Albert Edwards: "The Eurozone Crisis Will Get Much, Much Worse" And "The ECB Will Print"

Submitted by Tyler Durden on 10/27/2011 07:56 -0400
Comments: 112 / Reads: 13,091

Anyone expecting that the events over the last 24 hours will have changed the persistently negative outlook of one of the original skeptics, will be disappointed. The SocGen strategist falls back to that old time-tested principle in complicated situations: math and logic. His summary of events released this morning: "The increasingly frenzied attempts of eurozone governments to persuade financial markets that they can draw a line under this crisis will ultimately fail – even if this week’s measures bring some short-term relief. I have minimal confidence that governments can turn this around within the confines of the eurozone project. You might be surprised though that I feel more bullish! Why? Both Dylan and I have come to the view that the ECB will be forced, by events, to monetise debt in the GIIPS and beyond. And if investors believe the governments in Spain and Italy are bust, then Germany, France, and not forgetting the UK and US, are far, far worse." To be sure, we may see a brief respite as we get the traditional post-TARP knee jerk reaction, only for markets to digest the sad reality of the situation in the proceeding 48 hours. And what will that imply? To Edwards, it will be nothing short of the realization, that even with €1 trillion (or more), the ECB will have no choice but to commence outright monetization as well. And the real question will be whether or not "Germany, will leave the eurozone after being over-ruled on the ECB (again!) and in the face of such monetary debauchery?"

Looking at the macr Edwards, first points out the unsustainable fiscal picture at the "other" countries, assuming one applies the same logic to them as to Italy:

Italy never "enjoyed" a boom to suffer any bust. And on many measures, including reputable attempts to take account of off-balance sheet liabilities, Italian public sector debt fares well on cross-country comparisons (see chart below). These off-balance-sheet liabilities will now increasingly become visible to all. Who then will be really bust?



The complexity of Europe is only exacerbated by the feedback loop with a recessionary America:

Regular readers will know we like to use leading indicators. These have been weakening for some months in the US and elsewhere. We have not highlighted the Economic Cycle Research Institute's (ECRI) weekly leading indicator for some time, although it is as weak now as it was last year. But, unlike last year, this time around the ECRI have put out a rare recession call - link. http://www.businesscycle.com/reports_in ... tails/1091

Lakshman Achuthan, the ECRI's COO notes that they made the recession call only after an array of economic indicators showed a “pronounced, pervasive and persistentâ€