Eurozone Teeters

One of Australia’s most respected economic minds and former Treasurer, Ken Henry, stated last week that he sees a Eurozone collapse as Australia’s single biggest risk.  Further to yesterday’s article on the implications of 25 Euro banks failing the ECB’s AQR stress test, an analyst since has uncovered, buried deep in the ECB report, that there is $1.1 trillion of ‘bad debts’ held by these banks.  This gives another clear insight into Draghi’s desperation to avoid outright deflation in Europe as inflation is the only way to keep these banks solvent amidst a very sick economy.  In the first half week of ECB’s new CBAPP (covered bond buying program) he bought (with printed money) EUR1.7b of bonds and continues to push Germany to allow him to buy Euro sovereign bonds as well (ala QE with US treasuries and mortgage backed securities).  As listeners to the Weekly Wrap will know, it was only the new inclusion of prostitution, drugs and smuggled cigarettes in the last GDP figures that stopped the Eurozone falling into its 3rd recession since the GFC, and nearly all economic indicators have deteriorated since.  Throw in Catalonia’s secession referendum on 9 November and the Swiss gold referendum on 30 November and there are a number of Euro ‘black swans’ threatening exactly what Henry fears.  Any such event inevitably sees a run to gold and silver.