Mario Draghi, President of the ECB, Universita Bocconi, November 15th 2012, speech has two key components:
The window on tail-risk is limited "Valuable time has been gained, though not infinite," Draghi said. The tail-risk has been taken away for now, is the interpretation, but even Draghi sees that it is far from being banished forever. Which brings us to he next point:
There are four pillars needed to build a stable Europe, which will have to include:
- A banking union with a single supervisor
- A fiscal union to prevent unsustainable budgets
- An economic union to ensure growth
- A political union to engage Euro Zone citizens
- Sounds like a pipe dream to me, so what are our Stress Indicators telling us?
Most concerning is the main money market stress indicator - the Euro Basis Swap & EONIA- EURIBOR Spread. Although they are at very reasonable levels, the breaks above and below the long-term average have indicated something significant is brewing, for better for worse, respectively. Note the break below the average in the chart below, suggesting deterioration.