"Real M1 deposits in Italy have fallen at an annual rate of 7pc over the last six months, faster than during the build-up to the great recession in 2008," said Simon Ward from Henderson Global Investors.
Such a dramatic contraction of M1 cash and overnight deposits typically heralds a slump six to 12 months later. Italy's economy is already vulnerable – industrial output fell 0.6pc in May, and the forward looking PMI surveys have dropped below the recession line.
Italy has to roll over or raise €1 trillion over the next five years, with a big spike as soon as August. "Any new issuance will be above the average rate. That is the real cause of the destructive market action," said Paul Schofield from Cititgroup.
Mr Cailloux said the EU's bail-out machinery (EFSF) must be increased to nearly €3.5 trillion in committed funds to staunch the crisis. This would give the authorities effective firepower of €2 trillion. "It is a lot of money but the euro is a big project. This is all about political appetite. The longer they wait, the worse it gets.."
Tim Congdon from International Monetary Research said the ECB had drifted away from monetary orthodoxy after the departure of Otmar Issing as chief economist in 2006, tolerating "crazy lurches" in the broad M3 money supply. "The ECB did not see the collapse in money growth in 2008 and the great recession that followed, and they are getting it wrong again."
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