As Italy's borrowing costs soared and its stock markets plummeted, last week the ECB's president, Jean-Claude Trichet, and his designated successor, the Italian central bank governor Mario Draghi, wrote to Berlusconi listing the demands he would have to meet if the bank were to intervene and buy Italy's embattled bonds. According to one report, the ECB's demands were set out in humiliating detail. Last Friday, Berlusconi promised a broad range of structural reforms and announced he was bringing forward to 2013 the target date for the elimination of Italy's budget deficit. A new package of measures is due to be endorsed at a cabinet meeting that could be held as early as Friday. Berlusconi's right-wing government has said the package will be enacted by decree, but it would then need to be approved in parliament. Bossi, the leader of the Northern League, called the ECB's letter "an attempt to overthrow the government". In a reference to Draghi that suggested the central banker harboured political ambitions, Bossi said: "I fear that this letter was done in Rome. He's gone from here into Europe, but he's always in Rome." Draghi has been touted as the possible leader of a non-party, or cross-party, cabinet to lead the country were Berlusconi to fall. Bossi also made it clear he was not happy with suggestions that the ECB wanted pension cuts. Berlusconi has refused repeated calls from the opposition and the trade unions for the letter to be made public. But his finance minister, Giulio Tremonti, supplied more detail on the government's plans to a parliamentary committee.
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Friday, August 12, 2011
As Italy's borrowing costs soared and its stock markets plummeted, last week the ECB's president, Jean-Claude Trichet, and his designated successor, the Italian central bank governor Mario Draghi, wrote to Berlusconi listing the demands he would have to meet if the bank were to intervene and buy Italy's embattled bonds. According to one report, the ECB's demands were set out in humiliating detail. Last Friday, Berlusconi promised a broad range of structural reforms and announced he was bringing forward to 2013 the target date for the elimination of Italy's budget deficit. A new package of measures is due to be endorsed at a cabinet meeting that could be held as early as Friday. Berlusconi's right-wing government has said the package will be enacted by decree, but it would then need to be approved in parliament. Bossi, the leader of the Northern League, called the ECB's letter "an attempt to overthrow the government". In a reference to Draghi that suggested the central banker harboured political ambitions, Bossi said: "I fear that this letter was done in Rome. He's gone from here into Europe, but he's always in Rome." Draghi has been touted as the possible leader of a non-party, or cross-party, cabinet to lead the country were Berlusconi to fall. Bossi also made it clear he was not happy with suggestions that the ECB wanted pension cuts. Berlusconi has refused repeated calls from the opposition and the trade unions for the letter to be made public. But his finance minister, Giulio Tremonti, supplied more detail on the government's plans to a parliamentary committee.
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Christian Noyer, head of France's central bank, leaves the Elysee Palace in Paris after a meeting between the heads of the country's major banks and President Nicolas Sarkozy. Photograph: Jacques Brinon/AP
French banks are under pressure again despite the governor of the country's central bank saying its banks were in "perfectly satisfactory condition".
Christian Noyer's statement was not enough to reassure investors that French banks had enough capital to cope with a sovereign downgrade or a Greek default.
Shares in Société Générale, BNP Paribas and Crédit Agricole, all heavily exposed to the Greek economy, dropped sharply on Thursday morning before recovering ground in the afternoon. The sell-off appears to have been prompted by a Reuters report that an Asian bank had cut its credit lines to French banks, and five Asian banks were reviewing their exposure to France.
Analysts said the persistent chatter that banks might be in serious difficulties was reminiscent of the run-up to the 2008 financial crisis. "With banking rumours surfacing, it feels like the run-up to Lehman's collapse, where banks don't trust each other," said Commerzbank strategist Christoph Rieger.
Stephen Snowden, a fixed income manager at Aegon Asset Management, said: "The credit market is substantially broken as we speak." Long-only funds were cutting their exposure to banks, and Aegon had recently sold down its investments in BNP Paribas, Unicredit, Credit Agricole and Belgium's KBC."
Noyer said banks' capital levels "are adequate, and their medium- to long-term financing programmes are being carried out in perfectly satisfactory conditions".
Frédéric Oudéa, Société Générale's chief executive, described rumours that the bank was in serious financial difficulty as a "complete fantasy".
However, investors suggest that Société Générale, which lost €4.9bn in the Jérôme Kerviel rogue trader scandal in 2008, may have to raise about €3bn to reach new global capital standards if the eurozone debt crisis deepens. The banks shares closed up 3.7% to €23.
Up to a quarter of the economy is thought to go untaxed, with much of it ending up in havens like Switzerland and Luxembourg. Italy's tax men have been cracking down on evasion, netting €10.6bn last year in recovered taxes – double the amount of 2007. This year is expected to bring in around €11bn in undeclared tax.
Much of the focus has been on yachts, expensive cars and holiday homes owned by the super-rich.
"About a quarter of this money will come from the highest income bracket - around 3,000 individuals with an annual income of more than €100m," said Luigi Magistro, the head of the Italian Inland Revenue.
Giulio Tremonti, the finance minister, is behind the push but has been tarnished by revelations that until a few weeks ago he paid for an apartment he used in Rome with cash, rather than by bank transfer or cheque.
He is not the subject of any criminal investigation but has acknowledged that he "made mistakes" in the affair.
Under pressure from Germany, France and the European Central Bank, the Berlusconi government has been forced to speed up the pace of an austerity plan, setting 2013 as the goal for balancing the budget rather than 2014, as originally envisaged.
Appearing in parliament in Rome today, Mr Tremonti promised to meet the ECB's demands for sweeping economic reforms in exchange for help in shielding Italy from the eurozone debt crisis.
"We have to pass a very strong fiscal adjustment package for this year and 2012 and for the following year, 2013," he said. "The detailed numbers are currently being worked out."
Questions were raised over the extent of Italy's determination, however, when the Northern League, the government's main coalition ally, appeared to accuse the ECB of trying to topple the government with its demands for reform to wages, pensions and labour laws
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