, European finance ministers also admitted that they had failed to raise enough funds for a rescue fund to prop up the single currency. The International Monetary Fund (IMF) is expected to assist in the bail-out plan – and a senior European official warned that there were now 10 days to save the euro. Olli Rehn, the European Commission vice-president responsible for economic affairs (also known for his wrong decizions - 99% of the time), warned that a summit of Europe’s leaders on Friday Dec 9 was now crucial. MY POINT : When dismantling a currency the first step is to reassure the markets their interests will not be harmed in the process. This is achieved by a group of well respected national banks combining to provide a guarantee. The presence of that guarantee means Europe has accepted the inevitable and the Euro is being dismantled.

Federal Reserve "coordinates" with ECB and Bank of England to allow banks cheaper access to dollar.

Everything is now starting to make sense to me at least. The Federal Reserve is trying to bail everyone out and this will produce a lot of downward pressure on the US dollar. Eventually the pressure will become too great leading to a collapse of the currency.An international reserve currency will be organised in the aftermath with an international Central Bank probably led by the IMF.This bank will 'prevent' the bank runs that are taking place at this very moment. The carbon tax scheme will then be the instituted worldwide with the proceeds going to the international bank. I may be wrong but it looks like this may happen....However : the next step in the "Hollywood script", soon the USA will own and control all of europe, and they will get us paying for their defense budget, but i said this almost a year ago, but i am simple. Another step towards the super dollar. ...IN REAL LFE : Greece will see another general strike tomorrow, with ferries and public transport disrupted, schools closed and state hospitals running with reduced staff. The cause, again, is the painful package of austerity measures that the state was forced to take on in return for bail-out cash. Just yesterday eurozone leaders approved the next €8bn payment. Ilias Iliopoulos, deputy leader of the civil servants' union AEDEDY, spoke to AP television: They are creating a situation that can no longer be tolerated, can no longer be endured. Unfortunately people are in a state of somewhere between poverty and despair. The measures are supposed to improve the country's financial situation, but the country is getting deeper into debt, unemployment is rising, and the recession - unprecedented in recent times - is worse than anywhere else in Europe. People are falling apart.

30 November 2011 - Coordinated central bank action to address pressures in global money markets

The Governing Council of the European Central Bank (ECB) decided in co-operation with other central banks the establishment of a temporary network of reciprocal swap lines. This action will enable the Eurosystem to provide euro to those central banks when required, as well as enabling the Eurosystem to provide liquidity operations, should they be needed, in Japanese yen, sterling, Swiss francs and Canadian dollars (in addition to the existing operations in US dollars). The ECB will regularly conduct US dollar liquidity-providing operations with a maturity of approximately one week and three months at the new pricing. The schedule for these operations, which will take the form of repurchase operations against eligible collateral and will be carried out as fixed-rate tender procedures with full allotment, will be published today on the ECB’s website. In addition, the initial margin for three-month US dollar operations will be reduced from currently 20% to 12% and weekly updates of the EUR/USD exchange rate will be introduced in order to carry out margin calls. Those changes will be effective as of the operations to be conducted on 7 December 2011. Further details about the operations will be made available in the respective modified tender procedure via the ECB’s Website. Information on the actions to be taken by other central banks is available on the following websites: ; Bank of Canada (http://www.bankofcanada.ca) ; Bank of England (http://www.bankofengland.co.uk) ; Bank of Japan (http://www.boj.or.jp/en) ; Federal Reserve (http://www.federalreserve.gov) ; Swiss National Bank (http://www.snb.ch)

Eurozone finance ministers are scheduled to discuss significant increases to the bailout packages for indebted countries in Brussels on Tuesday. But policymakers remain divided over the best way to finance the bailout schemes, including the EU's main rescue fund, the European financial stability facility (EFSF). After crisis talks in October, Angela Merkel and Nicolas Sarkozy said they hoped to expand the €440bn (£377bn) EFSF to around €1 trillion: large enough to cope with the prospect of possible bailouts for Spain and Italy. But recent attempts to construct a bigger fund have failed, leaving ministers scrambling to find alternatives. Some leaders want the European Central Bank to take an active role, but new central bank boss Mario Draghi has ruled out buying large amounts of Italian and Spanish government debt to stabilize their borrowing costs. Rumors circulated over the weekend that Spain was preparing to make a bid for EFSF funds after Madrid saw the cost of its borrowing reach 6.7%. Sources close to the incoming government of Mariano Rajoy denied that he had made a request for bailout funds from Brussels, although they refused to say whether he was considering making such a request. Analysts say the situation is complicated by calls in Ireland and Portugal for a Greek-style debt write-off. Dublin and Lisbon are expected to take their case to the finance ministers' meeting on Tuesday, arguing that they should also enjoy the 50% reduction on their debts that was negotiated for Athens.

Contingency planing - throughout Europe and beyond

The remaining international confidence in the euro evaporated and made even German bonds to lose their "risk free" status. The crisis is no longer confined to the "sinners of the south". Suddenly, no-one wants to hold euro denominated assets of any variety, and that includes what had previously been thought the eurozone safe haven of German bonds. "Investors have gone on strike". The American Investors are getting their money out as fast as they decently can and British banks have stopped lending to all but their safest euro zone counterparts. Even those have been denied access to dollar funding. The UK hardly has anything to boast of... it's got its own legion of problems, many of them not so dissimilar to those of the euro zone periphery. The defining moment was the fiasco over Wednesday's bond 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 is 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. The prevailing view was that the German Chancellor didn't really mean what she was saying, or was only saying it to placate German voters. When she finally came to peer over the precipice, she would retreat from her hard line position and compromise. Self interest alone would force Germany to act. There comes a point in "every crisis" when the consensus suddenly shatters. That's what has just occurred, and with good reason. In recent days, it has become plain as lite that the "lady's not for turning".

British banks need to be prepared for a disorderly break-up of the eurozone, says Andrew Bailey, the FSA's director of banks and building societies.He said that while the debt crisis in the 17-nation currency zone had not singled out the UK banks, "We must not ignore the prospect of the disorderly departure of some countries from the eurozone." Mr Bailey, who will be deputy head of the new Prudential Regulation Authority, told the Future of Retail Banking Conference in London that the regulator was keen to see banks plan for severe disruptions if the eurozone debt crisis intensifies. Looking ahead, he said weight of new banking regulations will prompt a re-think of the role of investment banking in banks. "My best guess is that we will see a sharp reduction in the scale of investment-banking activity undertaken in the banking sector," he said . He stressed the need for banks to build up longer-term funding to be used as a buffer "in times like the present". However, he cautioned against rushing through reforms: "Many banks still have excessive leverage, and there is a need for a clear path to reduce leverage, but to a timetable that does not damage the wider economy." He welcomed moves by banks to sell non-core assets as it sent an important signal to investors, regulators and the public that lenders were committed to structural changes. (sirce ; UK press)

Germany, backed by France - (Vichy ?!...nobody learns anything from their own history)...Speaking after talks with David Cameron in Berlin, Mrs Merkel also pointedly rejected the Prime Minister’s call for the European Central Bank to play the main role in bailing out troubled eurozone countries. The disagreements undermined the claims of the two leaders to be working closely on responses to the European debt crisis. Germany, backed by France, wants the European Union to impose a new tax on every financial transaction banks make, with the revenues used to help debt-ridden countries. Britain has suggested that such a tax would have have to be applied by every country in the world to be workable. A European tax would simply drive banks to other countries, ministers believe. Mr Cameron said: “The danger is driving transactions to a jurisdiction where it wouldn't be applied. Mrs Merkel made clear she had not changed her position either. “We are at one in saying a global financial tax would be introduced immediately,” she said. “But on a European one, we did not make any progress on that one. We have to both work on where we both feel change is needed.” The Prime Minister is among international leaders has been pushing hard for Germany to agree to the ECB acting as a bank of last resort for failing eurozone states.

Euro -Zone, hot air, indecizion and in conclision, NO DEAL -- Germany and the U.K. remained at odds about the introduction of a levy on financial transactions at European level, but agreed on a limit for the rise in the budget of the European Union, German Chancellor Angela Merkel and U.K. Prime Minister David Cameron said after meeting Friday. German Chancellor Angela Merkel and British Prime Minister David Cameron spoke to the media after thetalks at the Chancellery on Friday. "We are one in saying that a global financial transaction tax would be introduced by both countries immediately," Ms. Merkel said, but acknowledged that no progress was made on a possible introduction of such a levy by Europe alone. Germany wants the EU to pioneer the set-up of the tax, while the U.K. is resisting that, fearing the position of London as a financial center could be harmed. The two leaders showed more agreement on the issue of the EU's budget. "It's not acceptable that the [EU] budget grows by 5%," Mr. Cameron said, rejecting a proposal by the European Parliament. Efforts to consolidate national budgets should be mirrored in the EU budget, Ms. Merkel said, proposing the budget increase to stay close to the inflation rate. After recent disagreements between the 17 countries belonging to the euro zone and the 10 EU countries outside of it on a possible change to the EU treaty, Ms. Merkel also suggested as a compromise that a treaty change should only be adopted by the euro-zone countries. Mr. Cameron and his finance minister, George Osborne, have openly backed the need for greater euro-zone integration, even if it requires a treaty change.

This sentence was a gift for euroskeptics in Britain. "Suddenly Europe is speaking German," said Volker Kauder, floor leader for German Chancellor Angela Merkel's conservative Christian Democratic Union, at the CDU party congress in Leipzig. The British press eagerly jumped on the soundbite on Wednesday, seeing it as confirmation of the old prejudices about Germany's supposed thirst for power. "Europe speaks German now!" was the headline in the tabloid newspaper Daily Mail, complete with fat exclamation points. "Controversial claim from Merkel ally that EU countries all follow Berlin's lead -- and Britain should fall into line," the paper continued in outrage. But the consensus of the conservative British press was that such a thing would, of course, never happen. Instead, so the euroskeptics argued, British should take advantage of the euro crisis to "free" itself from the EU. The Kauder controversy is the latest indication of a growing rift between Berlin and London. On the British side, Business Secretary Vince Cable added fuel to the fire on Wednesday in connection to a proposed European Union tax on financial transactions. Cable described the so-called Tobin tax, which Germany has been campaigning for, as "completely unjustified." Kauder, meanwhile, had earlier criticized British opposition to the tax as irresponsible. Merkel's and Sarkozy's reactions to the criticism coming out of London have been increasing thin-skinned. At the most recent EU summit, Sarkozy's comment about Cameron -- that he was "sick of him telling us what to do" and that Cameron had "lost a good opportunity to shut up" -- came from the heart, but Chancellor Merkel will probably be a bit more diplomatic on Friday. She knows she'll need Cameron on her side if she is going to be able to push through an amendment to the Lisbon Treaty, given that changes must be unanimously approved by all 27 EU member states. On Thursday, she appeared to strike a conciliatory note. "We want a Europe with Great Britain," she said at a conference in Berlin. One would have to handle the process of further European integration with great political sensibility, she added.

ECB policymakers continue to reject international calls to intervene decisively as Europe's lender of last resort, stressing it is up to governments to resolve the debt crisis through austerity measures and reforms. The bond market contagion continues to spread across Europe. Italian 10-year bond yields have risen above 7pc, unaffordable in the long term, while yields on bonds issued by France, the Netherlands and Austria - which along with Germany form the core of the euro zone - have also climbed. With its prized 'AAA' credit rating under threat from soaring borrowing costs, France appeared to plead for stronger ECB action. German Chancellor Angela Merkel made clear Berlin would resist pressure for the central bank to take a bigger role in resolving the debt crisis, saying European Union rules prohibited such action. I believe that the euro zone having so many diverse economies and no fiscal transfers that the ECB needs to act as a lender of last resort and start printing money like any other normal central bank would do - if it does not, then the euro zone could well collapse... and it will ! On the reverse : France is truly pathetic. No balanced budget for decades; Chirac did nothing to restructure France, which has the highest costs for govt. employees in the EU. They surely need a reality check; this pathetic begging for the ECB to print money is ridiculous. They have only now, started a programe of "austerity", but we're not allowed to call it that. I fear far worse is to come when the socialists win the Presidency; than, we may well see a real collapse.

Trying to keep the euro going is like trying to breathe life into a corpse.

The latest bit of euro fantasy has been that a few changes in the top personnel would transform matters. Yet even if you installed a coalition of Pericles and Alexander the Great in Athens and Cesare Borgia and the Emperor Hadrian in Rome it wouldn't make a blind bit of difference. What ails these countries is the irresistible arithmetic of the debt trap. The idea of a euro break-up frequently meets with the objection that this would crucify German industry. This is nonsense. The new German currency would certainly go up, I grant you. Indeed, it would need to; that is a key part of the adjustment mechanism. But it would not go up without limit. The Germans were reluctant to give up their Deutschmark which, they said, had been the secret of their post-war success. And now they are reluctant to give up the euro which, they say, is the secret of their post-Deutschmark success! In fact, German business proved immensely good at bearing the strains created by a strong D-mark and it would again be like this under the "son of D-mark". Anyway, what German business wants should not be the sole arbiter. A high German exchange rate would transfer income within Germany from businesses to consumers and this would help to boost consumer spending. Trying to keep the euro going is like trying to breathe life into a corpse. Europe's leaders should not be propping the single currency up, like El Cid strapped to his steed, but rather preparing to dismantle it at the lowest possible cost. Trying to keep the euro going is like trying to breathe life into a corpse. Europe's leaders should not be propping the single currency up, like El Cid strapped to his steed, but rather preparing to dismantle it at the lowest possible cost.

The $593 million shortfall in client money at MF Global Holdings Ltd., the broker that filed for bankruptcy on Oct. 31, appears to result from a “massive hide-and-seek ploy,” Bart Chilton, a commissioner at the U.S. Commodity Futures Trading Commission, said today. The agency took the rare step of publicly announcing its investigation, which began on Oct. 31, saying it was in the public interest to confirm the enforcement action. Jill E. Sommers was named as the senior commissioner during the probe, after Gary Gensler, the agency’s chairman, recused himself. “This isn’t just a lost and found inquiry; it’s a full-on effort to get to the bottom of what appears to be a massive hide-and-seek ploy,” Chilton said in an e-mail statement. “It’s a distinct possibility, some would say probability, that somebody has done something with the money, and that it’s not going to be ‘all of a sudden discovered’ with an innocent explanation,” Chilton said. “If that’s the case, it’s patently illegal. I don’t know yet. Our investigation will uncover that, and we’re aggressively pursuing this.” Gensler recused himself from the investigation because of his history with Jon S. Corzine, the former head of MF Global. Gensler worked with Corzine at Goldman Sachs Group Inc. and during his time as a Senate aide, while Corzine represented New Jersey as a U.S. senator. “I have complete confidence in the dedicated men and women in enforcement to carry out the necessary investigation to get to the bottom of what happened,” Sommers, a Republican, said in a statement. The CFTC also began a review of futures brokers to determine if client funds are properly segregated. The initial review will include between 10 and 12 futures brokers and the CFTC hasn’t set a deadline for the review, a person familiar with the review said.

Italians have low personal debt, the second biggest manufacturing economy in Europe and Berlusconi claims the restaurants in Rome are full. So why is Italy now at the centre of the euro zone crisis? -- I say: could it be that according to the Ribbentrop -Molotov pact of 1939, the time has come for Germany to take over Europe after the Russians became the owners of the European energy capacities? It certainly looks this way !!

There is an "implanted fake problem" in the Italian business environment that prevents growth. Italy scores low in the World Bank indicator of how easy it is to do business – 80th place . The problem is bureaucracy and sluggishness of the justice system in courts to clear financial and business matters. People say: despite all the problems Berlusconi made a fortune and built a big business. The state and tax system never helps business; they are an obstacle to be overcome. It's remarkable that despite all of this Italian firms still do so well. There are also entrenched special interests that hold a monopoly over certain services, such as lawyers, notaries and all services that business need to operate and the state and Italy has no independent state service like France, there is too much vested interest. If Italy fails to repay its debts the impact would be far worse than if Greece defaults as it has a much greater overall level of debt, meaning its creditors, mostly European banks, would be in serious trouble. The immediate problem for Italy is in the bond market. The bond markets are essentially the trade in government debts and Italy's is among the largest at around €1.9tn. The yield on the price of government Italian bonds has risen sharply – this is equivalent to the interest rate charged to the Italian government to borrow money.

Despite publishing a more detailed mandate following a summit in Brussels, the Eurogroup delayed agreeing specifics on how to leverage the €440bn European Financial Stability Facility (EFSF), risking further market turmoil ahead of votes on Tuesday that could topple Silvio Berlusconi's government. The EFSF also pushed ahead with a 10-year bond auction which it had put off from last week because of lack of demand. The fund, which is supposed to be the eurozone's key weapon against the debt crisis, managed to raise €3bn but only after having to pay record returns to entice investors. Joachim Fels of Morgan Stanley said: "The leveraged EFSF may still turn into a bazooka but so far it looks more like a water pistol."The fund is hampered by uncertainty over Greece's bail-out and eurozone membership. Italian government bond yields hit 14-year highs, crossing the threshold economists say is unsustainable for the country's €1.9 trillion debt pile. The yield on 10-year bonds soared to 6.68pc at one point, leading to frantic speculation that Italy will require an international bail-out.