Word from Europe is that its central bank (the ECB) is prohibited from buying the massive amounts of PIIGS debt that will soon need refinancing, the latest rumour-o-the-week (gratuitous limey spelling) that had ramped equity prices.
The main news in today's European roundup is the reiteration by ECB president Mario Draghi EU Treaty Prohibits "Monetary Financing":
At a news conference in Frankfurt, European Central Bank President Mario Draghi said on Thursday that the European Union treaty prohibits "monetary financing." He was responding to a reporter's question about why the central bank doesn't ramp up its bond-buying program...
...The market has rallied for weeks on expectation the ECB would eventually get around to a massive bond buying program. The irony is Draghi personally fueled rumors the CEB would step up purchases...
So Draghi got out of this what he wanted: A big plunge in Italian and Spanish debt yields, by doing nothing more than yapping.
The second irony is that Draghi is in essence a liar. He cannot come out and say the ECB is providing "monetary financing" with its bond purchases, even though that is exactly what the ECB is doing.
The bond market is saying that the PIIGS' debt -- incurred by the massive social welfare states that the Obama Democrats are duplicating here -- will never be paid back.
The equity markets have yet to admit defeat.
One is wrong and one is right. I leave that choice as an exercise for the reader.