Something doesn’t add up. The landslide in European data continues. Stocks are finally waking up to that fact, the currency has woken up to that fact, but meanwhile Spain can still borrow for 10 years close to 2%. Even Italy, who continues to languish in recession, only pays 2.3% today. Europe is in trouble yet there’s some in the market haven’t woken up to that fact.
European bond yields are low because you can earn more real returns in the current low inflation environment. There’s also the relative safety of the OMT hanging over them too, ECB sovereign QE is off the table but it’s still in the cupboard.
How long can the market keep thinking that the ECB can fix everything. The market is waiting and more worryingly, national governments are waiting.
I can’t stress enough that 2015 is going to be big for Europe as that is when the clock is going to run out. Even if the ECB end up throwing the tool box and the whole shed at the economy it’s all likely to be too little too late.
People keep saying the Eurozone is going to slip into a Japanese style slump. If they do then they should be thankful as I think that if Europe goes under it will be 100 times worse than anything that has happened in Japan.
While Italy’s Padoan may be living in cloud cuckoo land over Europe’s prospects, the rest of us know how much trouble they’re in.
Some still can’t see the cracks opening up in Europe
