Tremonti: "We are on the Titanic ..."

vignetta di Makkox

Ricordate quando Pinocchio Tvemonti invitava a spendere (i nostri soldi, non i suoi) in quanto la crisi era solo psicologica, bisognava far girare l’economia? Era il 2009, mica mille anni fa. E quando, sempre lui, il superministro che tutto il mondo ci invidia (ma sarà vero?) sosteneva che “la crisi è superata, grazie a noi, la sinistra mente”. Anche in questo caso sembra passato tantissimo tempo, ma era solo l’anno scorso. È facile dare addosso a chi non si lascia andare a facili ottimisti e resta ancorato alla realtà, facendo la parte del gufo triste, della cassandra portasfiga capace solo di preconizzare avvenimenti drammatici, luttuosi. Eppure tutti i nodi vengono al pettine, e le bugie hanno le gambe corte. Infatti lo stesso Tvemonti, ora invoca l’aiuto dell’opposizione. “Siamo sul Titanic”, dice. “Il debito ci divora”, sostiene. Ma cosa ha fatto il governo in tutti questi anni per lo sviluppo? Ben poco, a sentire l’autorevole Financial Times, secondo il quale “In un mondo ideale Silvio Berlusconi si sarebbe già dimesso”. Ma non per il bunga bunga e le barzellette idiote, bensì per la sua cronica mancanza di credibilità, “per convincere i mercati che l’Italia è affidabile”. E per farlo non basta un pacchetto di misure di austerità, servirebbero provvedimenti in grado di far crescere il nostro Paese. Che magari siano anche in sintonia con quanto democraticamente espresso dagli elettori il 12 e il 13 giugno. Quando cioè hanno detto basta alle privatizzazioni all’italiana che finora hanno portato solo svantaggi ai contribuenti (e invece la manovra dà mandato a una dismissione in tempi più rapidi del patrimonio dello Stato). Come fa a girare l’economia se tutto quello che il “genio della finanza creativa” sa inventarsi è la mancata rivalutazione di pensioni normalissime, che spesso sono utilizzate come vero e proprio ammortizzatore sociale, dato che servono a pagare gli studi ai figli, o per aiutarli a sopravvivere, data la precarietà dei loro lavori malpagati? O l’ennesimo aumento delle accise sulla benzina, che colpisce tutti i cittadini e che sicuramente non contribuisce a far girare l’economia, dato che come si sa con il carburante aumentano anche tutti i beni, dato che il trasporto più caro viene fatto ricadere sull’acquirente?

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European Bank Stress Test; Only Eight? Europe Is In Peril!

by Stephen Pope

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One does not have to dig too deep to discover the exposure level of the banks from the “big” European nations, France, Germany and the UK. Liability risk to the nations that have already been bailed out i.e. Greece, Ireland and Portugal sums to €500Bn. If one broadens the sweep to include exposure to Italy and Spain then the figure leaps to €2Tn. So imagine my concern, but not surprise to learn that the European Banking Authority, (EBA) has revealed that in the course of the 2011 stress tests a mere 8 out of the 90 

European banks that undertook stress tests have failed. the EBA claimed that the test would ensure the banks could withstand another financial crisis. What a sham. What a wasted opportunity. In fact beyond the broken 8 a further 16 are considered as in the danger zone. Spain had 5 banks fail the financial healthchecks, 2 Greek banks failed and there was 1 from Austria. I wish for once, the European authorities would be bold and actually design a test that is rigerous. I do not want to see failure for the sake of it, but the financial community at a global level deserves and should demand better. Still, fudge, duck and cover have become a bywords for being European when matters of sovereign debtand bank liquidity are being discussed.

The EBA has called for European financial regulatory authorities to ensure that any recognised capital inadequacybe addressed with all haste. shortfalls in capital are resolved as a matter of priority.

In the UK, the Financial Services Authority, (FSA), said: “…We welcome the publication of the EBA stress tests… The results support our own stress tests…”

The Spanish situation is less convincing as Pastor, Unnim, Caja3, Catalunya Caixa and CAM failed and a further 7 are deemed to be close to the edge. However, as to heeding the words of the EBA, it seems as though Spain is dragging its feet. The Governor of the Bank of Spain said injecting additional capital into failing banks was not relevant. Many of its banks were undergoing fundamental restructuring as a result of sovereign debt crisis fears. I cannot believe that when Spain could be the next sovereign domino to topple, the Spanish authorities are being so casual in their approach.

I cannot help but think that the EBA are looking at financial life with a 12 month lag. They say that the test of 2011 will prompt all banks to rebuild their balances to ensure that they hold enough capital to secure themselves against future liabilities. Just a moment…I thought they were meant to be doing that straight after the 2010 test? Perhaps the perception that the ECB will always help has become the normal way of Iberian banking behaviour. This has a degree of justification as the Bank of Portugal said that 2 of its banks, Banco Comercial Portugues and Espirito Santo Financial Group will now strengthen their capital reserves within 3 months. The country has already received a bail-out worth €78 billion earlier this year; so why are they going to take another 3 months?

We are now on the boundary of treading where too many Europeans have feared to go for too long. The last 2 weeks have seen serious questions be asked about Italy. Marketmind has questioned the sovereign before, but now it appears to be official. the level of debt to GDP in Italy is 120.3%, (Greece 124.8%) and Italian GDP growth after debt servicing in 2011 will be -2.5% (Greece -19.3%), and there is now serious concerns as to whether Italy and at least some of its banks will be dragged into the sovereign debt crisis. Were Italy to be denied access to the international capital marketsthe issues would be severe. The average maturity on Italian national debt is just 7.1 years (Greece 6.8 years). It is the scale of the debt that is most alarming as Italy owes 25% of all the debt in the Euro Zone. It is not just Italy that would feel pain for French banks are seen to hold roughly €90Bn in Italian sovereign debt and have a total exposure to Italy i.e. sovereign plus financial instutions plus corporates of €360Bn. If Italy struggles, the European project will collapse.

To start addressing the matter, albiet with a gun to their heads, the Italian parliament approved a €70Bn austerity package and Italy’s central bank said that all Italian banks had passed the tests. I do not want overstate the Italian case as the banks do have huge deposit bases on which to call…but it is valuable to look further out beyond the immediate crisis, perhaps we need to start digging fire breaks, before the flames engulf Europe completely.

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The road to Rome

by Economist

In the first of three articles on the worsening debt crisis, we examine the spread of contagion to Italy

EVER since Europe’s sovereign-debt saga began, euro-area policymakers have feared that the turmoil afflicting first Greece, and then Ireland and Portugal, would engulf larger economies. Most attention had focused on Spain, a country that remains in peril. This week, however, contagion spread to another and even more alarming place: Italy.

Starting on July 8th bond markets staged an unexpected buyers’ strike, driving yields on Italian debt to their highest levels in a decade. These violent moves were mirrored by sharp falls in the shares of Italian banks. Markets calmed in mid-week amid talk that the European Central Bank had started buying peripheral debt. But the psychological damage has been done. The possibility that Italy, the euro area’s third-largest economy and the world’s third-biggest issuer of government bonds, might be sucked into the debt crisis cannot now be denied.

The sell-off was in many respects overdone. Italy’s gross debt-to-GDP ratio is large, at 120%, and the country has a chronic growth problem, but it is not insolvent. Its primary balance (ie, excluding interest payments) is in surplus and the average maturity of its debt is a reasonable seven years. Plenty of other countries have debt profiles that are just as worrying (see table). Italy has a vibrant export sector that could thrive further if the country were more competitive.

That does not necessarily mean the markets were being irrational. Were Italy to be frozen out of the bond markets, let alone default, the effects would be enormous. Italy owes about a quarter of all government debt in the euro zone. Its bonds are held by banks and insurers across the region. Stress tests of Europe’s biggest banks are due to be released on July 15th and are expected to show that the region’s banking system could absorb the losses from a Greek default with only a dozen or so banks having to raise extra capital. Losses from Ireland or Portugal could similarly be contained. But steep falls in the value of Italian or Spanish government debt risk a wave of bank failures.

French banks held almost $100 billion of Italian sovereign debt at the end of last year (and had total exposures to Italy that were about four times larger), according to the Bank for International Settlements. That is more than their combined exposure to Greece, Ireland, Portugal and Spain. “If the crisis reaches Italy, which I don’t think it will, then France will probably be part of the hurricane,” says a senior Italian banker. American money-market funds, a big source of short-term funding for European banks, are already said to be trimming their exposures to French banks.

The immediate cause of the sharp fall in bond prices seems to have been rooted in the byzantine world of Italian politics, and in particular, an acrimonious spat between Silvio Berlusconi, the prime minister, and Giulio Tremonti, the finance minister, over provisions in an emergency budget. Mr Berlusconi ridiculed Mr Tremonti, who is trusted by markets, as someone who “thinks he’s a genius and believes that everyone else is a cretin”.

Other domestic factors also fed the sell-off. One is an imminent surge in bond redemptions: €175 billion ($247 billion) in Italian government paper (11% of total marketable debt) comes due in the second half of this year. Another was the fact that Mr Tremonti’s budget package was less austere than initially billed: of €40 billion in deficit-cutting measures, €34 billion were put off until 2013 and 2014, by which time a new government will be in office. Lots of cuts were short on detail. A provision in the budget to increase the flat-rate stamp duty on government bonds, rendering them considerably less appealing to retail investors, did not help.

Events abroad played their part, too. Signals that the endless fumbling over Greece’s second bail-out will end in debt restructuring prompted investor flight from core euro-zone countries as well as peripheral ones. Long-term buyers of government bonds such as pension funds and insurers held back, leading to an almost total closure of the Italian bond market. “If Greece is going to become disorderly then you don’t want to be overweight Italy,” says Andrew Balls of PIMCO, the world’s largest bond investor.

This downward spiral may have been exacerbated by Europe’s efforts to cut the value of Greek sovereign debt without triggering a payout on credit-default-swap contracts. That would leave many holders of Greek debt without protection from losses, encouraging them to hedge their risk by betting against other euro-denominated debt like Italy’s. It also encourages holders of Italian debt to sell bonds rather than insure them with policies that may not pay out. Government pressure on banks to maintain their holdings in Greece may also have prompted concern that similar coercion could emerge elsewhere. A downgrade of Irish debt by Moody’s, a ratings agency, added to the nervousness.

Be afraid, don’t panic

The prospect of Italy being sucked into a debt trap in which it has to borrow more simply to service existing debt is, for the moment, remote. Most of the country’s debt need not be refinanced for years, so it would take a while before higher rates fed through. Analysts at UBS reckon that even if ten-year interest rates were to spike to 10% on Italian debt—they briefly topped 6% on July 12th—its average borrowing costs would rise by only 0.5 percentage points a year over the next four years.

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Its banking system is also relatively insulated from turmoil in bond markets, with more than 90% of loans funded by retail deposits. Many of its biggest banks have stocked up on excess liquidity. “The Italian banks are much stronger than they look,” says Paolo Bordogna of Bain & Co, a consultancy that has worked with several. “They typically have strong retail franchises with loyal customers.”

Italy has also moved swiftly to shore up confidence, fast-tracking a vote on the budget as well as proposals to privatise state-owned assets. Italy’s deficit, already among the smallest in the euro zone, is set to shrink further. By 2014 Italy expects to be paying down its debt. Senior Italian figures are also pressing for more fundamental changes to free up a moribund economy and spur growth. “Italy only reacts under an emergency,” says the boss of an Italian financial institution. “Now there is one.”

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Politici e banchieri

di Ida Magli

Il sabato 9 luglio 2011 è una data che gli Italiani non debbono dimenticare. E’ il giorno, infatti, in cui il Ministro Tremonti, senza dare nessuna giustificazione del fatto che non paga l’affitto della casa dove abita, ha risposto ai giornalisti che gli domandavano se avesse intenzione di dimettersi, con una frase lapidaria: “Non mi dimetto perché sono io che garantisco l’Italia davanti all’Europa: se cado io, cade l’Italia e se cade l’Italia cade l’euro. E’ una catena.” In nessun periodo della storia d’Occidente un uomo politico, quale che fosse la sua importanza, ha mai potuto fare una simile affermazione. Né un conquistatore come Napoleone, né uno Zar come Pietro il Grande né un Re come Luigi XIV, né un Imperatore come Filippo di Spagna, perché essi rappresentavano l’immagine politica, non la dimensione concreta degli Stati, la forza dei popoli che vi vivono. Quelle di Tremonti, invece, per quanto terribili, non sono parole vane. La situazione è proprio quella che lui ha riassunto nell’affermazione: se cado io cade l’Italia e cade l’euro. In altri termini, l’Europa va in rovina perché il potere è nelle mani di una decina di banchieri, e sono essi a quantificarne la forza, giocandola in Borsa. Giocatori che soltanto la penna di Dostojewski sarebbe in grado di descrivere, questi banchieri hanno messo sul tavolo da gioco le Nazioni e non si alzeranno fino a quando non le avranno giocate tutte, essendo loro ad avere in mano il banco.

Il dramma, dunque, è tutto qui. Firmando il trattato di Maastricht i politici hanno trasferito il proprio potere nelle mani dei banchieri. Oggi debbono riprenderselo, non possono fare altro che riprenderselo. Il che significa avere il coraggio di creare, senza indugio e senza discussioni, una nuova banca nazionale e stampare in proprio la moneta necessaria al bilancio dello Stato. I titoli dello Stato li compreranno esclusivamente i suoi cittadini (come avviene in Cina, in Russia e ovunque ci siano governi degni di questo nome) e non saranno collocati nella borsa mondiale alla mercé di chiunque voglia impadronirsene. Sono già pronti molti studi e molti progetti, elaborati da economisti italiani e stranieri di grande competenza, per la rinascita della moneta nazionale, e sono anche molti i politici, presenti in diversi Partiti, dal Pdl alla Lega, a Io amo l’Italia all’Italia dei Valori (con un’interpellanza parlamentare dell’on. Di Pietro sulla questione della sovranità monetaria) che sarebbero favorevoli a questa decisione e aspettano soltanto che qualcuno prenda la parola per primo. Si tratta di una decisione che comporterà moltissimi sacrifici, ma alla quale non c’è scelta perché uno Stato che intraprende la strada dei prestiti a interesse con la Banca centrale europea, non sarà mai in grado di restituirli e alla fine crollerà. Abbiamo la Grecia sotto gli occhi: dopo un orribile tira e molla, indegno di un qualsiasi concetto di civiltà, per concederle dei prestiti ad altissimo interesse, oggi la Bce dichiara che il fallimento della Grecia è inevitabile. Non è forse stato imposto pochi giorni fa all’Italia, di cui a sua volta si dice che stia per fallire, di contribuire per il 17% al totale dei miliardi prestati alla Grecia? Debitori sull’orlo della rovina costretti a prestare denaro a chi sta per fallire? C’è in Italia qualche politico che abbia conservato il minimo di buon senso necessario per rendersi conto della “follia” (se è follia e non rapina preordinata) di simili comportamenti?

E’ indispensabile abbandonare ladri e folli al loro destino. Nessuno si illuda che esistano alternative alla decisione di produrre in proprio la moneta. Il meccanismo che sta portando alla rovina gli Stati europei non è dovuto a un qualche imprevedibile incidente ma è intrinseco alla creazione dell’euro, cosa che è stata detta e ripetuta innumerevoli volte da economisti e monetaristi di ogni tendenza politica. Non può sussistere una moneta che non fa capo a uno Stato e che non risponde alle necessità di questo Stato, in quanto la moneta di per sé è stata inventata proprio per essere uno “strumento” e non un “fine”. In Europa, invece, gli Stati sono stati costretti a mettersi al servizio dell’euro, piegandosi a poco a poco a costruire un mercato adatto all’euro, limitando le possibilità di scambio delle merci, coltivando carote su misura, uccidendo mucche, distruggendo arance… Per gli storici di domani l’Europa dell’Unione costituirà l’esempio più evidente di una società che delira. Siamo però ancora in tempo a cercare di non morirne.

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On the edge

by Economist

By engulfing Italy, the euro crisis has entered a perilous new phase—with the single currency itself now at risk

FOR more than a year the euro zone’s debt drama has lurched from one nail-biting scene to another. First Greece took centre stage; then Ireland; then Portugal; then Greece again. Each time European policymakers reacted similarly: with denial and dithering, followed at the eleventh hour with a half-baked rescue plan to buy time.

This week the shortcomings of this muddling-through were laid bare (see article). Financial markets turned on Italy, the euro zone’s third-biggest economy, with alarming speed. Yields on ten-year Italian bonds jumped by almost a percentage point in two trading days: on July 12th they breached 6%, their highest since the euro was created. The Milan stockmarket slumped to its lowest in two years. Though bond yields subsequently fell back, the debt crisis has clearly entered a new phase. No longer confined to the small peripheral economies of Greece, Ireland and Portugal, it has hurdled over Spain, supposedly next in line, and reached one of the euro zone’s giants. All its members, but especially Germany, face a stark choice.

Consider the stakes. Italy has the biggest sovereign-debt market in Europe and the third-biggest in the world. It has €1.9 trillion ($2.6 trillion) of sovereign debt outstanding, 120% of its GDP, three times as much as Greece, Ireland and Portugal combined—and far more than the €250 billion or so left in the European Financial Stability Facility (EFSF), the currency club’s rescue kitty. Default would have calamitous consequences for the euro and the world economy. Even if the more likely immediate prospect is sustained stress in the Italian bond market, that will surely prompt investors to flee European assets, making the continent’s recovery ever harder. Meanwhile in the background there is the absurd pantomime of Barack Obama and congressional Republicans feuding over how to raise the federal government’s debt ceiling to stave off an American “default” (see article). That may have distracted American investors briefly; once they realise how much is at stake in Italy, it will not help.

From Rome to Brussels, Frankfurt and Berlin

The proximate cause of this week’s scare lies in Italian politics, and a row in which Silvio Berlusconi, the prime minister, hurled playground insults at Giulio Tremonti, the finance minister, over a new austerity budget. Add in the underlying concerns about the Italian economy’s feeble growth rate, and investors are understandably worried about the Italian government’s ability to shoulder its huge debt.

In theory, these concerns should be easy for a grown-up government to address. After all, Italy, for all its faults, is not a big Greece. Its debt burden has been high but stable for years. Its primary budget (ie, before interest payments) is in surplus. It has a record of cutting spending and raising taxes if it needs to do so: in 1997, when it was trying to get into the euro, its primary surplus was 6% of GDP. By European standards its banks are decently capitalised. High private saving means that much sovereign borrowing is funded at home.

In practice, though, there is seldom a clear line between illiquidity and insolvency: if the price Italy must pay to borrow rises high enough for long enough, its debt will eventually spiral out of control. And Italy’s prospects are being overwhelmed by the contradictions and uncertainties in Brussels, Frankfurt and Berlin, where respectively the Eurocrats, the European Central Bank (ECB) and Germany’s chancellor, Angela Merkel, have all vainly tried to follow two contradictory goals—namely, avoiding any formal default on Greek debt, while also avoiding an open-ended transfer from richer European countries to the insolvent periphery (see article).

To be fair to Mrs Merkel and Europe’s other leaders, they have not chosen to muddle through merely out of cowardice, though there has been plenty of that, but because the euro-zone countries are profoundly divided. They cannot agree on who should bear the cost of today’s crisis: should it be creditors (through a write-down), debtors (through austerity) or the Germans (through transfers to the south)? And they have not decided whether the long-term answer is a fiscal union, or not. Investors are thus unclear about how badly they may be hit. With Europeans in such a muddle over little Greece, no wonder investors are so terrified by big Italy.

Cometh the hour, cometh the Eurobond

What is to be done? This newspaper has long argued that muddling-through must be replaced by a comprehensive strategy based on three components: debt reduction for plainly insolvent countries; a recapitalisation of the European banks that will suffer from that restructuring; and the building of a firewall between the insolvent and the rest.

Debt reduction must begin with Greece, the country that is most obviously bust. However the restructuring is pitched, Greece will be in default, so a plan to recapitalise banks hit badly by this, starting with Greece’s own, will be needed too. The results of stress tests, due on July 15th, should show how much more help is required. There may have to be a similar restructuring for Portugal and Ireland.

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The task of building a firewall around the solvent core, including Spain and Italy, has to be shared between the countries at risk and the euro zone as a whole. Italy needs to pass its budget speedily—and also push through long overdue structural reforms. Its challenges are not only, or even mainly, about fiscal austerity, but about making the economy grow. As for the euro zone, short-term help may have to come from the ECB buying Italian bonds (difficult politically because the next head of the ECB will be Mario Draghi, the boss of Italy’s central bank). Soon though the euro zone may well have to expand the EFSF and allow it to issue jointly guaranteed “Eurobonds”.

That is a huge political leap—especially for Mrs Merkel. Germany is firmly opposed to any solution that could imply open-ended transfers to feckless southerners; so are several other northern European countries, not least because guaranteeing others may raise their own borrowing costs. It is not a pleasant option. But the alternative could be the end of the euro. That is the horrible lesson of this week.

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