It is no coincidence that more and more sovereign debt is being funded by institutions in that country. It is specifically to make leaving the euro easier. An Italian pension plan, for example, has both its assets and its liabilities in Italy. A conversion back to lire is manageable in a situation like that. Yes, the pension plan's redenominated Italian lire bonds may trade down because of the devaluation, but their pension obligations would also be redenominated at the same time, offsetting a lot if not all of the pain. The same is true in the banking sector. – Minyanville
Dominant Social Theme: The EU will last forever.
Free-Market Analysis: Quietly, the euro may be dying. Or at least the top men in various countries may be taking steps to create room for its removal. We can see from the above excerpt that various nations' monies are now being invested locally rather than abroad. This is a significant retreat.
This article is by Peter Schir, and from what we can tell he works in the financial industry and is not to be construed as any kind of wild-eyed radical. This article, excerpted above, appeared in Minyanville but was picked up by various mainstream publications and prominently posted.
It is a significant reinterpration of what's going on in Europe. There's probably a good reason for it, and it has to do with what we call the Internet Reformation and its impact. The idea behind the EU was to create a super-state that would help with what seems to be an endless quest to unify the globe under one government, but thanks in part to the Internet, much of this is becoming questionable.
And the idea behind the planned takedown of the EU via the "sovereignty crisis" – if that's what it was – was to put pressure on various EU institutions and the voting public itself to grant Brussels more centralizing power. That was the plan, anyway, but perhaps it is not working out so smoothly.
Britain has actually pulled away from the union a bit and the continued and gathering protests throughout the EU, especially within the PIGS, would seem to indicate a reservoir of public resentment that is growing not diminishing. Here's some more from the article, above:
The excitement over "spending for growth" is almost mind boggling, because it basically goes against a decade of history showing the inability of governments to spend and achieve real growth. But, there is one part that does make sense, at least from a Wall Street perspective. Read "European Debt, French Election Push Wall of Worry Higher."
So the final question is: Who will finance all that spending? Ahhh, the real reason Wall Street is enthusiastic about spending for growth. The only way a spending-for-growth campaign can begin is with another massive round of balance-sheet expansion by central banks. That has been great for banks and Wall Street, while it's less clear what it has done for the economy, or anyone without a significant portion of their wealth in stocks.
If Spain announced a big new spending campaign, would anyone really believe it would work? What would they do? Build more homes to get construction going? How would that help when an unpopped real estate bubble is part of the problem (actually the bubble has burst, it just hasn't been recognized on banks' and cajas' balance sheets). Would investors who aren't excited about lending 5-year money at 4.75% suddenly line up to buy all this debt, thinking the new spending initiatives (which increase debt in the short term) will really work? I don't think so.
This is unusual prose coming from what is essentially the mainstream press but we have seen sentiments of this sort expressed recently, more and more. The longer the crisis takes, the more it seems to be destabilizing some of the fundaments of elite expectations. The problems are working against centralization as well as stimulating more political unity.
This article also recognizes the truth that the underlying bubbles in Europe are as yet unpopped. Nor can they be in a central banking environment where much effort is being made – and funds being dispersed – to prop up commercial banking and sundry financial entities.
The article concludes by noting that while "austerity" may be fading, "it isn't the same as solving the problem." This is a good point.
Currency reversion and/or debt restructuring will be the ultimate end game, according to the author. This is a significant insight. If it is a true one, it might be a heavy blow to the plans of the elite for ever-closer central governance.