Why did the ECB go from PIIGS to PIIGKSSS (!) and open the back door for the Eurobonds of war

The last 24 hours undoubtedly the event that has dominated the media and not unfairly is the “liberation” from the US of using heavy weapons missile systems from Ukraine. Russia responded with a threat of using conventional nuclear weapons (as conventional as the use of a nuclear bomb may be) and the US responded with the additional permission to use anti-personnel mines… In other words, where we expected a deescalation of the intensity of the war due to Trump announcements we have escalated due to Biden decisions. Regardless of why and how, therefore, this evolution is that the geopolitical factor in the critical situation in Europe is returning to the centre of attention. And it multiplys the intensity of the phenomenon that has begun a while ago, namely the flight of funds from the United Europe and especially from the Eurozone and Eryo, particularly towards the US and the dollar. Within this environment two other “facts” come to light possible developments that deserve attention in the crisis-related region of the euro zone. The first concerns the presentation by the ECB of the Financial Stability Report, from which – for the first time since the crisis of the past decade – the clear warning of the risk of a new debt crisis is showing. And not just that. He does something that creates a lot of questions. “Uncovers” an old story and … widens it. We are talking about the notorious categorisation of countries that have been the target of the markets in the previous debt crisis, the PIIGS. It now expands the PIIGS and gives names for which countries are vulnerable to a new debt crisis. In particular, it states that the ones that could end up in the market are Cyprus, Greece, Ireland, Italy, Portugal, Slovakia, Slovenia and Spain… Like PIIGKSSS. One could say by using terms ‘mild’ that the ECB’s wording ‘carrys’ these countries into the markets. And the question is why does this in an environment in which it estimates that growth is not going well, fiscal deficits are high, that it remains a risk of return to inflationary pressures and that debt is rising dangerously. In other words, an environment in which all sides find it difficult to repay debt. And after that it shows with the finger, which countries could be targeted by markets, as it had been in the past decade with the PIIGS. Because only for naivety cannot one blame the ECB’s chiefs, this strange behavior somewhere “wants” to lead. Here it is worth adding something else which the ECB is avoiding. The increase in debt reported has consequences for the cost of serving it in the Eurozone, which is not the same for everyone. Instead, a “separation” is re-emerging which at present has not taken uncontrollable dimensions, such as the previous decade, but which seems to be heading that way. The ECB then needed to activate a regular and exceptional (this 2020) intervention tool on markets, the APP and the PEPP, with which it bought out debt from the Member States to contain returns. As we all know, this stops at 31.12.2024. After this has been set up another “tool” the PTI (Transmission Protection Instrument) – we have written in Ecoclastics several times about it – which differs from the previous two at one point: the ECB’s bond support markets will have as an absolute condition the budgetary discipline on the basis of the orders of the cutter entered from 1.1.2025 into public expenditure. And who is appointed by the Commission, not by the Parliament that will vote for the Budget… In other words, the budgetary policy of each Member State must go between ‘Skyll’ (markets) and ‘Harybdi’ (the cutter’ of the Commission) so that a country can be protected from the risk of debt. And when was that? When the risk of expanding the war that has led the Eurozone into an unprecedented energy, economic and commercial crisis, it threatens to sidestep everything before it even closed in 2024… And now let’s look at the second event of the days that has gone rather beyond media attention. In the same days (on Tuesday) as these, the Foreign Ministers of the major EU countries (Italy, France, Germany, Spain, Poland) together with the United Kingdom and EU representatives met in Warsaw and discussed the current situation. In the announcements followed by the Polish Ministry revealed that all five ministers agreed that it is necessary for the EU to carry out a massive financing of the European arms programmes by issuing Eurobonds!. Yes, you heard that they agreed to issue Eurobonds for ‘defence funding’. Among them is Germany. And to fill out the picture, just yesterday the head of the Bundesbank Mr. Nagel in his position of the seriousness of the situation in the Eurozone argued with meaning that now is the time when he “needs more and not less Europe…”. It will be difficult to find a similar statement from Berlin and especially Frankfurt. These are the facts. The US with the Biden move opens the “window” to expand the war where we expected the release, the ECB discreetly but clearly pushes with the debt threat the member countries between “Skyllas (markets) and Harybdis (“knife” Commission) into fiscal suffocation, while Brussels and Frankfurt implicitly prepare for massive financing of the war with Eurobonds. That doesn’t sound good.