No Greek deal

No Greek Deal; Talks Postponed Till Monday; Who Blinks First?

Mish's Global Economic Analysis,

21 November, 2012

A marathon nannycrat session ended with no deal as the IMF played hardball insisting Greece reduce debt to 120% of GDP by 2020.

Not to worry, Jean-Claude "Lie When It's Serious" Juncker says progress was made.

CNN Money says No deal for Greece as talks drag.

 European finance ministers concluded a marathon meeting Wednesday without finalizing the details of a debt-reduction package for Greece.

The absence of an agreement endangers the release of the next round of Greece's international bailout package, funding the country needs to remove the threat of bankruptcy and a messy exit from the eurozone. 

 Jean-Claude Juncker, the Eurogroup president, said in a statement that the discussion was "extensive" and that progress was made.

"The Eurogroup ... made progress in identifying a consistent package of credible initiatives aimed at making a further substantial contribution to the sustainability of Greek government debt," Juncker said.

Devil in Compromise 

I have no doubt the discussion was "extensive". Whether or not any progress was made is certainly debatable, and we certainly cannot believe Juncker on that score, or for that matter any score.

Please consider Greek debt can only become sustainable by 2022 if all steps taken

 Greek debt can fall to below 120 percent of output by 2020 only if euro zone countries accept losses on their loans to Athens, provide additional financing or force private creditors into selling Greek debt at a discount, according to a document prepared for a meeting of finance ministers on Tuesday.

The 15-page document shows that without a package of debt-reducing measures Greek debt will fall to 144 percent of GDP in 2020, 133 percent in 2022 and 111 percent of GDP in 2030, from a current level of around 170 percent.

"The package of options will not make it possible to arrive at a debt-to-GDP ratio of close to 120 percent in 2020 without taking recourse to measures that would entail capital losses or budgetary implications for euro area member states or envisage a more comprehensive DBB entailing the activation of collective action clauses," the document said.

Deferring interest payments by 10 years to 2022 on loans made through the euro zone's temporary rescue fund would cut Greek debt by 43.8 billion euros, or 16.9 percent of GDP.

If the European Central Bank (ECB) returned the profits it made on its Greek bond portfolio, Greece's debt would be fall by a further 4.6 percent in 2020, the document showed.

Buying back 10 billion euros worth of Greek bonds from private investors at 50 cents per euro would result in debt falling by 2.4 percent of GDP by 2020.

But the combined elements would still fail to reduce the overall debt-to-GDP ratio to 120 percent by 2020, the level the IMF has deemed as "sustainable". If that target cannot be reached, the IMF may withdraw from the Greek bailout programmes.

Who Blinks First?

 

As long as the IMF, ECB, and Germany remain firm, there could not possibly have been any progress made.

I certainly see no signs that any party is willing to budge. The ECB cannot accept losses by treaty, Merkel is highly unlikely to bend ahead of the German election, and the IMF has been adamant regarding the year 2020. 

These logjams have a way of breaking at the last second but either Germany or the IMF will have to budge.

Cyprus next to fail

Cyprus applies for EU bailout

The Cypriot government has issued a statement, confirming that they have officially made an EU bailout bid. This makes it the fifth state within the currency union to ask for help.

RT,

26 June, 2012

The request comes just days before a deadline to recapitalise one of the country’s largest banks.

“The purpose of the required assistance is to contain the risks to the Cypriot economy, notably those arising from the negative spillover effects through its financial sector, due to its large exposure in the Greek economy,” the government's statement said.

Government spokesman Stefanos Stefanou wouldn't reveal how much Cyprus would ask for from the bailout fund, saying the amount will be subject to negotiations. The 27 EU leaders are meeting in Brussels on Thursday and Friday, where the subject will be discussed.

Analysts estimate the sum would likely be around €5 billion ($6.2 billion) but could go as high as €10 billion ($12.5 billion). It is a fraction of the bailouts given to other EU countries, with the latest sufferer Spain asking for as much as €100 billion ($125 billion)for its banks.

Earlier, US ratings agency Fitch downgraded Cyprus to "junk" status. The move was prompted by the amount of rescue money that would be needed to bail out its banks, which are heavily exposed to the Greek economy.

Cyprus' finance minister Vassos Chiarly recently said he would prefer eurozone assistance rather than aid from Russia, which has already given Cyprus a €2.5 billion loan

Greece: Non-interest on Non-Loans

If you think Greece is being bailed out think again!

Bailout Scam: Collecting

 Non-Interest on Non-Loans; 

"Because We’re Europe"

Mish's Global Economic Analysis,

29 May, 2012

The absurdity of the Greek "bailout" setup is in the news once again. The New York Times reports Athens No Longer Sees Most of Its Bailout Aid

 In an elaborate payment system that began after the May 6 election that brought down the Greek government, and is meant to ensure that the Greeks do not touch the cash, the big three creditors are now wiring bailout payments to an escrow account in Greece. There the money sits for two or three days — before much of it is sent back to the troika as interest payment on the Greek bonds that Europe accepted under terms of the bailout deal struck in February.

“Greece will not default on the troika because the troika is paying themselves,” said Thomas Mayer, a senior advisor at Deutsche Bank in Frankfurt. “Why are we doing it like this?” Mr. Mayer said. “Because we’re Europe.”

A Greek government advisor who spoke anonymously, for fear of alienating the European lenders, said of the troika: “They made sure that the sum for domestic spending is kept small enough to force Greece to dramatically raise its own revenues.”

On its face, the situation seems absurd. The European authorities are effectively lending Greece money so Greece can repay the money it borrowed from them.

“You send the money, you call it a ‘loan’ — you get it back and call it an ‘interest rate,”’ said Stephane Deo, global head of asset allocation in London for UBS.

Since May 2010, Greece has been sent €141.7 billion in European taxpayer money to keep the country afloat and ward off a bigger meltdown that might threaten the entire currency union. Of that amount, a full two-thirds has gone to pay off bondholders and the troika.

Only a third has been earmarked to finance government operations, with only a tiny sliver spent on stimulus projects for the anemic economy.

Greek bonds are a profitable investment for the E.C.B. as long as Greece continues to make interest payments. The E.C.B. exempted itself from the debt restructuring deal. And Greek bonds were already trading at a big discount when the E.C.B. started buying them. As a result, the central bank is earning an effective interest rate of 10 percent or so.

Non-Interest on Non-Loans

If the money never gets to the borrower, then it's not a loan. Scam is a more appropriate word. Of the €141.7 billion bailout, only €47.2 can be construed as a loan all of which nearly all went to government operations, none to the average Greek citizen.

As for Mayer's statement “Greece will not default on the troika" we will see about that.  Nearly three-quarters of Greece’s debt, or €182 billion, is now effectively owned by the EU the ECB or the IMF, according to estimates by the investment bank UBS.

If Syriza party leader Alexis Tsipras wins the June 17 election, the Troika is going to take a big hit. The ECB's share is estimated to be between €35 billion to €55 billion.

Spanish bank losses

IIF: Spain's bank losses could hit €260bn

Spanish bank loan losses could hit €260bn (£210bn), with the industry likely to need some €60bn euros in outside help to stay afloat, the International Institute of Finance said Monday.

The Telegraph,

21 May, 2012

Taking guidelines from how badly Ireland's banks were hit in its financial crisis, economists at the global banking institute said they expect the losses to be in the range of between €216 and €260bn.

"A number of factors suggest that the losses could be nearer the upper end of this range. Spain's macroeconomic prospects are worse than those faced by Ireland, especially as regards growth and unemployment," it said in a new review of the global economy.

"The bulk of the losses would be generated by the commercial real estate loan portfolio, which is concentrated in the cajas," the Spanish savings and loan banks, it said.

The IIF is an association of around 450 banks around the world and has been closely involved in the eurozone crisis, leading the negotiations for a write-down of Greece's private-sector debt in March.

The IIF said the banks were able through the end of last year to find enough capital internally to put aside €110bn for loan loss reserves, and some will be able to keep generating capital internally to meet needs. But not all of them.

"Substantial divergences between individual banks suggest that government assistance will be needed for a significant number of banks, mainly the cajas," the IIF said.

In the worst case, the IIF said the shortfall that would fall on the government would be about €50 and €60bn.

It said some aspects of the Spanish market might prevent the worst-case scenario.

"Mitigating factors, on the other hand, include more conservative lending standards than in Ireland, with lower ratios of loans to value. Real-estate lending in Spain, moreover, has not been as concentrated. Most banks, finally, have more diversified loan books."

Spanish Regions Face €35.8 Billion Payments Year-End

Spanish bank loan losses could hit €260bn (£210bn), with the industry likely to need some €60bn euros in outside help to stay afloat, the International Institute of Finance said Monday.

Fox Business,

22 May 2012

Spain's regional governments face debt maturities of nearly 35.8 billion euros before the end of 2012, El Pais reported in its Wednesday Internet edition, citing regions" plans submitted to the country's Budget Ministry.

Those maturities include short- and long-term debt, credits, loans and securities' issuances, the report added.

In addition, if another EUR15 billion for the financing of the expected 2012 regions' deficit of 1.5% of gross domestic product is added, regional governments will need to raise more than EUR45 billion this year, according to El Pais.

Debt maturities six years ago amounted to some EUR5 billion, the newspaper added.

Newspaper Web Site: www.elpais.com

Europe: The Move away from the Dollar

"Europe has now emerged as the second-biggest area using the reminbi for cross-border transaction settlements. Bankers and commodity traders believe the yuan can be used to settle trade transactions involving gold and bulk commodities in 10 to 20 years as long as the Chinese government continues liberalizing currency policies."

-- The U.S. dollar is a dead man walking. Serious repercussions coming. -- MCR

Europe now second biggest market using Chinese currency for settlements

Europe has now emerged as the second-biggest area using the reminbi for cross-border transaction settlements

Want China Times,

28 April, 2012

Bankers and commodity traders believe the yuan can be used to settle trade transactions involving gold and bulk commodities in 10 to 20 years as long as the Chinese government continues liberalizing currency policies.

Bankers attending the 2012 FT Global Commodities Summit sponsored by the Financial Times in Lausanne, Switzerland, earlier this week expressed the view that the current domination by the US dollar in commodity and trade transactions will undergo major changes in years ahead, and that changes could come faster than expected.

China, as the world's largest consumer of bulk commodities like industrial metals and oil products plus an economic growth rate three times higher than most countries, has been pushing the use of RMB as the currency for trade transaction settlements, analysts said.

The efforts will further carry forward the goal of internationalizing the yuan. More companies in Hong Kong and the wider Asia-Pacific region now choose to settle business transactions with RMB. The latest report from the Society Worldwide Interbank Financial Telecommunication, an international banking organization, shows that RMB-clearing transactions in Europe have already surpassed the Asia-Pacific area and are now trailing only behind Hong Kong, the primary pilot offshore RMB settlement district designated by Beijing.

Excluding the Hong Kong market, payments made in RMB by European enterprises accounted for 47% of the global market to exceed the market share of 41% held by the Asia-Pacific region during the month of March, according to the bank's statistics. The total global transaction amounts settled in March increased by 8.6% compared to February, but those settled with RMB registered a much higher growth rate of 13.2%.

RMB will be used widely as a key currency to settle international commodity transactions in 10 to 20 years, and the timetable may even arrival earlier if the Chinese government pushes it, according to Jean-Francois Lambert, managing director and global chief of commodity and structured trade finance at the HSBC Group.

Bullish on the market prospects of the Chinese currency, HSBC has recently floated the first ever RMB-denominated bonds exceeding 1 billion Chinese yuan (US$158 million) in London, targeted mainly at European investors.

The People's Bank of China, China's central bank, just announced earlier this month the widening of the daily RMB/USD exchange rate trading band to ±1% from the central parity.

Bankers and commodity traders agreed that this is a clear sign that China intends to further ease the fluctuations of the RMB foreign exchange rate on the international market.

Fall in European retail sales

Eurozone Retail Sales Plunge at Strongest Pace Since Late-2008

German Retail Sales Plunge Into Contraction; French Retail Sales Plunge at Record Pace; Record Job Losses, Record Retail Plunge in Italy

Mish's Gloabl Economic Analysis,

27 April, 2012

The word of the day is plunge. Retail sales fell like a rock in Germany and fell at a record pace in France. Jobs and retail sales plunged at a record pace in Italy, and in general, did a nose-dive across the entire Eurozone

German Retail Sales Plunge Into Contraction

Please Consider the Markit Germany Retail PMI® Report.

Fastest drop in retail sales since April 2010 as year-and-a-half run of growth comes to an end.

Key points:

• Retail PMI falls sharply in April
• Steepest decline in margins for two years...
• ...despite wholesale price inflation hitting 15-month low

Sharp squeeze on operating margins

Lower sales and strong market competition resulted in a sharp and accelerated decline in margins across the German retail sector. The latest fall in margins was seventeenth in consecutive month and also the steepest for two years.

French Retail Sales Plunge at Record Pace

Please Consider the Markit France Retail PMI® Report.

French retail sales fall at survey-record rate in April

Key points:

• Sales hit by weak economy and presidential elections
• Targets missed to greatest degree in 18 months
• Margin squeeze continues amid widespread discounting

French retailers reported a sharp reduction in sales during April. The month-on-month fall was the most marked recorded by the survey since data collection started in January 2004. Sales were also down considerably on a year-on-year basis, while previously set plans were again missed. The weak sales performance occurred despite evidence of substantial discounting and promotions among retailers, which resulted in a further steep drop in gross margins.

The headline Retail PMI® plunged to a series-record low of 41.4 in the latest month, from 50.2 in March. The latest reading was below the neutral 50.0 mark for the first time since January and indicative of a steep month-on-month decline.

The extent of the latest failure to meet targets was the greatest for one-and-a-half years. Panelists are nevertheless optimistic that sales will exceed previously set plans in May.

Factors expected by retailers to boost sales over the coming three months include the end of the presidential election, summer weather, promotions and new products.

Note the absurd level of optimism by French retailers.

Eurozone Retail Sales Plunge at Strongest Pace Since Late-2008

Please Consider the Markit Eurozone Retail PMI® Report.

Key points:

• Retail PMI plunges to 41.3, lowest since November 2008
• All three countries surveyed post lower sales, with record decline in France
• Cost pressures for retailers at 16-month low

Plunging to its second-lowest level on record in April, the PMI hit 41.3, down from 49.1 in March. The latest figure signaled the largest monthly fall in retail sales across the single currency area since the depths of the global financial crisis in November 2008 (40.6).

Eurozone retail PMI figures are based on responses from the three largest euro area economies. For the first time since September 2010, retail sales fell across Germany, France and Italy. The rate of contraction in Germany was the fastest since April 2010, while French retailers posted a survey-record drop as they reported disruption due to the presidential elections. Italy continued to see the steepest overall rate of decline, however, as the pace of contraction reaccelerated to approach the record level posted in January.

The annual rate of decline in Eurozone retail sales was also one of the strongest since the survey started in January 2004. Sales have fallen on an annual basis each month since last June.

Record Job Losses, Record Retail Plunge in Italy

Please Consider the Markit Italy Retail PMI® Report.

Sharp decrease in retail sales leads to survey-record job losses

Key points:

• Sales fall at second-sharpest annual rate in series history
• Confidence sinks to four-month low
• Cost inflation slowest since December 2010

The seasonally adjusted Italian Retail PMI® – an indicator of month-on-month changes in total retail sales – fell to the greatest extent in survey history in April, dropping from 42.4 in March to 32.8. This sharp and accelerated decrease in high street spending was the second-fastest since December 2008, and extended the current sequence of contraction in the sector to 14 months.

Retailers in Italy sped up their rate of job shedding in April, with staffing levels falling at the fastest pace since data were first compiled in January 2004. This latest reduction in employment was primarily attributed by survey respondents to lower sales and rising input costs.

Vindication

For months I have been reading the apologists at Markit (and elsewhere) predict a short, shallow Eurozone recession.

Check this snip from my April 4, 2012 post: Eurozone Composite PMI® Signals Recession Says Markit; France in Renewed Decline, German Growth Weakens, Italy and Spain Contract Further:

Chris Williamson, Chief Economist at Markit said:

“A slight easing in the rate of decline of the Eurozone service sector was insufficient to offset the first decline in manufacturing output for three months, causing the overall economy to contract again in March.

“With the exception of a marginal expansion seen in January, the economy has been in continual decline since last September. Although the average rate of decline seen over the first quarter eased compared with the final three months of last year, the survey data nevertheless indicate that the region has slipped back into a technical recession.

“The downturn is currently only very mild, however, with gross domestic product probably falling by just 0.2% in the first quarter. Furthermore, with business confidence in the service sector running at a far higher level than late last year, the recession may also be brief.”

I have been critical of Market analysis for months and this is the worst yet.

First they said Germany would prevent a recession, then Germany would decouple, now they suggest this is only a "technical" recession and the "the recession may be mild and brief".

The European recession will be neither mild nor brief. Spain, Portugal, and Greece are in economic depressions with no end in sight. Spain and Italy (the 3rd and 4th largest eurozone markets) are poised for steeper slides. Germany will not be immune to this as I have stated for months on end.

German manufacturing contracted in March and services sector will soon follow. For some reason, Markit economists cannot figure this out.

This was extremely easy to predict, yet most blew it.

Europeans pull money from Australian banks

Overseas banks pulling funds out as squeeze hits home

BANKS from Europe's stressed economies pulled a further $US16.6 billion from Australia towards the end of last year, as they began feeling the funding squeeze in their home markets.

The Age,

27 April, 2012

The preliminary figures, released by the Swiss-based Bank for International Settlements, show the pace that funds were cut from Australia accelerated as Europe's financial crisis intensified.

The December-quarter fall was more than double the $US8 billion pulled by major European banks during the September quarter.

Towards the end of last year, European banks were unable to raise funds on wholesale markets. And for those banks rolling over short-term loans, costs surged to levels last seen at the peak of the financial crisis.

This meant that during the second half of last year, most European banks began selling down their international loan portfolio or turning off the lending tap.

This represents a major headache for business, given some euro area banks are bigger players in trade finance and other specialised lending areas, such as leasing and project financing.

The Reserve Bank recently noted constraints on euro area banks pose a risk that ''they will further inhibit credit supply''.

However senior bankers said Asian banks, particularly from Japan, have become more active in terms of financing large corporates in the market.

The BIS figures, which cover October to the end of December, show French banks pulled more than $US4.3 billion of loans from the Australian economy from the September quarter.

German banks cut $US4.6 billion of loans. Irish banks shed hundreds of millions of dollars of loans although Spanish banks increased their exposure slightly by $US100 million to $US4.1 billion.

Even some British banks sought to return money home by pulling $US5.9 billion from Australia during the quarter.

Funding conditions have improved after the European Central Bank's offer of more than €1 trillion ($A1.2 trill- ion) of cheap loans to the region's banks since December. Confidence has also picked up on the back of the Greek debt restructuring, but renewed concerns have emerged over the economic health of Spain and Italy.

European banks have been reducing their activity in the Australian market over recent years, while Asian-owned banks have become more prominent.

European banks' share of business lending has fallen about 4 percentage points since early 2009, while Asian-owned banks have lifted their share by about 2 percentage points, separate figures from the Reserve Bank show.

Much of the pullback by European-owned banks has been in commercial property lending, where total exposures have fallen about 60 per cent since 2009, compared to a 16 per cent fall by the broader bank sector in the same period.

Eurozone crisis driving up price of gold

Gold 'to hit $2,000' on Spain fears

A looming flare-up in the eurozone crisis over Spain will drive the price of gold towards $2,000 (£1,255) an ounce this year, a leading consultancy predicts

The Telegraph,

11 April, 2012

Rising fears about the region’s fourth largest economy will send a fresh flood of investment towards the “safe haven” metal, according to the annual report from Thomson Reuters GFMS.

Philip Klapwijk, global head of metals analytics at the consultancy, said: “We could easily see last September’s record high [a closing high of $1,900.23 on September 5] being taken out.

“A push on towards $2,000 is definitely on the cards before the year is out, although a clear breach of that mark is arguably a more likely event for the first half of next year.”

Demand for gold often sees a boost when fears about the situation in Europe intensify. The metal can likewise benefit from the prospect of more quantitative easing (QE), as investors seek to protect their wealth from the inflationary effects of central bankers’ actions.

In the shorter term, GFMS thinks the apparent abatement of the eurozone crisis and reduced expectations for a third round of quantitative easing or “QE3” in the US could drive the gold price lower, perhaps below $1,550 in the next couple of months.

However, GFMS expects any softening in the price to prove temporary as “acute” fears over eurozone sovereign debt, focused on Spain, resume.

Meanwhile it will become clear that the faltering US recovery will force the Federal Reserve into extra monetary stimulus, GFMS believes, while the newer economic powerhouses of China, India and Brazil will also become obliged to loosen their monetary policy.

“A corollary of all this monetary largess is fears about resurgent inflation, and that becomes all the more likely if oil prices motor higher, should tensions get any worse between Iran and the US,” said Mr Klapwijk.

Next year could prove the "high water mark" for the gold market, he added, depending on whether a resolution to the European situation and the prospect of a normalisation of monetary policy materialise.

Gold has now been on a bull run for more than a decade.

The report found that total investment in gold actually dipped last year in tonnage terms, as selling in the futures and OTC (over the counter) derivatives markets – due to profit-taking and liquidity squeezes, which meant people cashed in on their gold holdings – outweighed a bumper year for physical investment.

None the less the strength of this buying meant that in value terms, net world investment rose in gold by 15pc to a record level of just over $80bn.

However in volume terms, investment in gold actually fell 10pc to 1,605 tonnes, as implied net investment – covering the demand from institutional investors and exchange-traded funds – collapsed by almost 90pc.

GFMS attributed this to steep sell-offs in the futures markets, driven by profit-taking and liquidity squeezes, which meant people cashed in on their gold holdings.

In contrast, it was a bumper year for physical investment – people buying bars – which leapt by 37pc to a record 1,209 tonnes in 2011. Words to go in here please on two lines to go here

Gold was trading at around $1,660 an ounce in London on Wednesday

ECB stimulus runs dry

Europe's banks beached as ECB stimulus runs dry

The European Central Bank's €1 trillion (£824bn) lending spree over the winter has stored up a host of fresh problems, leaving parts of the banking system more vulnerable than before as the short-term "sugar rush" nears exhaustion.

The Telegraph,

11 April, 2012

Credit experts say the Spanish and Italian banks are trapped with large losses on sovereign bonds bought with ECB funds under the three-year lending programme, or Long-Term Refinancing Operation (LTRO).

Andrew Roberts, credit chief at RBS, said Spanish banks used ECB funds to purchase five-year Spanish bonds at yields near 3.5pc in February and 4.5pc in December. The same bonds were trading at 4.77pc on Wednesday, implying a large loss on the capital value of the bonds.

It is much the same story for Italian banks pressured into buying Italian debt by their own government. Any further dent to confidence in Italy and Spain over coming weeks – either over fiscal slippage or the depth of economic contraction – could push losses to levels that trigger margin calls on collateral.

"The banks are deeply underwater. This is turning into a disaster for the eurozone periphery now that the liquidity tap has been turned off," said Mr Roberts. "But given the opposition in Germany, the ECB can't easily do another LTRO until there is a major crisis."

Spanish banks bought €67bn of sovereign debt between December and February, while Italian banks bought €54bn. The purchases almost certainly continued in March. These lenders have soaked up most of debt issues in their countries over the past three months, picking up at a juicy return under the "carry trade" while at the same acting as a conduit for the ECB to shore up crippled countries by the back-door.

The snag is becoming evident. Weaker lenders are merely parking the ECB's ultra-cheap funds in these bonds until they need the money to roll over their own debts. That is coming due since European banks have €600bn in redemptions over the rest of the year. Many are now stuck with losses that they cannot afford to crystalise.

"It is going to be a problem if the funding market does not open soon and they have to liquidate their holdings," said Guy Mandy from Nomura. "What the LTRO has done is concentrate systemic risk even further. If everything now goes wrong, it could go wrong in a hurry."

Mr Mandy said the EU's fiscal austerity is itself "self-defeating", asphyxiating growth and further entwining the perilous nexus of fragile banking systems and indebted states. "Europe still lacks a commensurate policy response. The dogged pursuit of pro-cyclical fiscal austerity could force countries into a downward spiral. To minimise risk, monetary policy needs to be exceptionally loose," he said, calling for a blitz of quantitative easing (QE) to remove assets from bank balance sheets.

Mr Mandy said the LTRO is entirely different from the stimulus of the Anglo-Saxon central banks. "There has been no transfer of risk to the ECB's own balance sheet, which is what we think is needed to take away the tail-risk of another EMU blow-up."

Benoit Coeure, France's board member at the ECB, on Wednesday hinted that Frankfurt may be willing to restart direct purchases of Spanish bonds to cap rising yields, saying the debt rout over recent weeks is unjustified.

The comments triggered a recovery of Club Med debt but such action is fraught with its own risks even if the German Bundesbank is willing to help a country that is seen – in German eyes at least – to be dragging its feet on fiscal austerity.

David Owen from Jefferies Fixed Income said that the ECB pushes other investors "down the food-chain" instantly when it buys Spanish and Italian debt, raising the loss ratio if either country slides into a Greek-style restructuring.

This has become a sore subject for investors following the Greek debacle where all EU bodies – including the European Investment Bank, which is not a lender of last resort – were exempted from having to take haircuts. Others such as the Norwegian state pension fund suffered 75pc losses.

Japanese investors have sold €48bn of eurozone debt over the past year, according to Bloomberg, and are steering clear of any EMU states that could be given the Greek treatment.

"I'm not planning to add Spanish or Italian bonds anytime soon," said Masataka Horii from Kokusai Global Sovereign Open Fund.

Mr Owen said the eurozone's slide into recession will intensify debt jitters and force the ECB to respond. "It will have to cut rates to near zero, and ultimately launch full-scale QE, perhaps as soon as the third quarter."

Mr Owen said contortions caused by ECB intervention would not be an issue if the bank acted with force majeure and conviction, as the central banks of the US, UK and Switzerland have.

"The ECB says its action is 'temporary and limited', and that is precisely the problem," he said. "They are making things worse with piecemeal measures. Economic historians are going to be very damning of the policy mistakes made during this whole episode."