Europe Back in Focus

It's been what seems an eternity since the troubles in Europe have been at the market forefront (it really hasn't been that long, but with the amount of news flow from the EU several weeks ago and it all of the sudden drying up, it seems like an eternity). Guess what, they're coming back.

Something was already going on around 5:30 this morning (EDT) as ES topped at 4:45 a.m. and sank from there all the way to the 11 a.m. lows. This morning Citi's Willem Buiter, gave an interview on Bloomberg radio, the gist? "Spain is at greater risk than ever before of debt restructuring", if you recall, about a month ago the Potugese Finance Minister asked the German Finance minister about doing something with their debt, to which Schauble replied, "After we are done with Greece, we will help you out", so Portugal is in some trouble as well, but Spain is the one that could really bring down the house of cards.


The Euro in the wee hours o the morning...

From there EU equities fell.


And one of the great financing problems for the EU...

You may recall in the past I have noted that US corporations count on banks for about 30% of their financing, whereas EU corporations are closer to 70%, this chart illustrates that.


And the banking sector problem...

Bank Loan to Deposit ratios, if you click on the chart you will see to the far left in dark blue, it is the EU banks that have the highest loan to deposit ratios, many around 200%. So what happens when you get a Greek styled bank run on deposits?  Trouble.


As for financing further LTROs, the banks have very few assets the ECB can accept, so funding is going to be drying up.


How is this effecting the EU?

 Today the EU Sovereign debt (after coming under control the last few months), saw their worst day all year! Note how they all exploded wider.

Italian BTPs added 300 basis points this week, note the spike today.


Get ready for the rotation in th news cycle and fear to head back to the EU.