 Monti warns about default of Sicily
The Italian PM Mario Monti warns about a possible default by Sicily, Monti said in a statement quoted by Il Corriere della Sera. The autonomous region lead by Raffaele Lombardo has over €5.3bn in debt, thanks to inefficiencies and an outsized public service. The weight of the Sicilian economy in Italian GDP is around 5.5%. Its unemployment rate is 19.5%. Fitch said that while Sicily is not in the best financial condition, but not on the verge of an imminent default on its loans and bonds. According to governor Lombardo, who is about to step down, Sicily needs more time for reforms and a new growth plan.
BoI forecasts two years of recession for Italy
The Bank of Italy said that Italian GDP would fall by 2% this year and by 0.2% in 2013, according to Il Sole 24 Ore. In its latest bulletin, the Italian central bank has noted the very low expectations from investors: the spread between BTP and Bund is set to remain over 450bps until the end of the year. Too much uncertainty in Eurozone is driving up the yields, the statement said. In addition, the unemployment rate is expected to rise to 11% in 2013, BoI said. “We are living on the edge, the Eurozone crisis is not over,” governor Ignazio Visco told journalists. According to the BoI, the measures taken by Italian Mario Monti will have a positive impact on our economy’s growth capacity “particularly in the medium-term”.
11.1% of Italians are now officially classified as poor
A total of 11,1% of Italian households, or 2.782mn families are poor in relative terms, Il Fatto Quotidiano reports. Over 8mn people, or 13.6% of the entire Italy’s population, and 5.2% of these families are poor in absolute terms, according to the national statistics office Istat. “That’s a tragedy, a consequence of the biggest crisis since WWII,” the Istat head Enrico Giovannini said. Anyway, the Italian poverty, both in relative and absolute terms, remains stable since 2011. According to Emergency ONG, the Italian crisis “cannot be undervalued for a long time”.
Now this really is a recession: Monti to cut 1884 chauffeured cars
The Italian Mario Monti’s government will cut 1,884 chauffeured cars for public officials, or 19.4% of its fleet, over the next six months, according to ANSA. The measure is included in the spending review, launched in few last months. There were 7,837 chauffeured cars throughout the country, at the end of June. No figures were provided by government about savings from that cuts.
Hollande may have to change the French constitution for the fiscal pact
Despite his best efforts to avoid having to change the constitution for the ratification of the fiscal pact, Francois Hollande may be forced to do exactly that, according to Le Monde. The paper quotes constitutional experts such as Jean-Jacques Urvoas, a socialist who is heading the national assembly’s legal affairs committee, who say the pact contains several articles that constitute a transfer of sovereignty and thus require changing the constitution. Among them is the so called golden rule on sound public finances and a balanced budget. Hollande had hoped that he could adopt the fiscal pact by implementing the golden rule with a law. This would not require setting up the congress, a body composed of the national assembly and the senate, France’s upper house that has to decide by a three fifth majority on any change of the constitution. Doing so may be embarrassing for Hollande because most likely there will be numerous dissidents within the Socialists, the Greens and other left wing parliamentarians and the president may have to rely heavily on the conservative votes in order to ratify the fiscal pact that had been negotiated by Hollande’s conservative predecessor Nicolas Sarkozy.
Asmussen says it is too early to say if Spanish banks need to closed down
Jörg Asmussen yesterday said at an event in Brussels it was early to say whether some Spanish banks need to be wound down, Bloomberg reports. “We are at the beginning of the process to implement the banking sector reform program,” the ECB board member said. “It’s clearly too early to say what will happen to individual banks.” Spain is negotiating the terms of a €100bn eurozone bailout for its banks. The government hasn’t liquidated any lenders, instead restructuring and selling on the banks it has seized since 2009. Deputy Economy Minister Fernando Jimenez Latorre recently that closing down banks wouldn’t be the most efficient solution. The group of euro-area finance ministers “has the intention to vote formally” on July 20 on the MoU, the agreement on the bailout that Spain is due to sign with other euro nations, Asmussen said. “Then we will have to see if all banks are viable,” he said. “This is just the starting point of the exercise to really make sure where we stand, what are the recapitalization needs, maybe some institutions need to be resolved.”
Spanish consumption to tank
El Pais has a story on the impact of the three-point VAT hike. The potential for price increase is small given the low demand. Even before the VAT rise, the government had forecast a 3.1% fall in domestic demand. The article goes through sector after sector, from funeral parlours to electricity companies, and finds that in many cases the result is an increase in unemployment and a fall in demand.
ECB economist to head DIW economic research institute
The ECB economist Marcel Fratzscher will become president of the Berlin based DIW economic research institute, Spiegel Online reports. The 41-year old German currently heads the ECB department “International macroeconomic analysis” which is preparing the central bank’s stance on worldwide economic policy matters. The DIW recently caused a stir because it proposed to solve the debt crisis by creating a special tax for the wealthy.
Munich Re boss wants to break up systemic banks
Munich Re boss Nikolaus von Bomhard wants to break up systemic banks and separate the investment bank activities from the retail business, Financial Times Deutschland reports. “I am a supporter of the bank separation principle”, the head of the world’s largest reinsurer said. “I would keep them all so small that they are no longer too big to fail.” Von Bomhard’s expressed frustration at the fact that the financial crisis and repeated bank bail outs led the central banks to engage into a sustained period of ultra low interest rates, which makes it close to impossible for insurers to invest with acceptable returns.
Greek government struggles to save €11.5bn without wage cuts
The Greek finance minister Yannis Stournaras held a second day of talks with some ministers on Tuesday but was unable to obtain the commitments to the magnitude of cuts that he needs to put together to come up with the €11.5bn the troika demanded, with some ministers resisting. Finance Ministry sources told Kathimerini that following talks with fellow ministers on Monday, Stournaras had identified €5.6bn of cuts and was trying to agree the remaining €6bn yesterday. Ministry officials do not expect that these savings will have been agreed on by Wednesday’s meeting. Stournaras may be forced to revert to “horizontal” measures, such as salary or pension cuts or new taxes instead. The three leaders of the coalition will meet today to discuss the cuts.
Venizelos told critics they better leave PASOK
This is also a way to shrink a party: The leader of the once mighty Socialist party Evangelos Venizelos told Vima FM radio “Whoever has doubts or an identity crisis and does not feel that PASOK expresses them does not need to stay and suffer in PASOK.” They should leave or set up a new grouping, Kathimerini reports. He also indicated that PASOK may be open to cooperate with the Democratic left. For now the party focusses on its “recreation” of the party, after PASOK lost dramatically in the last elections.
Irish government announces €2.25bn stimulus programme
The Irish government announced a €2.25bn stimulus programme, the Irish Independent reports, with investments to go towards “shovel ready” projects in education, transport and health and construction. €1.4bn of the funds come from the European Investment Bank (EIB), National Pension Reserve Fund and domestic banks and a further €850m are to come from the sale of state assets. The government hopes to create 13,000 jobs, with many created in the construction sector. Enda Kenny said the public infrastructure investment was part of the Government’s commitment to solving the unemployment crisis.
Everything you ever want to know about that Finnish collateral
FT Alphaville has all the details on the Finnish collateral. Finland gets €770m in collateral, or 40% of its share of eurozone guarantees on the EFSF loans to Spain. The deal would be public, unlike for Greece. There will be “negative pledge” means Spain cannot issue a similar collateral to third parties. The deal is “structured as Greek collateral”, i.e. held in an escrow account and invested in government bonds. But the terms are otherwise tougher. It’s paid out in cash if Spain defaults on its EFSF loans. That was not so in Greece, where the collateral consisted of Greek government bonds. “Collateral to come from deposit guarantee fund”, which is not part of the Spanish state, but established under private law.
Hans Olaf Henkel on Merkel’s next U-turn
We would not normally quote Hans Olaf Henkel, the right wing German commentator and anti-euro activist. But his comment in the Financial Times is noteworthy for one thing: a sense that he and his friends are winning the debate. He says that just as Angela Merkel made a U-turn on energy policy after Fukushima, she will make a U-turn on the euro as well. The problem is that since her defeat at the last European Council, the mood in Germany has changed, and become more hostile towards rescues. When she see the polls turning, she will turn too. (We obviously do not agree with his position, and do not share his glee. But the substantive point is right. German public opinion has turned negative after the summit. And Merkel is ruthless. She has never put a policy ahead of herself.)
Sleepless in Brussels
Crisis solutions for the Eurozone have been hammered out by European leaders and finance ministers through marathon meetings during sleepless nights. Bloomberg writes that sleepless decision making is prone to mistakes. “It has to be one of the worst times to do negotiations,” said Chris Idzikowski, a co-founder of the British Sleep Society. Of Europe’s last six summits, three ended no earlier than 4 am. The most recent, on June 29, ended at 5 am. And finance chiefs’ monthly gatherings routinely extend past midnight. Remaining awake too long mimics the effects of being legally drunk, according to recent research. Staying up past your natural bedtime can make you more vulnerable to another’s influence and likelier to take risks. It can impair brain function and lead to misjudgments. The next summit, to hammer out a bailout for Spain’s banks on July 20, is scheduled to begin at noon, earlier than usual.
10-Y Spreads, Forex, ZC Swaps and Euribor-Ois
No reprieve.
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