With austerity now well understood to increase deficits, only PSI remains to decrease deficits. With strong political support surfacing, as per Grillo’s positions on repudiating debt.

So there is the deflationary impact of PSI. The flight to maybe actual cash even at the institutional level to avoid PSI. Portfolio shifts out of the euro, no bid for anything but bunds until they too threaten PSI which would be down the road as German exports to other members fade and their deficit rises as well.

The answer is ECB guaranteed funding and deficit limits hiked to at least 8% of GDP for all members. The problem is there is no political channel to get from here to there?

Exports, domestic credit expansion, and fiscal policy are all going the wrong way.

The remaining question is how much the population can take before it snaps?

All the talk about shorting US Treasury securities and JGB’s looks to have been a bit premature…