Forex Market Commentaries - Contagion On The Horizon Again

The Word Contagion Re-Appears In The Lexicon Of The Technocrats As Does Dominic Strauss-Kahn

Dec 20 • Market Commentaries • 2836 Views • Comments Off on The Word Contagion Re-Appears In The Lexicon Of The Technocrats As Does Dominic Strauss-Kahn

I can’t be alone in doing a bit of head scratching were Italy’s involvement in the proposed IMF lending is concerned, it’s reminiscent of the scene in Donnie Brasco were Jonny Depp gives the gangster Lefty, played by Al Pacino, money as a Christmas gift and Lefty gives the same in return, but takes some off.

Out of the €150 billion committed to the IMF bailout fund so far (still a bit shy of the estimated €3 trillion required to back stop all the debt) France will stump up €31.4 billion, and Italy will need to provide €23.5 billion, presumably Ireland will simply kiss the Blarney Stone..

In Beijing the IMF’s former managing director, Dominique Strauss-Kahn, castigated the euro area’s leaders for their poor leadership and said the zone had only a few weeks to provide solutions. He’s quite right in pointing out what many market commentators have focused on for months, it’s “rollover time” early in the New Year, but unlike the lottery rollovers there’s no jackpot in sight for the lucky winners in this game…

Yet another crisis summit has already been pencilled in for late told the European parliament’s economic committee that €230bn of bank bonds, up to €300bn of sovereign bonds and more than €200bn of collateralised debt obligations will all become due in the first three months of 2012.

Now the nationalistic tub thumping, regarding the UK prime minister’s unilateral veto, has evaporated the reality begins to bite from several angles. Perhaps Cameron woke up and smelt the coffee this morning in the Downing Street kitchen re-modelled at £35k tax payer expense. Several leading ‘world-class’ businessmen, (a title not on the unelected premier’s c.v.) suggest that up to 3 million jobs could be at risk if Britain does not stay at the heart of Europe.

In a letter to the Telegraph, (ironically the Tory newspaper in the UK), a group of 20 businessmen urged the government to seize opportunities to “re-engage in the decision-making process” in the European Union, arguing that Europe’s future was vital to Britain’s economic interests. Signatories include Virgin boss Sir Richard Branson, British Telecom chairman Sir Mike Rake, and Sir Martin Sorrell, chief executive of advertising group WPP. Roland Rudd, the chairman of Business for New Europe, former EU trade commissioner Lord Brittan, and Sir Stephen Wall, Tony Blair’s former adviser on Europe, have also signed the letter.


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A fascinating document was doing the rounds within the more iconoclastic realms of the investment community over the past few days illustrating the depth of the UK’s overall debt. When every last of the splendid English pound debt is added up, including brushed under the carpet, off the two ply double strength quilted balance sheet, the debt versus GDP ratio is worse than the previous worse information available. At close on 1000% the UK is all alone as the gold medal winning sovereign basket case. The fact that France was quite right that the UK deserves a downgrade was spot on, however, make no mistake, these are some very scary numbers. Here’s a link to the PDF document, the UK tale of the tape is illustrated on figure 4. So the UK isn’t going to chip in for a bail out, strange that when you consider that the UK is the elephant in the room in Europe whilst the USA still remains as the caged mammoth in the cellar..

Rumours also persist that the USA may have to consider bequeathing (lend sounds so temporary) up to $1 trillion to the IMF in order to prevent the European banking system from a disorderly collapse. That may be a difficult ‘sell’ in the USA congress and to the general public with an election this year and the USA experiencing its own austerity measures.

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