ECB Emergency Meeting Creates Emergency

Submitted by Thomas Kirchner of Camelot Portfolios

The ECB emergency meeting created an emergency.

Similarities to 1992 currency crisis and Italian devaluation.

Financial conditions in 1992 were more favorable than today.

Europe is headed for another debt and political crisis.

Were it not for the ECB calling an emergency meeting last Thursday, most market participants would not have realized there was an emergency in the bond market. Apparently, the sharp rise in yields on Italian bonds after the ECB stopped buying amounts to an emergency. The “emergency” label draws attention to the precarious state of public finances in parts of Europe. We would argue that debt levels are what is a real emergency, not the level of credit spreads or interest rates.

In our view, it was the ECB’s own actions that facilitated this situation through its bond purchase programs. Instead of giving highly indebted welfare states breathing room to reduce their debt burdens, it led

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