- Markets have lost confidence in the EU's institutional structures and framework
- Italy represents a critical new and dangerous phase of the crisis (the "Tipping Point")
- Italy and Spain have € 300 bn and € 120 bn of 2012 issuance (€ 930 billion combined over next 3 years)
- Italian sovereign bond market is broken
- The "stakes" have never been higher (including the fate of the Euro itself)
- Politics has become “the” obstacle: All 5 "peripheral" countries have had leadership change in 2011
- The economy (recession) has become “the” unknown variable
- Continued Euro bank sector de-leveraging likely under almost any scenario (over $2 trillion estimate for next 18 months)
- Longer term, external (current account) deficits matter more than fiscal deficits
- More progress on credible fiscal austerity (especially Italy)
- Rapid resolution of the EMU's original sin - lack of fiscal integration (Dec 9 EU Summit meeting)
- Restore confidence to re-open bank funding markets
- Time to expedite the "Grand Plan"
- Larger Greece debt restructuring
- Bank capital raises and debt guarantees
- Additional bail-out funds for Greece
- Time to call the ECB
- Investor reluctance on EFSF € 1 trillion leverage plan
- Ineffectiveness of ECB monetary policy transmission mechanism to keep bond yields low
- Adjustment away from current bond purchase program needed (away from temporary, limited and sterilized)
- ECB should announce large, targeted buying plan (i.e. € 200 bn over 12 months)
But the risks remain considerable:
And returning to a much discussed topic - why has the EUR held up so strong?
But there is plenty of downside risk to come potentially:
DB Tipping Point Nov 2011 FINAL
