David Riley, head of sovereign ratings for Fitch, has advised the European Central Bank to ramp up buying sovereign debt, and that the European Financial Stability Facility (EFSF) should be allowed to borrow money from the ECB.
"It is hard to believe the euro will survive if Italy does not make it through," Riley said, but then added that while Italy might be too big to fail, "one might also argue that it is too big to rescue."
Hey, thanks for the advice. Now go back to your cubicle.
The euro skidded below $1.27, European stocks moved into the red. S&P futures, flat on the morning, turned negative.
This is a major problem. It strikes me that it is not the job of ratings agencies to inject themselves into the very delicate process going on in Europe, or to make glib comments about who is too big to fail or succeed. Its job is to evaluate the actions of others, not to become part of the process.
1) Pedal to the metal time. A lot of behind the scenes action around Greece, Italy, and the multilateral treaty.
A multilateral treaty by Jan. 30? Germany's Angela Merkel making big talk about progress on that multilateral treaty that would enshrine new budgetary restrictions in Europe. At a meeting with Italy's Mario Monti, she said "there is a good chance that we can expects significant progress or a political conclusion already on January 30th."
She's referring to the European Union summit meeting on Jan. 30. I know, another euro leader meeting, more blah blah blah. But there's more preparation, and more sense of urgency about this meeting.
She's going out on a big limb making claims that some kind of treaty framework can be agreed to in such a short time frame.
Monti: Hitting the ground running. After pushing through an austerity package, Monti is furiously working on reforming the Italian economy, and it's clear he too wants to bring something to the Jan. 30 meeting. Monti said today he will have a broad package of liberalization reforms in the coming days.
Merkel, French President Nicolas Sarkozy, and Monti will meet again in Rome on Jan. 20, ahead of the EU summit Jan. 30.
Merkel also said that Germany would be prepared to give more capital to the European Stability Mechanism (ESM) at the start in order to give a message to the markets. The ESM is the permanent rescue funding program — currently 500 million euros ($635 billion) — that will succeed the temporary EFSF and the European Financial Stabilization Mechanism, likely in July 2012.
2) Banks continue to park a record 486 billion euros ($617 billion) with the ECB. Let's see if that changes in the next couple days. Spanish and Italian auctions are coming tomorrow and Friday: 5 billion euros ($6.4 billion) in Spain, and 4.75 billion euros ($6 billion) in Italy. How do we judge if it is a success? A healthy bid-to-cover ratio — north of 2 — would be a good sign.
3) We should have these problems. Germany's gross domestic product fell to 3 percent growth in 2011, down from 3.7 percent in 2010. That's still twice the growth the U.S. had. Will be even slower in 2012, perhaps lower than 1 percent. A lot of wailing and hand wringing about how even Germany is being affected by the slowdown in Europe. Please. Spare me.
Meanwhile, investors continue to park money with Germany. Five-year paper was sold at 0.9 percent — the lowest since the euro began, and lower than the 1.11 percent they paid for similar bonds in December. The bid-to-cover ratio was a very healthy 2.8 — in other words, a lot of bidders wanted in.
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