Besides strong public statements from the EU Commission bosses that the EU is at a turning point in the crisis, the reality is much worse. You can find one example in Greece. Public Power Corporation has reported last week that many Greek households and corporations are not able to fulfil their obligation to pay their electricity bills. In total, debts to the power utility from unpaid bills currently amount to some €1.3 billion and are growing at an average rate of €4 million per day. Yes, this is also known as the “Grecovery”.

A similar situation is in Spain. Politicians started celebrating, because Spain has now clocked up two consecutive quarters of fragile growth and Spanish 10 Y treasuries (3.8%) have the smallest yield on a yearly basis. But the situation in the country is not changing on the labour market. First, there is a 26% unemployment rate. Spain has seen six straight years of job destruction. 198,900 jobs disappeared in Spain in 2013. There are 1,832,300 households in Spain where nobody has a job. More than 3.5 million in Spain have been out of work for at least a year and some 2.3 million people have been out of work for at least two years. To demonstrate the seriousness of the situation, let me bring back the example of IKEA 400 job offers challenged by 20,000 job claims from desperate Spaniards. It is stunning and it is comparable to the Greek problem. There is no Spainovery whatsoever.

The same story is in Italy. The country also has very low yield on 10 Y treasuries. On the other hand, it is a little bit surprising to some of us that Italian bad loan rates rose at a stunning 23% year-over-year and in nominal terms they are EUR 149.6 billion. The Italian Banking Association admitted that it is the consequence of declining deposits (-1.9% YoY) and bonds sold to clients (-9.4% YoY), as Italy’s bank clients with bad loans have more than doubled since 2008.

A new study claims that an objective stress test of the Eurozone’s banks could reveal a capital shortfall of more than 770 billion euros (US$ 1 trillion) to bring bank’s capital to the level equal to 7% of their total assets to guard against failure in a financial crisis. The study shows that if there is a 40% fall on global stock markets which lasts over six months, banks will need another 579 billion euros in a crisis to meet a 5.5 percent prudential capital ratio. We have to remind the reader that the study covers only 109 largest banks compared to the ECB exercise, which covers 27 more. It means that an objective stress test for all most important banks would create a more complicated situation. The ECB stress tests assume that banks will write down only non-performing loans and meet the ratio of 6%. The EU has agreed a 55 billion-euro backstop to resolve failing banks, which compare to those numbers, looks like a drop in the ocean. The end of the stress test provided by the ECB will be in November 2014 as long as we don’t experience any real economy stress tests.

China is becoming a hot topic. As we mentioned last week, there is a possibility of the default of one investment shadow banking product this week, and some claim that this could trigger an avalanche reaction within the Chinese banking sector. The PBOC has thrown nearly CNY 400 billion at the market last week but, on the other hand, Chinese regulators are probably prepared to let the product default to give a lesson to some investors not to think about these kinds of products as risk free. There are also some rumours that some citizens have been unable to withdraw “hundreds of millions” in deposits in the last few weeks in the area of Yancheng City, which indicates rising stress on the financial market. This is also a reason why Chines CDS´s are heading into the territory they were last summer when we experienced huge distrust among financial institutions. So can we be calm? Right now there is no reason to panic. Chines financial sector is state owned, so we shouldn´t see any avalanche like the ones we experienced in the west. But who knows…

Next week, we have FED´s FOMC meeting and some started to speculate that FED could announce another tapering of monthly purchases from 75 to 65 billion USD, as was indicated by the former FED´s president Bernanke. On the other hand, we had some disappointing numbers from the labour market and some disappointing numbers from the stock market. We will see what exactly happens and what kind of impact it will have on shaky markets.