We have for some time been directing the attention of the reader to the woeful condition of Deutsche Bank and its potentially significant relationship to future episodes of the euro crisis.
Although the moment that will furnish proof whether our analysis was correct has not yet arrived, we do alert the reader that the hour when our view will be put to the test is coming within sight.
Next week Italy will hold a referendum on a government supported package of economic reforms. If, as expected, the Leftist government of Prime Minister Matteo Renzi loses the referendum, his government will fall and new national elections will be held that will likely lead to an anti-euro coalition assuming power.
Should the referendum be defeated, Italian financial markets – anticipating the election of a rightwing government on a promise to take Italy out of the eurozone – will be thrown into turmoil after referendum results are announced.
It is at this point where the weakness or strength of Deutsche Bank will be revealed: Shockwaves originating from Italy’s markets will cascade through the rest of Europe’s markets. When these waves finally crash against Deutsche Bank, how well or poorly that bank reacts to the turbulence will suggest its true health. If the bank’s defenses have indeed been reinforced over past months then it will weather the storm. However, any buckling on its part will suggest it is still veering towards the edge of collapse.
And with the EU having foolishly linked the economies of Northern and Southern Europe together with the criminal scheme known as the euro, it will not be long before the consequences of Italy’s vote test the German banking system: Whatever the consequences of a ‘No’ will mean for Deutsche Bank should be evident sometime in the weeks before Christmas.
Whatever the results, we will be here to provide analysis.