Italian households and businesses are sitting of the biggest stockpiles of private cash in Europe. There are three reasons for this. The huge Italian black market means that many transactions go unrecorded. The arrival of the euro means that unrecorded transactions have spread into the rest of Europe and especially eastern Europe. The peculiar nature of Italy's economy. Not only does it have a massive agricultural sector and enormous tourist industry, but it also has a vast industrial base in the north made up substantially of small firms who intertrade. It is the intertrading, much of it unrecorded, between all these enterprises, industrial, agricultural and touristic, both at home and abroad, which generates stockpiles of private cash.
Add to that the high Italian savings ratio and you have the biggest deposits of private cash in Europe, all denomitaed in euros so it keeps its value. The Italian govt on the other, hand, takes all the nation's debt upon itself. Bereft of potential tax receipts, it issues more and more bonds to fund its activities. Now these bonds are being supported by Italy's eurozone partners in order to protect the euro.
Effectively Italy's public debt is being paid off by foreigners, while the Italians get to keep their mountains of private money.

US government debt is a cornerstone of the world's financial system, is held in large amounts by foreign creditors such as China and Japan and is used as collateral on a daily basis by banks and investors. While the move has been anticipated by markets since last week's deal in Washington agreed a cut of only $2.5trillion in the deficit, it's unclear how markets will react when they open on Monday. America's debt is still rated AAA by Moody's and Fitch, the two other largest agencies. Analysts at Capital Economics said the move will "surely rock the financial markets when they open on Monday" but added that any moves are likely to be short-lived because the slowing global economy makes US government debt, or Treasuries, an attractive place for investors to park money. At roughly $9trillion in size, the Treasury market has advantages and liquidity that rival government bond markets, including Britain's, cannot match. Despite the threat of the downgrade, the prices for Treasuries are close to their highs for the year as investors seek safe-havens and expectations for economic growth diminish. Whatever the reaction next week, investors are clearer that the downgrade is a severe blow to America's prestige and is also likely to increase the US government's borrowing costs. JPMorgan this month estimated that such a move could add about $100bn a year to America's funding costs as lenders demand more to compensate for the greater risk. The US spent $414bn last year on interest payments. "I have a feeling the dust may settle quite quickly," said David Buik of BGC Partners in London. "The US Treasury market is the most liquid in the world." Either way, it frays nerves further before what was already going to be tense opening of financial markets next week.

EURO-ZONE - Fears that the eurozone crisis is escalating and further evidence of the weakness in the US economy drove stock markets lower on Wednesday as policy makers failed to restore confidence in global markets. The FTSE 100 index closed at its lowest level since November, after its biggest one day fall for nine months of 133 points. After a nerve-racking day Wall Street narrowly avoided its ninth consecutive day of falls – a losing streak unseen since 1978. A much anticipated speech by Italy's prime minister, Silvio Berlusconi, was delayed until European markets closed but failed to calm the storm on international financial markets that threatens to engulf his country and imperil the entire eurozone. Italy and Spain – whose prime minister, José Luis Rodríguez Zapatero has cut short his summer holiday – are now at the centre of the eurozone debt crisis that began with Greece more than a year ago and has enveloped Ireland and Portugal. European commission president José Manuel Barroso tried to inject calm into the markets by insisting that record high yields – interest rates – on Spanish and Italian government bonds were "unwarranted". "Developments in the sovereign bond markets of Italy and Spain are a cause of deep concern," Barroso said.

European politicians had hoped their deal on 21 July to bailout Greece for a second time and impose losses on bond holders would restore confidence in the eurozone. Their efforts have failed, particularly as US debt crisis compounded the febrile atmosphere in the markets. In France, shares in the second largest bank Société Générale were temporarily suspended – they eventually closed 9% lower in heavy turnover – after it took a €395m (£345m) hit on its exposure to Greece because of its contribution to the bailout plan. Concerns were also mounting that banks across the eurozone were finding difficulties in funding themselves on the markets. Huw van Steenis, banks analyst at Morgan Stanley, said: "Investors, we and some banks are increasingly concerned that funding markets won't reopen with sufficient depth or at good enough terms for Italian and Spanish issuers, requiring banks to take offsetting measures". Berlusconi's statement to the lower house of parliament faced immediate criticism for failing to tackle the problems facing the Italian economy even though he promised to work with unions and employers on a reform of Italy's notoriously rigid employment laws. He drew attention to the fact that his government had earlier given the green light to €9bn of infrastructure projects which he said would promote growth, especially in the poorer south.

Germany staged an impressive recovery from the 2008/2009 global economic crisis, but there are increasing signs that the boom is now coming to an end. After almost two years of strong growth, its economic outlook is starting to deteriorate, due to a slowdown in major emerging markets including China and fears of a possible United States recession caused by $2.4 trillion in spending cuts linked to the debt ceiling deal. Various indicators released in recent weeks point to a deceleration of Europe's largest economy. The Ifo business climate index for July fell sharply to its lowest level in nine months, and analysts say it is likely to keep dropping. The ZEW investor sentiment index showed the weakest level since January 2009. And the Markit/BME purchasing managers' index for the German manufacturing sector fell 2.6 points in July to 52 points, its lowest level since October 2009. "New order levels went into reverse in July, as fewer export sales helped end a two-year period of sustained growth," Tim Moore, senior economist at Markit, said. German engineering orders in June rose by just 1 percent year-on-year, after having jumped 21 percent in May, the VDMA engineering industry association said. "There are initial indications that demand for investment goods has become less dynamic in Germany and in the other euro member states," said VDMA economist Olaf Wortmann. In addition, top German firms have given more cautious outlooks for the remainder of 2011. Analysts have been paying particularly close attention to what is being said by the chemicals industry, which is regarded as a bellwether for the general industrial outlook because it supplies many different sectors.

Begining with 2006 International credit rating agencies were paid billions of dollars to bundle junk debt for international financiers. All the international credit rating agencies bundled the junk debt and then rated all this junk as AAA+ risk free investments, and having paid the credit rating agencies to do this on their behalf, crooked financiers then sold these junk investments to European banks - making them go bust. Then European politicians decided - the banks can't crash - we must let each state go bankrupt and each state crash instead and take on all this debt from the private sector - (miss-rated by the credit rating agencies and miss-sold by international financiers). And then what happens - the same credit rating agencies start waging war on Europe on behalf of the same international financiers that stole our money - to force Europe to sell all their assets - and the international financiers are using the money they stole from European banks to now buy up the European state assets that we are being blackmailed into selling. This is war - just because there are no bullets, bombs or tanks on our streets - the result is the same These financiers are using the money they stole from Europe to buy up our assets and European companies to ensure they control everything and that the people of Europe have to work longer without pensions, have no state benefits, have no national assets and no armies, navy or air force to defend our selves. While our governments wage war on Libyan people our politicians are too cowardly to wage war right back on the international financiers and the credit rating agencies on our behalf . Why are our governments not investigating this financial war being waged on us and why did they force our states to take on this private sector debt. We should all stand together in Europe and tell the financial sector - every single penny of banking debt is being put into one pot and we are not paying a penny of it until every single transaction and credit rating decision on every penny of the debt is investigated. And if the credit rating agencies were found to be fraudulent in their ratings - then the credit rating agencies take on the debt and also has to pay compensation and punitive damages for each bundle of debt they miss-rated and miss-sold to European banks. This is war and it is time our politicians took the war straight back to the people that are causing it.

Personally, I don’t trust the banks to even get their hair cut to the extent they’re promising. They remain the spivs and dissemblers they’ve always been – and bank accounting is the most surreal (as in open to every trick in the book) of any business with which I’ve ever worked. To count obviously bad debts as assets is, let’s face it, a truly Swiftian idea. So probably, S&P is right to be saying Greece won’t make it. I mean that in the sense that it will be proved right with little or no risk to its reputation. For a commonsense "southerner" like me, it’s glaringly obvious Greece will default: it won’t make the asset sales targets it needs, and it won’t make the growth targets either.The ratings agencies agree with The Slog – not a position I’m that happy with, because on the whole they’re just as mad as the lenders and borrowers they monitor. However, there is no point in shooting the messenger, and one or two players in this mess are in touch with reality: German Finance Minister Wolfgang Schäuble admitted yesterday, in a circular to his Christian Democratic Party colleagues, that ‘the euro-zone debt crisis isn’t over, and that more discipline is needed’. Er ist eine gute Eier, Herr Schäuble. The Treasury had to pay sharply higher rates to sell off €8bn in bonds including 4.80pc on bonds due in 2014 that had last sold for 3.68pc, and 5.77 percent on bonds due in 2021 compared with 4.94pc before. Italy's benchmark FTSE MIB index fell as much as 2pc, while the difference between the rate of return on Italian and German 10-year sovereign bonds - a key measure of the financial risks as perceived by investors - rose to near-record highs of around 330 basis points. The euro also fell by a cent against the dollar to $1.4269 and by 0.7cents against sterling to £0.8745. Investors are concerned that the Italian economy, suffering from high public debt, low growth and growing infighting in the government could follow Greece, Ireland and Portugal into a debt spiral that has thrown the eurozone into crisis. Tensions on the Italian bond market went down after a second bailout for Greece was agreed at a summit in Brussels last week but have returned on concerns over the details of the Greek rescue plan and US debt fears...I say..through away the phony currency - euro!!

In an embarrassing development for John Boehner, the Republican Congress speaker, the Congressional Budget Office (CBO) ruled on Tuesday night that his bill would have only cut spending by $850bn (£517bn)over the next decade, not the $1.2tn he had aimed for. Republicans are now racing to rewrite the legislation, and have pushed back a congressional vote on the plan from Wednesday to Thursday at the earliest. Although Boehner was already struggling to find support for his package, the delay increases the risk that Washington will fail to agree a deal to raise the debt ceiling before 2 August, when the federal government is expected to run out of money. The dollar dropped against other currencies on Wednesday morning as investors faced the possibility that America could default. Several economists believe the country will lose its AAA credit rating within months, which would push up its borrowing costs, even if the $14.3tn debt ceiling is increased in time. The White House said on Tuesday it was working with Congress to devise a "Plan B" that might attract enough support. The two sides have been deeply divided for weeks, with Republicans demanding deep spending cuts and Democrats anxious to include tax rises as a major part of the deal.

Ratings agency Moody's has cut Greece's debt rating by three notches to Ca on Monday, leaving it just one notch above what is considered default, and said the chance of a default is now "virtually 100%". The ratings agency warned that last week's bailout package agreed by eurozone leaders will make it easier for Greece to reduce its debt, but the country still faced medium-term solvency challenges and there were significant risks in implementing the required reforms. "The announced EU programme implies that the probability of a distressed exchange, and hence a default, on Greek government bonds is virtually 100%," the agency said. "[Greece's] stock of debt will still be well in excess of 100% of GDP for many years and it will still face very significant implementation risks to fiscal and economic reform," it added. The ratings agency is wary that the eurozone bailout package sets a negative precedent for investors. "The support package sets a precedent for future restructurings should the finances of another euro area sovereign become as problematic as those of Greece," Moody's said. According to the ratings agency, obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.

The outlook is developing.

Standard & Poor's and Fitch have already downgraded Greece to CCC, one notch above Moody's.

Statistics

On the Bucharest Stock Exchange there are over 91,700 investors, 2800 fewer than at the beginning of the year, the bulk of whom have shares worth less than 15,000 euros in their portfolios, the cap for full compensation in case of losses generated by the bankruptcy of a brokerage firm.The overall value of portfolios held by Stock Exchange investors has fallen by 94 million RON (22 million euros) in the first nine months of the year to 11.4 billion RON (2.68 billion euros), while the number of investment accounts fell by 2,790 in the first nine months, to 91,721, according to statistics supplied by the Investors Compensation Fund - the institution in charge of compensating investors in case of a broker's bankruptcy.