The Gary Null Blog

“Eurozone banks’ demand for European Central Bank funding surged to a two-year high on Tuesday, as fast spreading sovereign debt worries left lending markets virtually frozen and  the ECB the only available funding option for many institutions.”

– Reuters, Nov 22, Frankfurt

The European Central Bank continued to buy Italian bonds on Tuesday in an effort to calm markets and slow the flight of capital from Europe. Yields on Italian and Spanish debt continued to rise increasing the cost of borrowing for the debt-stricken states. At the same time, the cost of borrowing euros in the interbank market  remained at elevated levels while credit market stress gauges (Libor) reached their highest point since July 2010. What started out as a brushfire on the perimeter (Greece) has now turned into a raging inferno that threatens to consume the eurozone. Here’s an excerpt from Roubini Global Economics Newsletter:

“Italian debt dynamics have become unsustainable in light of much-weaker-than-expected growth prospects and elevated borrowing costs. Following a sharp loss in market confidence and a buyers’ strike, we expect Italy will be forced to restructure its sovereign debt.

The environment of heightened political uncertainty in Italy has rendered it incapable of tackling the current challenges….