Silvio Berlusconi was viewed as the unseemly pimple on Europe’s bottom. When he announced his resignation there was discernible relief and rally in capital markets. However, now is coming the realization that beyond the pimple actually having faded from the scene there is the more substantive reality of the Eurozone constipated with tons of sovereign debt crap! Getting “Bad Stuff” Out: Eurozone is still struggling with how to get this stuff out of portfolios of central and private banks and other Euro financial institutions without sparking contagion and implosion of the Eurozone economy. The EFSF (European Finance Stability Facility) is still perhaps neither defined nor large enough. (Read - “LIKE FLAT CHAMPAGNE, AFTER G-20” - diplomaticallyincorrect.org/films/blog_post/like-flat-champagne-after-g-20-in-france-by-ambassador-mo/39983). ASSET DELEVERAGING & REDUCING LENDING Capacity: Perhaps as bad, most of Europe’s banks are busy getting rid of Eurozone sovereign debt out the backdoor as quickly as it can be flushed into financial markets and absorbed by the speculative buyers who seem to be the only consumers for this crap – well think you get the image and metaphor. (Read: “EUROPEAN BANKS SHED SOVEREIGN DEBT” - diplomaticallyincorrect.org/films/blog_post/european-banks-shed-sovereign-debt-by-ambassador-mo/41642). The alarm is now going off in European institutions and the IMF that this may be counterproductive. Shedding assets may further drive down prices as well as perception of sovereign debt, and become a vicious cycle in and of itself. Further, by reducing assets, rather than raising new capital, banks could be placing themselves in new position where they freeze and/or substantially draw back lending as to bring Europe back to 2008 and recession. IMF Chief Christine Lagarde has joined in sounding the alarm: “…deleveraging, essentially, that is taking place. The IMF has said for several months now that European banks had to reinforce their capital. And we stated a few months ago that this should be done by way of capital raising, either from existing shareholders, from the incorporation of reserves, when they exist, and certainly not by general deleveraging.” The elegant Head of the IMF though may be defining a clinically clean but unrealistic picture of how to wipe away the ...there is no smart investor to add capital to Euro banks who wants to be flushing their own good money after bad. Having encouraged Euro banks to cleanup their balance sheet but without real financial markets’ alternatives to asset sales, Euro politicians and regulators may be driving the European economy into exactly the contagion/vicious cycle they hoped to avoid. BERLUSCONI - Life of Party Masking Bad Hangover Coming? Private investors are not likely to step in until they have some sense of when the flushing will stop, and perhaps as critically when/how will the structural problems within the Eurozone be addressed to prevent a relapse. Greece and then Silvio Berlusconi may have served to actually mask the real problems in the internal structures of the Eurozone, from chronic structural frailties to the choking bad debt. This brings us back to our theme, and there is no elegant way to say it, but there is a lot more crap to come out and how will the Eurozone deal with it? Now that the “pimple” is gone to the next party (top Photo), we may all have to see reality in more harsh as well as less amusing light (bottom Photo). READ – Italian Prime Minister BERLUSCONI Claims Doing 8” - diplomaticallyincorrect.org/films/blog_post/italian-prime-minister-berlusconi-claims-doing-8-of-them/35237 . By Ambassador Muhamed Sacirbey Facebook – Become a Fan at “Diplomatically Incorrect”

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 International Financial Crisis Channel - diplomaticallyincorrect.org/c/international-financial-crisis