European Reality Check

rblong2us

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So Greek banks could 'lend' everyone in Greece a few thousand euro and it would be within the rules ?
Then with 'non performing loans' allowed to die rather than be paid back, as per the new rules being considered, this would be a great way for the Greek people, who have not had an easy time of austerity, to get back at the bastards who have done them down.

Would the Greek gov be up for this ? would be quite popular I reckon (-:
 

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Italy's Five Star and Lega are working to form a coalition. It's looking very anti-EU:

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Rumors last night the coalition was about to collapse seem to be false. Explosive details emerge today as noted in these Tweets.

Details
  1. Five Star and the League expect the ECB to forgive 250 billion euros in Italian bonds bought via quantitative easing, in order to bring down Italy's debt
  2. The two parties want to re-open European Treaties and to "radically reform" the stability and growth pact. The coalition would also want to reconsider Italy's contribution to the EU budget.
  3. According to @HuffPostItalia, the 5 Star/League draft agreement would include an opt-out mechanism to leave the euro in an "agreed manner" were there to be a "clear popular will" to do so.
  4. The draft document says Italy should stay in Nato, but asks for an immediate withdrawal of sanctions vs Russia, so that Moscow can return to be a "strategic partner" in conflict zones
  5. According to @HuffPostItalia, the 5 Star/League draft document says there would be a "flat tax"... but with several tax rates and deductions
  6. Italy's pension reform would be dismantled: workers would be able to retire when the sum of their retirement age and years of contribution is at least 100.
  7. The draft coalition agreement of a 5 Star/Lega government leaked to @HuffPostItalia calls for a revision of the Dublin regulation on immigration and for compulsory relocation of asylum seekers across the EU
...

More: https://www.themaven.net/mishtalk/e...l-250-billion-in-debt-9eWeNMVQj0ijTGJNCTrSpQ/

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The draft agreement also contains a eurozone exit clause, on page 35. The two parties commit to introducing (our translation)"specific technical procedures of an economic and legal nature” to allow the country to leave the euro, or to obtain an opt-out if there is a popular majority. The article points out that this clause questions the principle of the euro's irreversibility. We heard a comment from the two parties yesterday that this clause is no longer in the current draft.

On page 38, almost at the end, there is a reference to the cancellation of the stock of Italian sovereign debt held by the ECB.
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There can be no doubt that Five Star and Lega are following a radical agenda even if this draft agreement were to be rendered a little flatter in subsequent revisions. ...

https://www.themaven.net/mishtalk/e...to-leave-the-eurozone-ETLIX5VNIE2K7Pxi00_V1A/
 

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In an unprecedented vote that exposed deep EU divisions, the European Parliament in Strasbourg backed a report calling for Hungary to be sanctioned for its crackdown on NGOs, the media and universities.

Budapest’s foreign minister Peter Szijjarto denounced the vote to trigger the “Article 7” procedure as the “petty revenge” of “pro-immigration politicians”.
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Hungary has long been at loggerheads with Brussels over its opposition to the EU’s mandatory migrant quotas and strongman leader Viktor Orban has allied himself with Eurosceptic leaders such as Italy’s interior minister Matteo Salvini.
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On Tuesday, Viktor Orban, Hungary’s populist strongman leader, spoke in the European Parliament.

He claimed that the verdict had “already been written”. “Hungary will be condemned because Hungarians have decided their country is not going to be a country of migrants," he told MEPs on Tuesday.

He said that European Parliament elections in May next year would be the battleground between pro-EU and nationalistic politicians where Europe’s future direction would be settled. Prominent far-right figures are floating the idea of forging a pan-European alliance ahead of next year's elections.

Mr Orban insisted that all of the criticism against his government is based on Hungary's tough anti-immigration policies, which include fences built in 2015 on Hungary's southern borders with Serbian and Croatia to divert the flow of migrants and very restrictive asylum rules. He has also expressed his desire to remain within the EPP, which he said was "deeply divided" on the issue of migration.

https://www.yahoo.com/news/eu-votes-overwhelmingly-action-against-112928594.html

Farage invited Orban to "join the Brexit club":

 

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rblong2us

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Italy is far more in control of this situation than anyone at the EU commission will admit. What’s that old saying about banks and owing them $1 million dollars?
............

Italy is far too large for the EU to even consider kicking out. It’s not going to happen and Italy knows it.

This budget deficit is simply Italy calling the EU’s bluff. What are they going to do? The largest country in the world, the reserve currency issuer, is running an almost 4% of GDP fiscal deficit with unemployment at record lows. If the United States is doing it, why shouldn’t Italy?

The world is changing. Deficits are the new normal and Italy’s latest salvo is just one of many changes that will happen in the coming months and years.

The days of the EU being able to throttle back fiscal expansion are behind us.

https://www.zerohedge.com/news/2018-10-02/italys-dragging-europe-fiscal-spending-party
 

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After starting off strong, Italian 10Y Yields have leaked wider all morning after a senior government official said on Wednesday that Italy’s 2019 budget may be rejected by the European Commission and a credit rating downgrade is also possible.

"Let’s say that the premise is there" for the commission to start an infraction process over the budget, Stefano Buffagni, cabinet undersecretary for regional affairs, said in an interview with Radio Capital cited by Reuters.

“Premier (Giuseppe) Conte is going to the EU to explain the motivations” behind the budget, he added.
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Meanwhile, Deutsche Bank economists said they think that Italy is squarely on a collision course with the European Commission, whose President Juncker said yesterday that there would be a “violent reaction” from other euro area countries if the Italian budget were to be approved.

The Commission has two weeks to decide on whether to ask for budget revisions. ...

https://www.zerohedge.com/news/2018...ficial-warns-credit-rating-downgrade-possible
 

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The European Commission rejected Italy’s budget, a European official said, an unprecedented step in the bloc’s history that’s set to escalate a standoff between Rome and Brussels that has rattled markets for months.

The negative opinion means the EU’s executive arm is asking the government to take back, revise and resubmit its plans -- though Italian Prime Minister Giuseppe Conte told Bloomberg shortly before the widely expected decision that there’s no “Plan B” for the fiscal program.

The rejection follows months of discord and tension over the spending targets, which Italy accepts breach EU rules. Italy has the highest debt ratio in the euro area after Greece, and its plans have unsettled investors, sending its bond yields to a five-year high last week. Moody’s Investors Service last week downgraded Italy to just one level above junk.

While actual sanctions are still improbable and wouldn’t be levied for months, European officials have been wary of handing ammunition to Italy’s euroskeptic government that already waged one successful election campaign by blaming the EU for many of the country’s ills.

Following the commission’s decision, Italy now has three weeks to revise its spending plans and resubmit them to Brussels for a fresh review.
...

https://www.bloomberg.com/news/arti...precedented-budget-rebuke-for-breaching-rules

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Italy's budget rebellion comes at particularly difficult time for the Eurozone. Germany's exports will collapse if there is no deal, and that is increasingly likely.

Even if there is a deal, Germany is in a world of hurt over car emissions. And if Italy is cut to Junk (Moody's is one stop above Junk level), its bonds cannot be used as collateral.

If on top of this, Trump puts a tariff on German cars, kiss Germany goodbye.

I doubt the Eurozone survives this onslaught intact.

https://moneymaven.io/mishtalk/econ...erately-and-knowingly-Q4obVrMD_k24Md2P7wxQQQ/
 

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Gee, seems like the united states of Europe is having lots of problems lately. They keep telling us to be more like them, just like the liberals here tell us we need to be more like Europe. I'd still rather see the U.N. dissolved before they end up establishing a united states of Earth.
 

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In what may prove to be a painful admission in retrospect and an inadvertent green light for future bank runs, on Wednesday morning Italy's Cabinet Undersecretary Giancarlo Giorgetti said in an interview on Italy's RAI that Italian banks would need a "recapitalization" if the spread with German bonds continues to rise toward 400 basis points, from the current level of 314bps which is just shy of the widest level it has been going back to early 2013.

400%20bps%20italy.jpg


The last time "lo spread" hit 400 bps was in late 2012, around the time of Mario Draghi's legendary "whatever it takes" speech.

According to the Italian official, who is Deputy Prime Minister Matteo Salvini’s closest aide, bank assets would "automatically" suffer if the spread neared the 400-level and so as a consequence recapitalization would be needed. And since a recap for Italy's capital starved banks would likely entail balance sheet restructurings, accompanied by bail-ins of creditors and/or depositors, the closer "lo spread" got to the critical red line, the more likely Italian bank runs will become.

Said otherwise, the Italian population will now be even more focused on the spread of Italian bonds, and the higher it grows, the less comfort Italians will have with keeping their savings in local banks, and the more likely bank jogs (and then runs) will become.
...

https://www.zerohedge.com/news/2018-10-24/400-bps-italy-inadvertently-sets-red-line-coming-bank-run
 

rblong2us

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Both sides will have a plan B
Its unrealistic to think that even in their arrogant presumption of being in charge, they will not plan for the Italians to do something that would cause (in their view) serious harm to Italy.

My instinct has always been that Germany will roll over and 'print to infinity' rather than let the Euro collapse.
There are too few alive now who can remember and remind us of the effects of hyperinflation
 

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Across Europe, and particularly in the 18-member Eurozone, the economic news is sobering. It’s now clear that the credit crunch in emerging markets which has played out over most of this year, plus the slowdown in China, are having negative consequences in Europe. Yet, despite the ongoing trauma of Brexit, the UK is cruising along relatively smoothly – for now.

A number of critical events are about to coincide. Firstly, the ECB will cease printing money by means of quantitative easing (QE) in December. ...

Then there is a second shock about to arrive, namely Brexit, scheduled for 29th March 2019. As I write it seems very unlikely that the May-Barnier Withdrawal Agreement will be approved by the House of Commons when it comes to the vote on 11th December (see below). The Europeans have already said that there is no room for any form of renegotiation. Therefore, a no-deal Brexit is looking more than 50 percent probable.

While that would be a huge shock for the UK economy as supply chains freeze (at least for a few weeks until manufacturers work out how to trade with the EU under WTO rules), it would also be a massive shock to the EU economy. Remember that something like 20 percent of all German cars produced are shipped directly to the UK. Threats to shut down air links (Ryanair’s Mr O’Leary seems, happily, to have fallen silent of late), and of closing cross-channel ports in Europe would prove a double-edged sword. The European Commission’s Eurozone growth forecast for 2019 of 2.1 percent now looks highly implausible.

Thirdly, the spat between Brussel and Rome over the Italian government is about to bubble over into a major crisis. ...

The German IHS Markit manufacturing index fell to 50.2 in November. The Germans have not been as short of confidence about their future since the end-game of the European sovereign debt crisis in 2013. Orders for German exports have fallen to a six-year low.
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Italy’s economic growth sputtered to a halt in Q3. The ECB’s Chief Economist, Peter Praet, warned that the country is moving towards financial crisis. Italian government 10-year bonds are yielding 3.2 percent this morning – while equivalent German Bunds are yielding 0.34 percent. Italy’s banks are becoming unable to refinance their outstanding bond issues in the current market with the result that they are curtailing lending at a moment when the economy is already pitching downwards. Mortgage rates have been rising markedly – and this is having an immediate impact on disposable incomes.
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French manufacturing data in November was sobering. France has been beset by mass protests and demonstrations of various kinds – all opposed to President Macron’s economic policies which, despite his socialist pedigree, appear to benefit only the rich. His liberal metropolitan liberal credentials have been reinforced by some of his social initiatives but he is increasingly perceived as a globalist – both within and outside France. The opinion polls suggest that he is now the most unpopular French president ever.
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In late November the EU bailout team of inspectors turned up in Dublin with their clipboards and officious manners. They told their hosts that they were in danger of overheating. They warned that a Brexit shock could upset the country’s fragile banking system.

In 2010, readers will recall, Ireland was obliged to accept a bailout of €85 billion from the troika (the EU, the ECB and the IMF). That was supplemented with bilateral loans from Denmark, Sweden and the UK. The Irish economy fell by 11 percent and haemorrhaged 300,000 jobs. While the economy has recovered since then, much of the uplift is on the back of a few multinational corporations (principally Apple (NASDAQ:AAPL)) domiciling themselves in Ireland on account of its favourable corporation tax regime. This had the effect of inflating the country’s growth rate (and thus the Eurozone’s overall) artificially.

About 10 percent of Irish mortgagees are still in negative equity – though few people are likely to lose their homes as a result of Ireland’s liberal foreclosure rules (unlike in Spain). Overall, Ireland’s banks have a ratio of 9.2 percent of non-performing loans.

Ireland is heavily exposed to any negative fallout from Brexit. Ireland sends 15 percent of its exports to the UK and the UK accounts for 25 percent of Irish imports. However, Brexit, in my view, is not the single biggest threat to the Irish economy. Rather, that is manifested by President Macron’s plans to harmonise business taxes across the Eurozone.

Currently, Ireland offers multinationals like Apple the so called Double Irish tax break. This loophole allows Apple et al to vest their intellectual property rights into an offshore jurisdiction (Panama – whatever) and then license that technology to a company based in Ireland. (Starbucks does something similar in the Netherlands). Such entities are subject to offshore taxation but the US government regards them as Irish companies. Soon, our Irish friends will have the European Commission and the US Internal Revenue Service after them at the same time.
...

More (long but worth it): https://masterinvestor.co.uk/brexit/news-from-euroland-recession-imminent/

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So add all this up. We could see Europe faced with monetary tightening, hard Brexit, an Italian breakdown, popular unrest not just in France but all over, a trade war and a German/Italian bank crisis all at the same time. Again, this is not a far-off possibility. It could all be happening in the next three or four months.

If some combination of these crises develops into a perfect storm, the pain won’t stay in Europe. US, Canadian, Latin American, and Asian companies that do business with Europe will lose sales and have to lay off workers. Lenders everywhere who own Euro debt will face losses. Highly leveraged derivatives could blow up, forcing bailouts and currency interventions. We don’t know where it would lead but certainly nowhere good.

And it will end up being played out in the equity markets all over the world. Stay tuned…

https://news.goldcore.com/us/gold-b...-disunion-as-brexit-italy-and-end-of-qe-loom/

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Let's recap events in Italy and France that led to this EU predicament.

In an unprecedented move on October 23, the EU Rebuked Italy's Budget. In response, Savini Threatened a Government Collapse and New Elections.

The EU demanded Italy reduce its budget deficit to 2.0% of GDP. Italy insisted on 2.4%. After the threats and counter-threats, the sides agreed to talk.

Note that France gets a deficit of 3.0% but Italy only 2.0%. This is because Italy's debt is higher. In practice, one ever honored any of these "stability pact" rules, including Germany.

Meanwhile, France just threw a wrench into the already clogged stability pact machinery.

In case you missed it, France Suspends Diesel Tax Hike over the riots. Then when that did not quiet the protests, I noted Macron Attempts to Placate Yellow Vest Protesters With Free Money.

The French deficit was 3.0% but thanks to the yellow vest riots, and Macron's response, the French deficit is now estimated to be 3.6%.
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The EU can crack down on France and Italy, or neither.

Imagine after these riots over taxes, the European Commission telling Macron to raise taxes or cut benefits.

Jean-Claude Juncker's comment "because it is France" will not float this time.

https://moneymaven.io/mishtalk/econ...to-the-stability-pact-9VNUfV6imUK-UctayFkOyg/
 

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Looks like the EU capitulated and how could they not (thanks France!):
The market-rattling game of chicken between Rome and Brussels has ended in a draw.

EU officials confirmed Wednesday that after a meeting in Brussels with leaders from Rome, the two sides have struck a deal on the Italian budget deficit that will allow Italy to move forward with its plans to expand welfare benefits and tax cuts while avoiding the threat of billions of euros in fines.

EU commission vice-president Valdis Dombrovskis said the agreement that had been reached would lead to an expected budget deficit next year of 2.04% - a number of redundantly laughable precision - of GDP compared with 2.4% in Rome’s original plans.

The euro climbed, European bank stocks rallied and Italian bond yields moved lower after EU officials, who had been meeting with Italian Prime Minister Giuseppe Conti and other government officials in Brussels on Wednesday, confirmed that they would abandon their plans for an "excessive debt proceeding" against Italy, the process for officially punishing an EU member found to be in violation of the bloc's stringent budget rules.
...

https://www.zerohedge.com/news/2018...tocks-rally-rome-strikes-budget-deal-brussels
 

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Yellow vest protesters to withdraw all their euros in massive run on French banks

Furious yellow vests are preparing to withdraw all their euros in a massive run on French banks, as the violent protests spill over to Britain.

Yellow vest activists are urging French citizens to empty their bank accounts and spark a massive run on the country’s banks in their longstanding fight with the government — which could lead to the collapse of its banking system.

The call for citizens to withdraw all their euros come as copycat protests are planned for Britain on the weekend.

The left-wing “People’s Assembly” activist group has invited thousands of people to wear yellow vests at an anti-austerity “Britain is broken” march in central London this weekend.

“See you on the streets and don’t forget your #YellowVests,” the group, which is demanding a general election to end the ruling Conservatives’ program of austerity, wrote on Facebook.

Meanwhile right-wing, Brexit-supporting activists have signalled their intent to hold demonstrations in British cities, including the capital, under the banner “#YellowVestUK”.

This comes ahead of the ninth straight weekend of protests across France, with yellow vests now issuing calls on social media for massive cash withdrawals from banks.

Protesters hope the move will force the government to listen to their demands, notably their call for more direct democracy through the implementation of popular votes that allow citizens to propose new laws.

Activist Maxime Nicolle called it the “tax collector’s referendum.”

In a video message, Nicolle said “we are going to get our bread back … You’re making money with our dough, and we’re fed up.”

WHAT COULD A BANK RUN MEAN?

If a bank run succeeds, the yellow vests could cause a complete failure of France’s banking system.

Unlike Australia, France operates on a Fractional Reserve System meaning their banking system holds a fraction of money that’s deposited by customers. The rest is used to make loans, creating new money.

The countries banks are believed to have about a quarter of the cash needed to weather a bank run.

If reports are true in saying 70 per cent of the population plans to withdraw all their euros, it means more than 46 million people will be directly revolting against the system.

This could lead to a systemic banking crisis in the country where almost all the banking capital is wiped out.

HOW COULD IT AFFECT ECONOMY?

France has the seventh largest economy in the world and the second largest in Europe, valued at $US2.58 trillion, according to world bank data.

It relies heavily on tourism and agriculture to sustain this — and boasts being the most visited country in the world.

If a bank run leads to widespread financial crisis it can result in a long economic recession for businesses and consumers who don’t have enough money.

During the Great Depression in the 1930s much of the economic damage was caused by bank runs.

A bank run like the one being promoted in France now could potentially paralyse the country’s economy and lead to a collapse in the Euro.
...

https://www.news.com.au/world/europ...s/news-story/ed334ed08b2ccfc13ca1b108c78f25eb

I have doubts about 70% of France's population being willing to crash their banking system over this protest, but even 10-20% participation could cause significant pain I would imagine.
 

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Industrial output is in crashing. Retail sales have stagnated. Business confidence has dropped, and investment is heading south. ... It is now painfully obvious that the eurozone is heading into a sharp recession.

The numbers coming out of all its main economies, from Germany to France, Italy and Spain, are relentlessly bad. What does that mean? Far from winding up quantitative easing, the European Central Bank will be forced to step in with emergency measures to rescue a failing economy -- but it may well prove too little, too late.

2018 was meant to be the year when the eurozone consolidated its steady recovery, agreed on reforms to fix the flaws in the single currency, pressed forward with reforms to boost its competitiveness, and gave the rest of the world a lesson in balanced, sustainable growth. Over the past year, a ton of investors' money has bought into the Euro-boom story. Steady recovery would drive voters away from populist parties, encourage reform, and create a virtuous circle of expansion and renewal.

The script has not quite worked out as planned, however. Today bought yet another wave of disappointing numbers. Italian industrial production was down 2.6 percent year on year. In Spain, industrial output was also down 2.6 percent, the fastest rate of contraction since May 2013. The day before, we learned that French industrial output was down by 1.3 percent in November, and Germany, which is meant to be the main engine of the continent, recorded a decline 1.9 percent for the month, as well as re-calculating October's data to show a steeper drop than reported earlier.

The eurozone is now seeing a synchronised slowdown right across all its major economies. ...

https://www.telegraph.co.uk/business/2019/01/11/next-eurozone-crisis-has-already-started/

copy (no paywall): http://gata.org/node/18758

2019 looks like it's going to be serving up a shit sandwich to the world. We are catching up to that can we kicked back in 2008. A decade of NIRP and ZIRP didn't facilitate the growth necessary to keep up with, much less outpace, the debts we were feeding (not just in Europe - everywhere).
 

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The Italian government's decision to cut its growth forecast for 2019 to just 1% during the most heated period of the populist government's budget battle briefly rattled investors in the country's bondholders. As it turns out, even that number may have been too optimistic.

In a report that could once again test the market's confidence in Europe's third-largest economy, official data from Italy's Istat revealed that Italy's economy fell into a technical recession during Q4, as economic output shrank 0.2% in the three months through December, following a 0.1% decline during the previous quarter.
...

More: https://www.zerohedge.com/news/2019...slides-recession-after-budget-battle-brussels

So what is the EU going to do about it? Probably nothing because they don't (or won't) have the moral high ground - the big boys in the EU are facing similar downturns in their economies.
 

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From the trading floors of London to the gatherings of European leaders in Brussels, there’s one issue that can induce a shudder of financial fear like no other: Italian debt.

Europe’s most dangerous stock of public borrowing—some 1.5 trillion euros ($1.7 trillion)—is concentrated on the balance sheets of banks in Rome and Milan. But a rout could quickly sweep in lenders in Frankfurt, Paris and Madrid—the main banks in the rest of Europe are holding more than 425 billion euros of sovereign and private Italian debt, based on a Bloomberg analysis of European Banking Authority data.

Although Italy’s economy slipped into recession in the fourth quarter, markets are calm for now. But a budget standoff in the fall showed how swiftly sentiment can turn. And if markets should turn south, no one knows exactly where the tipping point will come.

French banks are the most exposed if a sell-off in Italy starts to affect the economy and spread through Europe’s financial system. The country’s two largest banks, BNP Paribas SA and Credit Agricole SA own retail units in Italy.

A populist government prone to infighting and at constant odds with the European Union is what makes the current situation so dicey. It needs to sell more than 400 billion euros a year to keep the show on the road, a situation that forces domestic banks to buy even more debt.

The connection between a weak economy and weak banks, many of which are still vulnerable despite three years of declines in bad loans, has a name: the doom loop.

A government crisis could drag down the banking system or a banking crisis could suck in the government. Already seven lenders have required bailouts in the past three years, and they may not be the last.
...

More: https://www.bloomberg.com/graphics/2019-italian-banks/
 

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Here we go again....
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Italy is closely dependent upon the health of the world economy, with over 30pc of its GDP accounted for by exports, compared to only 12pc for the US. With the Italian economy now contracting again, unemployment is rising from its already appallingly high level of 10pc. Moreover, the surveys suggest continued weakness for the rest of 2019. Despite austerity, the ratio of government debt to GDP is now at 132pc. And there has been no improvement whatsoever in competitiveness against other euro members. Admittedly, Spain continues to do remarkably well but it has become painfully obvious that while Italy isn’t Greece, it isn’t Spain either.

What’s more, the political situation is now radically different. You shouldn’t be misled by last year’s agreement between the EU Commission and the Italian government on Italy’s budget deficit. This was a typical EU fudge. The Italian government believes that stronger growth will be made possible by its laxer fiscal policies, with the result that the budget deficit will come in much lower than the Commission believes. But after recent economic news from both Italy and the wider world, this view goes beyond optimism and into fantasy.

The Italian government has tried to blame the economic slowdown on weakness in the world economy and particularly the slowdown in China. This sounds plausible. One part of the Italian economy that has been particularly weak recently is car production. (Would the UK’s Society of Motor Manufacturers and Traders, which is wont to blame weakness in the UK’s car production on Brexit, please take note.)

But in Q4 of last year net exports boosted Italian GDP. The key feature of recent Italian GDP numbers has been the weakness of consumers’ expenditure. Expectations of future unemployment have risen and consumers have increased the proportion of their incomes devoted to saving. In essence, the Italian public seems to be sensing trouble ahead.

They are right to. The bond markets continue to worry about the sustainability of Italy’s debt position and its continued membership of the euro. Italian 10-year bond yields are about 2.6pc above their German equivalents, compared to 1.2pc before the current government was formed. Unless Italy manages to conjure up a sustained growth spurt, then the eventual result will be a default, an exit from the euro, or both.

Meanwhile, partly reflecting these prospects, the imbalance in monetary movements within the eurozone continues to widen. Germany continues to build up huge claims on other countries within the euro system, with claims against Italy being the largest. Italy’s (Target 2) liabilities within the euro system have now risen to some €500bn (£438bn).
...
As and when Italy finally blows up this will cause both a banking crisis that will shake the European economy and a political crisis that will rock the EU to its foundations.

https://www.telegraph.co.uk/business/2019/02/03/crisis-brewing-italy-will-lead-default-exit-euro/

h/t (no paywall): https://news.goldcore.com/us/gold-b...ions-banking-crisis-and-euro-exit-are-likely/
 

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Italy is drawing up emergency plans to safeguard financial stability and keep trade with the UK flowing even if there is a no-deal Brexit, if necessary through a bilateral deal between Rome and London.
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It is a perilous time for Italy. The economy is in a protracted recession. Risk spreads on its 10-year bonds are again nearing the threshold of 300 basis points, the level where trouble has begun in the past. ...

https://www.telegraph.co.uk/busines...ilateral-brexit-deal-britain-economic-crisis/

Italy is going to be a big problem for Germany/France.
 

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Italy’s populists opened a new front in their clash with the country’s central bank, calling on lawmakers to pass legislation stating that its gold holdings worth almost $103 billion belong to the state.

The gold ownership bill presented by euroskeptic lawmaker Claudio Borghi of the League adds to an already tense relationship between the Bank of Italy and the coalition government. It’s also sparked criticism from opposition politicians, and some national media argue that it may allow the government to raid the gold reserves to fund spending promises.

Borghi has rejected the accusation and said he’ll ensure Parliament has ultimate power. His concern is that ambiguity of ownership means that a victorious legal action against the central bank -- for inadequate supervision, for example -- leaves open the possibility of a claimant getting compensation in gold.

“My bill only aims at making clear that the gold belongs to the state, not to the government,” he said in a telephone interview on Monday. “If there are doubts on our intentions, we can also pass another law saying none of the gold reserves can be sold unless there is a majority of two thirds or more of both houses of Parliament.”

The central bank says its 90.8 billion euros in gold is the fourth-largest reserve in the world. Borghi’s bill, being examined by the Lower House’s Finance Committee, calls for an explicit interpretation of legislation that the institute “holds and manages as deposits” the gold, while the state has ownership.

In Rome on Monday, Deputy Premier Matteo Salvini emphasized the point, saying it’s “important to state that that gold belongs to Italians.”

Borghi said his plan is supported by a broad majority in Parliament.

Tension between the government and the Bank of Italy hasn’t been in short supply recently. Over the weekend, coalition leaders Salvini of the League and Luigi Di Maio of Five Star Movement used a packed meeting of former stakeholders in two liquidated lenders to slam the Bank of Italy for lax supervision.
...

https://www.bloomberg.com/news/arti...s-target-huge-gold-reserves-and-some-cry-foul

It sounds to me like Borghi, et al. see the writing on the wall with the math reality facing the banking system and are trying to protect Italy's gold from the EU. But if the central bank has latitude to "manage" the gold holdings, it likely has authority to lease, lend or participate in gold swaps with it, so it may be encumbered anyway.
 

rblong2us

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Yeah, same as Venezuelas gold is ( was) the property of the people.

Then they give control of it to the pols, cos thats democracy .......
 

ancona

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Germany had a great deal of difficulty repatriating her gold. As I recall, a boatload of it was supposed to come back to them from New York, but never did. This [to me anyway] was a huge red light, telling me that the gold was either encumbered in some way, sold or otherwise held back in some way that made it impossible to repatriate it. Some kind of shenanigans was going on and the whole thing just went quietly away.

Meanwhile, China and Russia are gobbling up the worlds gold production like starving raccoons in a trash can. Those guys know what's up. Russia is dumping paper debt as fast as they can, unlike China, who has so much of it that to dump it would mean world wide monetary catastrophe.
 

ancona

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Bullshit I say. Brexit is just that, Brexit. No more nannycrats telling them when to masturbate for mommy. Trade will continue as normal because it must. Italy is next, followed by Hungary and Poland.
 

rblong2us

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I know it is but I am entertained by the possibility of the bullshit being 'double edged'
 

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There is a dual Italian crisis brewing in the European Union. On the one hand, it is a political, or even geopolitical, crisis. Italy is undermining the unity of the European Union; blocking the EU’s recognition of those behind the coup in Venezuela as the legitimate authority; preventing the expansion of sanctions against Russia; and even supporting the ‘yellow vest’ movement in France, which is arousing the anger of the French government.

On the other hand, the crisis is economic in nature. Italy is once more sliding into a recession (economic growth was negative in the country); Italian banks are again facing financial problems; and the business media has already estimated that the Italian economic crisis could blow up the entire European banking system.

There is a strong possibility that the EU’s leaders will soon be faced with a choice: try to save Italy (and the whole of Europe) from yet another crisis or set an example by punishing the Italian government for the country’s independent economic and foreign policies. In turn, Italian Prime Minister Giuseppe Conte’s government will most likely have its own dilemma to deal with: bow down and sell its principles to get help from Brussels or go all out and regain Italian independence. The choice will not be easy and either decision will be painful. Neither ending to this Italian drama could really be called happy. As this headline in The Telegraph quite rightly notes: “Crisis brewing in Italy will lead to default, exit from the euro, or both.”
...

More: https://orientalreview.org/2019/03/...attle-between-italy-and-the-eu-is-inevitable/
 

pmbug

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Whoa! This is a full on ursupation of sovereignty. I thought it was an April's Fool joke when I first saw the headline.
Countries must seek ECB approval to manage gold reserves: Draghi

FRANKFURT, March 28 (Reuters) - The European Central Bank needs to approve any operation in the foreign reserves of euro zone countries, including gold and large foreign currency holdings, the ECB’s President Mario Draghi said on Thursday.
...

https://www.reuters.com/article/ecb...-to-manage-gold-reserves-draghi-idUSF9N1XJ02N
 

ancona

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Just wow!they've gone full authoritarian. These countries have got to come to their collective senses before it's too late.
 

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Winning over 30% of seats, Eurosceptic parties and anti-establishment groups now control their largest bloc of votes since the first EU Parliamentary election in 1979.
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Though pro-European groups together maintain a clear majority, this broad grouping has become increasingly fragmented, which could complicate policy making, while a strong showing from eurosceptics will mount a serious challenge to the status quo, according to a group of analysts from Deutsche Bank.
...

More: https://www.zerohedge.com/news/2019...-status-quo-strong-showing-parliamentary-vote

Hours after Deputy PM Matteo Salvini was handed an even clearer mandate by the Italian people to oppose austerity, promising the next budget will focus on tax cuts, EU officials have reportedly threatened a huge fine over its failure to rein in debt.

Bloomberg reports that the 3.5 billion euro ($4 billion) fine could come as part of the European Union’s regular budget monitoring process on June 5 and would mark an escalation of Rome’s budget tussle with Brussels that roiled markets at the end of 2018.
...

https://www.zerohedge.com/news/2019...er-eu-threatens-huge-fine-over-excessive-debt
 

pmbug

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This could be significant if it comes to pass:
Debate is growing in Italy about the suggestion that a new domestic currency could be introduced by the government to pay its debts -- and the possibility that Rome's Eurosceptic coalition might use it to facilitate the nation's departure from the euro.

Prominent members of deputy prime minister Matteo Salvini's ruling League party have floated the proposal -- which was endorsed by a vote in the Italian parliament last week. But how would it work, and how likely is it to happen?

The Italian government should issue debt in small denominations that can change hands as a medium of exchange -- that, at least, is the view of key advisers to Mr Salvini.

Claudio Borghi, one of the League's most influential economic advisers, has championed the idea, as has Alberto Bagnai, president of the finance committee in Rome's Senate. Mr Borghi, who has been strongly critical of Italy's membership of the single currency, is president of the budget committee in the lower house of Italy's parliament.

The proposal involves creating a new type of Treasury bill -- dubbed mini-bills of Treasury (mini-BOTs) -- which could be used by the government to pay the arrears it owes to commercial businesses, and by citizens to pay their taxes, Mr Borghi has suggested.

Thus it would have the scope to grow into what would in effect be a parallel domestic currency, separate from Italy's official currency, the euro. ...

https://www.ft.com/content/aca3c80a-86ac-11e9-97ea-05ac2431f453

h/t (no paywall): http://gata.org/node/19120

Mish posted some background and thoughts on the issue. Of note:
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To prevent Beppe Grillo and his 5-Star movement from coming into power, Italy changed its election rules to give coalitions more power than parties.

The result is Salvini might win so much support in the next election that he may have a super-majority in Parliament so as to not need a referendum to launch the mini-bot parallel currency.
...

https://moneymaven.io/mishtalk/econ...uro-parallel-currency-jfYIUXnEmUe-yeo0-uVZrg/
 

pmbug

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Italy is about to have an express date with political chaos again.

Overnight, Italian bond yields spiked following the latest media reports that Deputy PM, and Italy's defacto leader, Matteo Salvini had issued a Monday ultimatum to shake up the cabinet and threatened that if his partners in the Five Star Movement don’t yield to his demands he’ll dissolve the government.
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Something that has not broken down in recent months has been Italian bonds, whose yields have bizarrely been tumbling despite the lack of ECB support, although overnight it emerged just who was the buyer of first and last resort was when Bloomberg reported that Japanese investors bought the largest amount of Italian sovereign bonds since at least 2005 in June; purchases of Italian government securities climbed to 278.8b yen ($2.6b), the highest since comparable data became available in 2005, according to Japanese balance-of-payments released Thursday.
...

https://www.zerohedge.com/news/2019...salvini-issues-ultimatum-conte-meet-president
 

rblong2us

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When Japanese gov offerings are less appealing than Italian ones, you have to wonder wtf is really going on.

Its as if all the swans are gently fading through grey to black and it doesnt matter ........
 

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As managing director at the International Monetary Fund and a government minister in France, Christine Lagarde was renowned for her political dexterity, deftly handling recalcitrant governments, unions and business leaders.

She will need those political skills when she takes over as president of the European Central Bank on Friday, with her ascendance coming at a particularly vexing time for the bank.

The 63-year-old Frenchwoman will have to break a deadlock among eurozone policy makers over how to support the region’s faltering economy, a divergence reflected in a clash this fall within the ECB’s rate-setting committee over departing President Mario Draghi’s ultraloose monetary policy.

In the days before assuming the presidency, Ms. Lagarde gave a hint of how she will seek consensus among politicians and the eurozone public at large.

A rash of interviews—including one in which she explicitly criticized President Trump—and a charm offensive in Germany, the ECB’s biggest critic, could presage a very different style from Mr. Draghi, a veteran central banker who communicated through carefully controlled speeches and news conferences.

“Ms. Lagarde is a political heavyweight in a way that other ECB officials are not,” said Stefan Gerlach, former deputy governor of Ireland’s central bank. “She understands the constraints that politicians are under and is well-placed to find win-win solutions.”
...

https://www.wsj.com/articles/lagarde-turns-on-the-charm-as-she-takes-helm-of-ecb-11572591600

and then...

... the ECB's new head, former IMF Director and convicted criminal, Christine Lagarde ... calling on Germany and the Netherlands to use their budget surpluses to fund investments that would help stimulate the economy, ...

https://www.zerohedge.com/economics/lagarde-we-should-be-happier-have-job-have-savings

TPTB rewarded Lagarde for her work at the IMF. Who is the new director for the IMF now?
 

pmbug

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... ECB policy maker Madis Muller, the governor of the Bank of Estonia, who essentially hinted that the ECB could very well buy stocks during the next recession, saying that the central bank could broadened its asset-purchase program, if the economic situation in the euro area deteriorates significantly.

“Right now, we are doing unconventional things,” he told students at a Bundesbank event in Frankfurt on Saturday. "You could - of course - imagine even more unconventional things if the situation gets really bad" ...

https://www.zerohedge.com/markets/e...ill-buy-stocks-when-situation-gets-really-bad
 

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The European Central Bank launched an extra emergency bond-buying program worth 750 billion euros ($820 billion) in the latest attempt to calm markets and protect a euro-area economy struggling to cope with the coronavirus pandemic.

The decision in an unscheduled meeting on Wednesday night is the latest in an escalating global response to an outbreak widely seen driving the economy into recession. ECB President Christine Lagarde reinforced the message that policy makers will do all they can, saying there are “no limits to our commitment to the euro.”

“Extraordinary times require extraordinary action,” she said after the late night announcement.
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In Europe, officials are also weighing activating a regional bailout fund to help nations with strained public finances. Investors have been pushing up bond yields as they fret about the cost of the massive fiscal response to the pandemic. Italy, which already has a huge debt burden and is the worst-affected by the disease, is especially hard hit.

The ECB last week agreed to pump more liquidity into the financial system and joined other central banks in a bid to ease a funding squeeze. The measures on Wednesday include:
  • Buying public and private-sector securities until at least the end of 2020
  • Program will cover all assets eligible under current quantitative-easing program, and will be extended to commercial papers of sufficient credit quality
  • Greek government debt will be included
  • Collateral standards will be eased
  • Program will continue until ECB judges the crisis phase of the pandemic to be over, but not before the end of this year
  • The ECB will consider raising its self-imposed limits on QE holdings, and will increase the size of its programs if needed
...

https://www.msn.com/en-us/finance/m...-as-ecb-unveils-huge-bond-program/ar-BB11nNWx

Bazookas to the left of me, bazookas to the right ...
 

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6 days ago:
European Union leaders gather by video conference on Thursday in a meeting likely to see a showdown over the issue of common debt issuance or eurobonds as extra financial firepower to deal with the coronavirus pandemic.

Nine euro zone countries, including Ireland, have appealed for the common debt instrument to mitigate the economic damage from the crisis, which economists warn is causing a shock of historic scale.
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It was signed by the leaders of Belgium, France, Italy, Luxembourg, Spain, Portugal, Greece, Slovenia and Ireland – all members of the euro zone.
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Dutch finance minister Wopke Hoekstra has indicated the country maintains its opposition to the idea, saying that the relaxation of EU borrowing and spending limits earlier this week should be “adequate” to address the crisis.

Together with the Germans, and probably the Austrians and the Finns, the Dutch are likely to block the move to eurobonds at this stage.
...

https://www.irishtimes.com/business/economy/showdown-over-eurobonds-looms-in-eu-1.4212773

3 days ago:
The state finance minister of Germany's Hesse region was found dead in an apparent suicide. The 54-year-old was "deeply worried" about how to cope with the economic impact of the coronavirus pandemic.

Thomas Schaefer was found dead Saturday, March 28, near a railway track at Hochheim, near Frankfurt. According to authorities, observations of the scene as well as witness reports strongly suggest that Schaefer took his own life, leaving behind his wife and two kids.

State governor Volker Bouffier linked Schaefer’s death to the coronavirus pandemic, saying that the minister had been particularly worried about the financial fallout as a result of the pandemic, particularly in terms of fulfilling the public’s need for financial help.
...

https://www.ibtimes.com/coronavirus...deeply-worried-pandemic-fallout-kills-2949081

2 days ago:
The European Stability Mechanism (ESM) is the right instrument to share the economic burden of the coronavirus crisis, German finance minister Olaf Scholz said on Sunday, reiterating that jointly issued debt by euro zone members was not the right way to counter the impact of the pandemic.
...

https://www.msn.com/en-gb/finance/o...re-burden-german-finance-minister/ar-BB11S8a7
 
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