Monti path to salvation is looking very much like a hike up the "Brenner Pass",
and that is among the main concerns of investors. Italy's prime minister has so
far made a good fist of imposing fiscal austerity. But he is having a lot more
difficulty with phase two, which is to stimulate growth. None the less than four
different measures are stuck at various stages on their way to the statute book.
They include a bill to introduce greater flexibility and fairness into the labor
market (which is horrendously complicated, and problematic for the left);
another to tackle corruption (which is being held up by objections from the
right who seem to think it could have unpleasant implications for one Silvio
Berlusconi) and a wide-ranging "growth package" that hasn't so far made it past
the cabinet.Quite a few reports in the German media the last couple of days on Monti's inability to truly reform his country and becoming increasingly unpopular.....Monti is another Goldman Sachs operative. He is working for the International banking cartel for sure. He's not interested in the Italian people or their standard of living. Interesting too is news (haven't seen it in the MSM) that an Italian investigative magistrate has filed papers against Standard and Poor after a thorough investigation into their downgrade of Italian banks. At least someone is fighting back against this totally corrupt system. The Italian banks need another 100 billion to get by. Like Spain, we are told by the so called specialists (bank spokespeople) and then we are told after less than 24 hours ( in the case of Spain) it hasn't worked. Are these people taking the piss out of us ? We are basically giving the banks money directly so as they can pocket it all and keep asking for more. And this morning the BBC described our current crisis as the worst for over 100 hundred years. Sorry but don't think the thousands queuing at soup kitchens and dying of poor health conditions etc in the 1930's would agree with the current policies ---- This is a man made crisis of greed. A brief report in Spiegel online that Greece, since getting that second bailout or "memorandum", has hardly done anything regarding implementing the obligations of the memorandum.... Considering this information and the fact that the memorandum is just 3 months old I wonder how comes so many people are confidently telling us that the memorandum did not help Greece, made matters only worse, is not working at all (they're right there, but not in the way they think), is another fiendish plot against the people of Greece and needs to be stopped (again of course only regarding Greece's obligations, not the payments it receives).... So far, almost the only thing that happened due to the memorandum was Greece getting lots of money to pay its debtors - as the reforms demanded in the memorandum are allegedly not yet implemented any ongoing deteriorating of the Greek economy can hardly be blamed on the memorandum, and calls for its abrogation because it would be "too harsh" seem disingenuous to say the least....Officials in Berlin say privately that Chancellor Angela Merkel is willing to drop her vehement opposition to plans for a “European Redemption Pact”, a “sinking fund” that would pay down excess sovereign debt in the eurozone. “It is conceivable so long as there is proper supervision of tax revenues,” said a source in the Chancellor’s office. The official warned that there would be no “master plan” or major break-through at the EU summit later this month. Mr Merkel rejected the Redemption Pact last November as “totally impossible”, even though it was drafted by Germany’s Council of Economic Experts or Five Wise Men and is widely-viewed as the only viable route out of the current impasse. Fast-moving events may have forced her hand. She is under immense pressure from the US, China, Britain, and Latin Europe to change course as the crisis engulfs Spain and Italy, threatening a global cataclysm.The debt would be covered by joint bonds, paid for from a designated tax. Each country would be responsible for its own share of debt in the fund -- Italy €960bn, Germany €580bn, France €500bn, and so forth -- but would issue bonds jointly.".... How can this work exactly? And what price would the debt be issued at?... Surely the market would price it at a rate closer to that Italy and Spain have to pay now, rather than the German 10-yr bond rate, because Italy's debt would not have fallen, and essentially Germany's would increase....And, how useful is it for Italy to put up just 20% collateral?....And how will it fix the chronic uncompetitiveness of Southern Europe compared to Germany? Isn't it just another last massive kick of the can down the road?
004.0724.58.1078PROXEMIS - Managementul Riscurilor
8 comments:
Eurozone crisis
Eurozone crisis: Banking sector could be 'wiped out' if weakest nations leave
Analysis by Credit Suisse estimates that up to 58% of the value of Europe's banks could be wiped out by the departure of the 'peripheral' countries
Even if the single currency remains intact some €1.3tn of credit could be sucked out of the system as banks retrench to their home markets, unwinding years of financial integration, the Credit Suisse analysis warns. his represents as much as 10% of the credit in the financial system.
"We find that a Greek exit could be manageable ... but in a peripheral exit, few of the large listed eurozone banks would be left standing," the Credit Suisse report said.
The banking sector could need capital injections of as much as €470bn if the three scenarios considered by the Credit Suisse analysts - a Greek exit, an exit of the periphery countries and a situation where banks retrench domestically - happen at once.
The UK's banks will not escape unscathed, although they are better insulated than those in the eurozone. In the event that the peripheral countries leave the eurozone, Barclays faces losses of €37bn and bailed out Royal Bank of Scotland some €26bn.
If only Greece were to leave the single currency, the Credit Suisse analysts calculate that losses for Europe's banks would be limited to some 5% of the stock market value of banks across the eurozone with French banks and investment banks being hit hardest. Credit Agricole would be worst effected by a Greek exit.
Whatever damage a breakup of the Eurozone does - even if the southern states are ejected rather than the Germans and company walking out - it can't be worse than the current death by strangulation strategy of keeping the Eurozone intact without a proper fiscal union. It will continue to crush the life out of the debtor states.
Latest report in the Torygraph is that the Germans may be considering backing the Redemption Pact, in preference to Eurobonds and Barosso's banking union, for the simple reason that it keeps the show on the road without exposing them to unlimited liability. Superficially it sounds like a viable solution - pool all the debts above the Maastricht limit, issue common bonds, and then make each state responsible for paying back its share over 20 years, complete with collateral held by the common fund in case of default. But it's madness.
It wouldn't do anything to address the competitiveness gap between the core and the periphery: Germany would still be locked into an undervalued currency, and the debtors into an overvalued currency. The pain of debt-deflation would be unabated. And all the members would have to run a substantial net surplus over the repayment period in order to get their debts back below 60% of GDP. The Germans ought to be able to do it, the French might, maybe even the Irish. But Club Med? Italy would need to pay back nearly a trillion euros, in other words reduce its public debt by fifty billion euros every year, whilst simulatenously trying to undertake root and branch reforms of working practices in the face of vehement union opposition, and take a chainsaw to public spending, and close a huge competitiveness gap with the core.
I can't see how this can possibly work. Italy has an unelected, technocrat Prime Minister who is at the mercy of a parliament consisting principally of socialists and a centre-right bloc still controlled by his predecessor. The only thing it has going for it is that at least it doesn't run a deficit - the rest of the debtors aren't so lucky.
When is the Eurozone going to bite the bullet and either (a) admit defeat and break up in a controlled fashion, or (b) get all the leaders together, lock them in a conference room until they draft a federal constitution, and then submit it to the people? Next year? In 10 or 20 years? Never? The poor old UK, not exactly in the best of health itself, is shackled to a corpse.
I despair.
The International Monetary Fund has approved a €1.4bn (£1.13bn) disbursement to Ireland under a three-year IMF-EU rescue loan and cautioned that the broader euro-zone debt crisis could dampen the country's export-led recovery.
Spain could be downgraded to 'junk’ within three months, rating agency Moody’s warned on Wednesday night, as it slashed the country’s credit rating by three notches.
We are fast approaching the point where both Spain and Italy may have to be removed from the market, writes Gary Jenkins of Swordfish Research.
Unless there is a move towards a fiscal union or at least temporary common euro bonds the most likely way of doing this is for the ECB to buy in the secondary market and for the ESM to buy in the primary market. But that might not be enough firepower unless the EU increases the size of the firewalls.
In his morning musings, he also writes:
We might just be heading towards the endgame where German politicians have to make the most difficult decision of their careers; do they put Germany's credit on the line to try and save the Eurozone or do they walk away? We have been slowly approaching this point for years but events seem to be picking up pace after the debacle of the attempted bailout of Spain.
There are ever more desperate cries for help coming from Spain and Italy ("ECB is the only institution able to restore stability" – PM Rajoy) and according to the FT France is pushing again for the ESM to be given a banking licence, be able to recapitalise banks directly and be leveraged. According to the Telegraph Ms Merkel is prepared to consider a "European Redemption Pact" which was first mooted last year in Germany.
Spaniards are off to work this morning digesting the news that their credit rating is on the verge of junk status after Moody's decision late last night to downgrade the country by three notches from A3 to Baa3, which is just one notch above junk.
London markets have already reacted this morning and Spainish bond yields (the country's cost of borrowing) have spiked straight away to 6.87pc, closing in on the unsustainable levels of 7pc plus. For the story as it develops today visit telegraph.co.uk/finance
While we're on the topic of Europe, some key numbers will be published today including inflation numbers and an update from the Italian government on its eye watering debt pile of €2 trillion which means it has to raise €35bn a month to keep it ahead of its liabilities. It plans to auction €4.5bn of bonds today. It's greatest worry is keeping that level of funding at an affordable level, with its own cost of borrowing rising, spiking this morning to nearly 6.3pc, not far behind the highly distressed levels of Spain.
Mario Monti, Italy's technocrat prime minister installed last year after Silvio Berlusconi was outsted when bond yields soared through 7pc, is scheduled to meet Francois Hollande his French opposite number today. It's an opportunity for the pair to show a united front against their EU co-founder Germany and its perceived sado-austerity regime.
Merkel herself is due to make a keynote speech later today as a curtain raiser to next week's Mexico G20 talkathon and attention will be focused on whether she hints that her country is willing to accept a pooling of the eurozone's sovereign debts. Ambrose Evans-Pritchard has the story this morning, revealing that officials in Berlin are saying that Chancellor Merkel is willing to drop her opposition to the idea of a European redemption pact, or sinking fund, which will pay down excess government debt. If such a pooling of debt does emerge, it's a short hop to the necessary pooling of sovereignty to make that work, which leads to a fully federal eurozone.
AP - Moody’s Investor Service cut the Spanish government’s credit rating, a direct result of the rescue package lined up by European leaders over the weekend.
The rating lowered Spain’s rating from A3 to Baa3, which leaves it in investment-grade status but just one notch above junk.
The downgrade Wednesday comes after European leaders announced a €100 billion ($125.64 billion) loan to Spain on Sunday. The loan is meant to help Spain shore up its hobbled banking system. But it will also increase the government’s debt burden, according to Moody’s.
That higher debt burden has pushed Spain’s borrowing costs to record highs this week.
Moody’s said it put Spain on review for another possible downgrade in the coming months.
The rating agency gave the same downgrade to the country’s fund for bank restructuring, known as Spain’s “Fondo de Reestructuración Ordenada Bancaria”, which was created in 2009 to oversee mergers of banks to help strengthen the country’s banking system.
Moody’s said the fund’s debt got the same rating because it is fully and unconditionally guaranteed by the government.
“While the details of the support package have yet to be announced, it is clear that the responsibility for supporting Spanish banks rests with the Spanish government,” Moody’s said in a note.
The agency expects Spain’s public debt ratio will rise to around 90 percent of its gross domestic product this year and continue to increase until the middle of the decade.
Moody’s and other rating agencies have lowered their ratings on a number of European governments and financial institutions recently, given the economic turmoil in region
The rating agency also downgraded the bond rating of Cyprus’s government Wednesday by two notches to Ba3 from Ba1, sinking it further into junk-grade status on the increasing likelihood that Greece will exit the euro.
Cyprus has heavy exposure to Greek banks and Greece’s exit from the euro would increase the amount of support that Cypress would have to extend to its banks at a time when the country’s finances are already strained and it has little access to international markets.
Moody’s said Cyprus’s rating is under review for further downgrades.
Post a Comment