CONTRARIAN http://www.investopedia.com/articles/optioninvestor/02/052102.

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While most options traders are familiar with the leverage and flexibility that o ptions offer, not everybody is aware of their value as predictive tools. Yet one of the most reliable indicators of future market direction is a contrarian-sent iment measure known as the put/call options volume ratio. By tracking the daily and weekly volume of puts and calls in the U.S. stock market, we can gauge the f eelings of traders. While a volume of too many put buyers usually signals that a market bottom is nearby, too many call buyers typically indicates a market top is in the making. The bear market of 2002, however, has changed the critical thr eshold values for this indicator. In this article, I will explain the basic put/ call ratio method and include new threshold values for the equity-only daily put /call ratio. (Find out how to play the middle ground in Hedging With Puts And Ca lls.) Betting Against the "Crowd" It is widely known that options traders, especially option buyers, are not the m ost successful traders. On balance, option buyers lose about 90% of the time. Al though there are certainly some traders who do well, would it not make sense to trade against the positions of option traders since most of them have such a ble ak record? The contrarian sentiment put/call ratio demonstrates that it does pay to go against the options-trading crowd. After all, the options crowd is usuall y wrong. Watch: Call Options I can remember late 1999 and early into the new millennium, when option buyers w ere in a frenzy, buying up truckloads of call options on tech stocks and other m omentum plays. As the put/call ratio pushed below the traditional bearish level, it seemed like these frenzied option buyers were like sheep being led to the sl aughter. And sure enough, with call-relative-to-put buying volume at extreme hig hs, the market rolled over and began its ugly descent. As often happens when the market gets too bullish or too bearish, conditions bec ome ripe for a reversal. Unfortunately, the crowd is too caught up in the feedin g frenzy to notice. When most of the potential buyers are "in" the market, we ty pically have a situation where the potential for new buyers hits a limit; meanwh ile, we have lots of potential sellers ready to step up and take profit or simpl y exit the market because their views have changed. The put/call ratio is one of the best measures we have when we are in these oversold (too bearish) or overbo ught (too bullish) zones. CBOE Put/Call Ratio Data Looking inside the market can give us clues about its future direction. Put/call ratios provide us with an excellent window into what investors are doing. When speculation in calls gets too excessive, the put/call ratio will be low. When in vestors are bearish and speculation in puts gets excessive, the put/call ratio w ill be high. Figure 1 presents daily options volume for May 17, 2002, from the C hicago Board Options Exchange (CBOE). The chart shows the data for the put and c all volumes for equity, index and total options. The equity put/call ratio on this particular day was 0.64, the index options put /call ratio was 1.19 and the total options put/call ratio was 0.72. As you will see below, we need to know past values of these ratios in order to determine our sentiment extremes. We will also smooth the data into moving averages for easy

interpretation. Chicago Board Options Exchange (CBOE) Options Volume VOLUME P/C RATIOS EQUITY OPTIONS Puts 462,520 Calls 721,163 .64 INDEX OPTIONS Puts 134,129 Calls 112,306 1.19 TOTAL OPTIONS Puts 596,669 Calls 833,624 .72 Figure 1: Daily options volume for May 17, 2002 Source: CBOE Market Statistics 5/17/02 Total Weekly Put/Call Ratio Historical Series There are different ways to construct a put/call ratio, but the traditional CBOE total weekly put/call ratio is a good starting point. By total, we mean the wee kly total of the volumes of puts and calls of equity and index options. We simpl y take all the puts traded for the previous week and divide by the weekly total of calls traded. This is the weekly total put/call ratio. When the ratio of putto-call volume gets too high (meaning more puts traded relative to calls) the ma rket is ready for a reversal to the upside and has typically been in a bearish d ecline. And when the ratio gets too low (meaning more calls traded relative to p uts), the market is ready for a reversal to the downside (as was the case in ear ly 2000). Figure 2, where we can see the extremes over the past five years, show s this measure on a weekly basis, including its smoothed four-week exponential m oving average.

Figure 2: Created using Metastock Professional. Data Source: Pinnacle IDX Figure 2 reveals that the ratio's four-week exponential moving average (top plot ) gave excellent warning signals when market reversals were nearby. While never exact and often a bit early, the levels should nevertheless be a signal of a cha nge in the market's intermediate term trend. It is always good to get a price co nfirmation before concluding that a market bottom or top has been registered. These threshold levels have remained relatively range-bound over the past 20 yea rs, as can be seen from figure 2, but there is some noticeable drifting (trend) to the series, first downward during mid-1990s bull market and then upward begin ning with the 2000 bear market. Figure 3: Created using Metastock Professional. Date Source: Pinnacle IDX Despite the trend, the smoothed put/call ratio is still useful; however, it is a lways best to use the previous 52-week highs and lows of the series as critical thresholds. My experience has been that put/call ratios are best used in combina tion with other sentiment indicators and perhaps a price-based (i.e., momentum) indicator. More elaborate mathematical massaging of the data (i.e., de-trending by differencing the series) can also help.

Equity-Only Daily Put/Call Ratio Since it includes index options, which are used by professional money managers t o hedge portfolios of stocks, the total put/call ratio can distort the measureme nt of the temperature of our purely speculative crowd. Arguably, a better gauge is the CBOE's equity-only put/call ratio. Figure 4 contains the CBOE raw daily p ut/call ratio and its 10-day exponential moving average - both are plotted above the S&P 500 stock index. As the bear market has shifted the average ratio to a higher range, the horizontal red lines are the new sentiment extremes. The past range, indicated by the horizontal blue lines, had threshold values of 0.39 to 0 .49. The new threshold values are 0.55 and 0.70. Currently, the levels have just retreated from excessive bearishness and are thus moderately bullish.

Figure 4: Created using Metastock Professional. Source: CBOE Market Statistics Conclusion Index options historically have a skew toward more put buying. This is because o f the index put option hedging done by portfolio managers - this is also why the total put/call ratio is not the ideal ratio (it is polluted by this hedging vol ume). Recall that the idea of contrarian sentiment analysis is to measure the pu lse of the speculative option crowd, who are wrong more than they are right. We should therefore be looking at the equity-only ratio for a purer measure of the speculative trader. In addition, the critical threshold levels should be dynamic , chosen from the previous 52-week highs and lows of the series, adjusting for t rends in the data. As with any indicators, they work best when you get to know them and track them yourself. While I don't like to use them for mechanical trading signals, put/cal l ratios do outline zones of oversold and overbought market conditions quite rel iably. They should thus be included in any market technician's analytical toolbo x. (After years of debate, options have changed. Find out what you need to know in Understanding The 2010 Options Symbology.) Read more: http://www.investopedia.com/articles/optioninvestor/02/052102.asp#ixz z1juFkJ9z5

When, oh when, will Europe face the truth? Countries with a triple-A credit rating are becoming an endangered species. When, oh when, will Europe face the truth? Monetary union, the imagined crowning glory of the European project, cannot work under the present framework or anywhere close. Photo: Reuters Jeremy Warner By Jeremy Warner 9:30PM GMT 16 Jan 2012 Comments24 Comments Before the crisis, most advanced economies boasted this top-notch stamp of exter nal approval. Erroneously, as we now know, there were also thousands of structur ed products similarly beatified by the rating agencies. Many of the structured products quickly became junk in the credit crunch, and wi

th last week's French downgrade, the number of top-rated countries has shrunk to just 14. Of the four eurozone members that still belong to this exclusive club of apparen tly "risk-free" debtors, three are on negative watch. The French commentariat has been positively fuming with indignation ever since i t was given advance warning of the downgrade. If La France, why not Britain, with a similarly sized national debt, a bigger de ficit, lower levels of labour productivity and far higher private indebtedness, the latter of which, the last three years has taught us, can all too easily come bouncing on to the public balance sheet when crisis erupts? Related Articles The eurozone needed a French downgrade like a hole in the head 14 Jan 2012 Britain set to outgrow even the mighty Germany 11 Jan 2012 This crisis in capitalism exposes Labour s limitations 10 Jan 2012 Can the euro survive another year? 09 Jan 2012 Oil prices still have the capacity to shock 05 Jan 2012 The answer, if only Europe's leaders would listen, is that France is in the euro , making its debt dynamics look much more problematic, whereas Britain is not. In last Friday's downgrade, Standard & Poor's spelt it out. Stating the bleedin' obvious, S&P said that policy action in the eurozone had fallen a long way shor t of what was required to resolve the crisis. What is more, the action that has been taken is "predicated on only a partial re cognition of the source of the crisis: that the current financial turmoil stems primarily from fiscal profligacy at the periphery of the eurozone". Again stating what has long been obvious to all but the eurozone leadership, S&P diagnoses the problem as much more "a consequence of rising external imbalances and divergences in competitiveness between the eurozone's core and the so-calle d "periphery". "A reform process based on a pillar of fiscal austerity alone," concludes S&P, " risks becoming self-defeating, as domestic demand falls in line with consumers' rising concerns about job security and disposable incomes, eroding national tax revenues." Quite so. If you misdiagnose the problem, you are highly likely to prescribe the wrong sort of treatment. I've thought long and hard about why Europe should be so bone-headed about the c risis it faces. At first, it was tempting to put these failings down to want of intellectual vigour. Economics, goes the old joke, is not rocket science; if it was the Germans would be much better at it. But actually there are some very fine German economists all of whom fully unders

tand the nature of the problem; no, it's worse than that. What it's really about is refusal to face up to the truth that monetary union, the imagined crowning g lory of the European project, cannot work under the present framework or anywher e close. Europe's leaders don't want to hear this. They still cling to the belief that mo netary union of fiscally sovereign nations can, provided everyone sticks to fisc al disciplines, be made a functioning and transformational engine of growth. Events demonstrate beyond doubt that it cannot. Until collective responsibility for the region's debts is assumed, implying significant transfer of liability fr om periphery to core, this is a crisis which is not going away. The French downgrade merely illustrates the nature of the problem. French commen tators ask why France and not Britain? This is very easily addressed. Never mind the impact on France of the eurozone's deepening political, financial and monet ary problems, which is quite bad enough, in themselves Britain's chances of retu rning to fiscal sustainability are in fact significantly better than those of Fr ance and most other single currency members. As Citigroup's Michael Saunders points out, the UK taxpayer is far less exposed than his French counterparts both to the risk of having to backstop banks agains t sovereign risk and having to bail out other sovereigns. The UK has also committed itself to a detailed and multi-faceted deficit reducti on programme which has been pursuing, thus far at least, with military disciplin e. There is every chance that this will continue. It is sometimes said that in studying democratic models to see which one they mi ght eventually want to adopt, the Chinese have identified Britain as the most co mpatible because it allows for still fairly effective executive decision making from the centre. There is no way of determining the veracity of this story; on democracy more so than anything, the Chinese leadership remains utterly inscrutable. Yet it's got a ring of truth about it. Compared to Europe, or even the US, Britain has shown itself to be almost totalitarian in its decisiveness. But perhaps most important of all, the monetary flexibility that currency sovere ignty allows makes fiscal retrenchment less painful for Britain than it's provin g within the single currency. Monetary independence means there is less chance i n the UK of falling victim to the eurozone austerity trap where fiscal retrenchm ent succeeds only in making the deficit worse because it crimps growth, undermin ing tax revenues. Extensive use by the Bank of England of quantitative easing (QE) has succeeded n ot just in reducing the cost of government funding, it's also helped support gro wth and thereby proved a quite effective counter to fiscal consolidation. There are plenty of risks associated with sovereign currencies devaluation and i nflation being the most obvious but default is not normally among them. If push came to shove, the government could always simply print money to repay its debts . These options are not open to France or other eurozone members. The reason Denmark has a significantly lower bond yield than Finland, even thou gh the two countries have roughly similar economic profiles and the Danish krone is pegged to the euro, is that Denmark can still print its own money. Investors know this, making it less subject to speculative attack. So far, eurozone leaders have failed to provide solutions to the self-evident fl

aws in their construct. The bail-out facility is too small to backstop fiscally distressed states, and even if the European Central Bank were to throw caution t o the wind and embark on Anglo-Saxon-style QE, it still wouldn't address the und erlying problem of widely divergent competitiveness. The UK should not and must not sign up to further International Monetary Fund su pport for the eurozone when there are no credible plans for addressing these iss ues. If this were just an issue of insufficient liquidity, then it surely would have been solved by now, given the expansion of central bank balance sheets whic h has already taken place. Unfortunately, it goes much deeper. Yet more IMF money is not going to help. The central choice has long been the same; either the euro is reconstituted on more sustainable lines, with some countries reverting to national currencies, or the region must move with urgency to full debt mutualisation and corresponding poli tical union. I'm not convinced that Europe is ready for the latter of these two possibilities . Share: inShare1 Jeremy Warner Finance Comment Financial Crisis In Jeremy Warner Workers at the stricken Fukushima plant Is the cost of saving the euro beyond reach? Get ready for more shocks from soaraway utility bills George Osborne wasn't allowed to give us the Budget we really needed; The Chance llor walks away from Number 11 to deliver the Budget; Reuters Osborne couldn't give us what we needed Share:

inShare1 More from The Telegraph Antony Worrall Thompson: the best of the internet jokes11 Jan 2012 Women's bodies: there was a time when bigger wasn't always better13 Jan 2012 The eurozone needed a French downgrade like a hole in the head14 Jan 2012 S&P downgrade and debt crisis: as it happened January 13, 201213 Jan 2012 Standard & Poor's cuts ratings of nine eurozone coutries: full statement13 J an 2012 Cruise disaster: Captain 'neared Italian rocks to greet friend on shore'15 J an 2012 More from the web Unthinkable Poised to Happen on Wall Street. See Disturbing Charts.Moneynews Euro Falls on France, Italy, Spain Ratings - Further Declines Likely?DailyFX Ratings Downgrade Would Trigger a Cataclysmic Sell-OffForex Crunch

Trustee to Seize and Liquidate Even the Stored Customer Gold and Silver Bull ion From MF GlobalJesse's Caf Amricain The Craziest Sector I know Could Soar Over 100%Trading Authority McDonald s Makeover: 7 Things You Didn t KnowThe Daily Meal What's this? Ads by Google UK Non-Residents Banking Choose From wide range of Offshore Bank accounts. Apply Online Today. non-resident.barclays.com/Banking Abuja Real Estate Prestigious Hotel Apartments for sale in Abuja. Find out more www.TheOneAbuja.com Need a House in Lagos? Find Property To Rent Or For Sale by Leading Estate Agents In Nigeria www.privateproperty.com.ng 24 comments Add a comment Comment with a Telegraph account Login Register with the Telegraph Alternatively... Comment with one of your accounts Showing 24 comments Order by Real-time updating is enabled. (Pause) Email logo Follow with email RSS logo Follow with RSS Commenter's avatar Wideernie 12 minutes ago Uh oh!! http://theautomaticearth.blogs... Succinct analysis from Ilargi. Recommend Report Commenter's avatar jonlivesey 41 minutes ago " ECB head Mario Draghi warned that Europe is in a "very grave" economic sit uation, but added that deficit cutting measures across the eurozone had been "ve ry encouraging"."

That quote is from the "live" Euro page, and it leaves me wondering if Dragh i is quite serious. Since 2008, the *average* fiscal deficit for the Euro area has gone from 0.6 % of GDP to 6.2%. And he calls that "encouraging"? Recommend Report Commenter's avatar terry1 Today 02:53 AM Point of information: Britain is an elective dictatorship, not a democracy. If it was a democracy, the government would implement the will of the democrati c majority. It doesn't. Britain is a Western 'liberal' dictatorship. As for the European dictatorship (ED), it isn't just a choice between a stre amlined dictatorship or a larger one. There is a third choice. Italy's Mario M onti referred to it when he warned that Italians may 'flee into the arms of popu lists.' 'Populists' are what EU dictators like Monti call democrats. Monti is afrai d of the democratic majority rising up against him because he knows that no 'lib eral' dictator can withstand democratism. Anyone can be a democratist. Any democratist can overthrow any dictator. I t isn't complicated. Get ready to greet the European Spring. Comment like count Recommended by 3 people Recommend Report Commenter's avatar jonlivesey 51 minutes ago Ah, the Fifth Form philosopher. Recommend Report Commenter's avatar ryck Today 01:33 AM "In last Friday's downgrade, Standard & Poor's spelt it out. Stating the ble edin' obvious, S&P said that policy action in the eurozone had fallen a long way short of what was required to resolve the crisis." The EU 'leaders' are mesmerized by the debt as they think they can QE [read print money] to get out of the problem and cannot focus in on the fact that such QE raises the debt even more. S&P downgrades euro zone rescue fund, Greece pressured http://www.reuters.com/article... Recommend Report Commenter's avatar unit472 Today 01:33 AM yes, the standard economic analysis will do but there is also the tradition All we lacked.

al one. The French dwarf stands atop the Mediterranean midget and wonders why hi s eyes only reach to Belgium and that his Flemish eyebrows are desperate to be a mustache on the face of their Teutonic neighbor. Being a sawed off runt is never easy getting use to, but France has had cent uries to adjust. Recommend Report Commenter's avatar jonlivesey Today 01:30 AM I think that they have finally faced the truth, and also that the LTRO is an operation to prop up Banks, and not to save Greece. What seems to be happening at the moment is something like this: stronger Eu ro-zone Banks borrow cash via LTRO, and then they buy peripheral debt at a disco unt from weaker Banks, who happily deposit their newly-acquired cash back with t he ECB. This way, dangerous concentrations of peripheral debt are spread out across the Banking system, so that although the total losses will add up to the same, t here is less chance of any individual Banks going under. I also think that Greece's delegation to the IMF this morning is a sign that they are being cut loose from the Euro-zone, and have been told to make their o wn arrangements for a post-Euro era. If the Greeks can demonstrate that they can leave the Euro in a more or less orderly way, supported by the IMF, then expect Portugal to follow suit. Comment like count Recommended by 2 people Recommend Report Commenter's avatar ryck Today 01:56 AM Probably an accurate scenario. But, the debt still rages forth and the exit of Greece and Portugal will affect this progress toward bankruptcy. At some point the debt must be somehow be moderated and balanced with the bu dgets and current GDP because an ever-increasing debt leads only to oblivion. Any 'exits' can only benefit a truncated new EU absent the PIIGS. Recommend Report Commenter's avatar jonlivesey 48 minutes ago "...because an ever-increasing debt leads only to oblivion." No. As long as you increase your debt so as to make sure debt service char ges rise less quickly than GDP, it's OK. Recommend Report Commenter's avatar

feudejoie Today 01:26 AM Excellent article. "I've thought long and hard about why Europe should be so bone-headed about the crisis it faces." Since this outcome was accurately and loudly predicted by so many sceptics, economists, central bankers etc from the early 1990s, I would like Mr Warner to ponder on why the British Tory party, in the shape of John Major's government, w as so bone headed as to force Maastricht (euro) through parliament knowing that it would destabilize the entire Continent, destroying democracy in its wake and probably defenestrate their own party, which it duly did. Of course Major was enthusiastically assisted by Labour, LibDems, BBC, Guard ian etc but somehow one expects the judgement of these people to be wrong most o f the time just as anyone of my parent's or grandparent's generation would have expected most Europeans to be unlikely, too often, to arrive at a sound judgemen t. The pro euro left leaning FT can be explained by its inbuilt bias, the Econo mist being more difficult to explain. But British Conservatives are impossible to excuse. These people are supposed to be sensible and make rational decisions - that is why it is the longest living and most successful political party in existence - so what was the real reason behind Major's and the FO's mad obsession? A sec ret if desperately dangerous plot to destroy the EU? I'd half like to think so but somehow, I just don't. What do you think Mr Warner? Recommend Report Commenter's avatar jonlivesey 45 minutes ago The UK obtained its opt-out from the Euro in the initial negotiations of the Maastricht Treaty, so there was no reason for the UK to obstruct the other EU m embers from forming a currency union if they so wished. Even if most of us thought it was unwise of them to form such a union, they were sovereign nations. Recommend Report Commenter's avatar asiabugle Today 12:25 AM Everybody who has any idea has being saying this since this started over 12 months ago. And everyday it goes on the situation gets worse - eventually full f iscal union or a bust up of at least part of teh Euro zone must happen. We are all being impoverished by the delusion of Brussels. Assuming Sarko ge ts his comeuppance then I suspect that will signal the end - but it may happen b efore. Recommend Report Commenter's avatar

drjonathanwilson Yesterday 11:58 PM Jeremy You ask the question: "When will Europe face the truth?" Answer: When Mr Obama leaves the White House and the Fed is instructed to ce ase its support of the Euro at US taxpayers expense (goodbye Ben Bernanke). Therefore EMU area leadership can continue to live with their powerful decep tion for another 10 months only Jonathan Comment like count Recommended by 6 people Recommend Report Commenter's avatar lacoste Yesterday 11:56 PM lacoste has been blissfully abroad from all this for six weeks; plus a change! Before it is too late, why doesn't Germany exit the Euro? Merkozy is toast. (Merkozy used to be an historical collective noun) Recommend Report Commenter's avatar somewhereinthesouth Yesterday 11:25 PM Why haven't the Europeans acted to solve the crisis? Several answers are app arent : First there is the political reluctance to do so by all the countries but es pecailly Germany [ the paymasters]. Germany if it point balnk refused to help w ould look like the bad guys and that worst of thongs being "uneuropean" - so the y prevaricate and do the minimum rather than take the political risk of leaving the Euro or expelling members. Much the same political reluctance also applie s to any other nation which sought to leave the Euro and / or default . For exam ple default by one of the PIGS would badly impact French , Italian and German banks - causing a financial crisis and the break up of the Euro as we currently know it.. .Second countries such as Greece Spain Italy and Portugal still see the Eur o [via low interest rates set for Germany ] as the means which brought them rich es, in both by increasing growth in output, increased private spending[ borrow ing] on consumer goods such as German cars, cheap public sector borrowing [ e.g. to build gleaming infrastructure, public hospitals etc ] as well as rising a sset prices [eg land and housing ] ..They have yet to work out that it also bro ught excessive borrowing and unsustainable levels of debt.

Third the German narrative is that Germany is a responsible nation and sav es rather than spends - they therefore see the problem with the Euro as SOLEL Y being caused by reckless borrowing and spending by the periperal members and denying the role of the ECB which set very low interest rates [ for which read German] monetary policy thus fuelling a housing boom and borrowing bubble in places like Ireland and Spain. Moreover their exchange rate is lower as a resul t of being in the Euro which boosts their exports and thus they can export their unemployment to other nations [ both inside and outside the Eurozone ]. The so lution ? Austerity in the periphery - plus the minimum in loans from the Germany , France etc - which of course they hope to get back in due course. This also b uys time.... Fiscal union ? Er No chance , too expensive and the Germans and Dut ch quite understandably don't want to pay as they would have to [ and indeed this wasn't what they signed up for when they joined - although arguably they we re tricked by their own politicians, Eurocrats and yes - the French - by beli eving in their own propaganda ] Of course Britain also suffered from a boom bust cycle - the major differenc e is that Britain has a sovereign currency and is a fiscal union and can adjust its monetary as well a fiscal policy to address the problems. So the truth i s the Eurzone tied to a sinking ship by historic decisions based on misguided idealism as well as blatant political and economic expediency. They are hoping that by papering over the cracks the problem will go away - it looks increasingl y likely it wont. Comment like count Recommended by 3 people Recommend Report Commenter's avatar feudejoie Today 01:48 AM Somewhere Thank you for these thoughts but you don't address the key point. Either th e eurozone survives with a full fiscal union (nb USA just makes dollar survive a s single currency with annual automatic transfers equivalent to almost 30% of GD P AND very significant annual interstate migration, impossible in the eurozone o n anything approaching the same scale) or it is finished. The first is almost u nthinkable and would destroy democracy, imposing government on the peripherals b y those they cannot sack and for whom they have not voted. Many passengers on the capsized Italian liner were faced with the most diffi cult of decisions: stay on board as they had been told, or jump and swim to safe ty. You explain in your remarks why the eurozone members are reluctant to leave the nightmare they have created, but you don't explain why they can't see a big ger nightmare approaching. It is this 'bone headedness' that is difficult to ex plain. Why don't they understand that by destroying the economies of many count ries and leaving too many millions without employment, without hope and without the ability to change economic policy through the ballot box, only dangerous ext remism can flourish to destabilize the entire Continent. Comment like count Recommended by 1 person Recommend Report Commenter's avatar Walt Kowalski Yesterday 11:07 PM When will Europe face the truth ?

The day after it's too late, dear Jeremy. FWIW, it looks like Portugal today bit the dust-- downgraded, and now all of it's debt is termed "junk", forcing some investment firms to dump them. Interes t rates skyrocketed for them today. Looks like the "troika" commisars will be ma king a trip to Lisbon to read them the riot act. Comment like count Recommended by 9 people Recommend Report Commenter's avatar munchkinette Yesterday 10:39 PM The facing up is imminent. With Greece hanging in the balance and Mario Dra ghi building an unsustainable ECB balance sheet the Frankfurt Bankers are becomi ng increasingly nervous. Merkel's political situation is such that she will be out-manoeuvred. I personally expect a Greek default, followed by a German withd rawl from the Euro. The reason they haven't done it thus far in my view is that history demands that Germany is viewed as "good europeans". Painted into a cor ner they will have no choice but to print or withdraw. The spectre of Weimar we ighs more heavily with the Germans than the European construct. Comment like count Recommended by 6 people Recommend Report Commenter's avatar cunningplanisneeded Yesterday 11:29 PM What do you expect with an Italian in the ECB chair these days. I wonder if his 2 predecessors would be doing the same as he is these days buying up all these bonds and flooding the markets with all these cheap loans. As far as i can see it is QE and yet no one talks as if it is. Comment like count Recommended by 4 people Recommend Report Commenter's avatar pbgd Yesterday 10:26 PM Europeans have long been warned about their endless delaying tactics. They were told that if they did not act, the markets would act for them. Well, that time has arrived. The markets now dictate their actions, and they no longer hav e the freedom of choice. Berlusconi was toppled by the markets. Greeks and Ita lians had new leaders put in by the markets. Merkel and Sarkozy are no longer i n control of events -- they merely react to them. Comment like count Recommended by 4 people Recommend Report Commenter's avatar phrancofile Yesterday 10:19 PM A good article and wise words from Jeremy Warner. However I have to questio n the validity of this bit:

"Monetary independence means there is less chance in the UK of falling victi m to the eurozone austerity trap where fiscal retrenchment succeeds only in maki ng the deficit worse because it crimps growth, undermining tax revenues." No - we won't fall into this eurozone trap, however there is an equal if not greater risk of falling tax revenues in the UK through low growth, rising unemp loyment, austerity measures and the diminishing returns of lower spending throug h higher VAT and High St inflation. Glaringly obvious things in some sectors th at need "fixing" get acknowledged sagely and publicly, but actions seem sadly la cking. Still, anything is better than Gordon Brown. Comment like count Recommended by 2 people Recommend Report Commenter's avatar jonlivesey Today 01:35 AM I'm guessing you missed the story about record UK income tax revenues. cord tax revenue isn't really good evidence of falling tax revenue. http://www.telegraph.co.uk/fin... Recommend Report Commenter's avatar impedant Yesterday 10:40 PM Retail spending has went up more than 4% in 2011 vs 2010; the idea that the VAT rise has meant "lower spending" is just that. Spending went up. Volume of sales did not. Recommend Report Commenter's avatar titanic2012 Yesterday 10:03 PM Jeremy, I agree with your analysis but you didn't answer the headline questi on: "When will Europe face the truth?" - if this is rephrased as "Can Europe fac e the truth?", I think most people would say: "No, because the truth is politica lly unacceptable." Therein lies the rub, there is no 'politically acceptable' s olution. For different reasons both your 'central choice' options are unacceptable: t he former will be resisted by the Brussels Eurocrats who will see any break-up o f the Euro as a disaster for 'the project'; the latter, which you discount, part icularly unacceptable to Germany as it will be left with the bill. There will be no winners here, everyone is a loser but some will lose more t han others. Comment like count Recommended by 14 people Recommend Report Social Media Reactions Commenter's avatar Re

Chrissy C Webb on twitter Today 06:47 AM When, oh when, will Europe face the truth? http://t.co/FH3yO8qk Commenter's avatar John Broughton on twitter Today 05:07 AM When, oh when, will EU face the truth? - Jeremy Warner http://t.co/03uNd3NJ via @Telegraph Commenter's avatar CrisisDigest on twitter Yesterday 10:39 PM When, oh when, will Europe face the truth? http://t.co/XY5HxwE0 Commenter's avatar jeremywarnerUK on twitter Yesterday 10:31 PM When, oh when, will Europe face the truth?: Countries with a triple-A credit rating are becoming an endangered species. http://t.co/si7v7YCz Commenter's avatar financialbrk on twitter Yesterday 10:00 PM Daily Telegraph - When, oh when, will Europe face the truth? http://t.co/F7s 43yRe #finance Commenter's avatar BusinessNewz on twitter Yesterday 09:55 PM #news #business When, oh when, will Europe face the truth? http://t.co/x4dJx FaU blog comments powered by Disqus Click here to find out more! Market Data promotions Cancer Research UK Cancer Research UK Leaving a gift in your Will could help to beat cancer - find out more about leaving your legacy. View Featured Advertising VistaPrint Public Sector Jobs FREE 2012 Photo Wall Calendar FREE 2012 Photo Wall Calendar

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