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TheCountOfNowhere

Italian Banking Crisis

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Just when people started to believe it was all contained, the I-ties kick off again

 

https://www.independent.co.uk/news/business/analysis-and-features/italy-crisis-2018-explained-political-financial-markets-euro-five-star-sergio-mattarella-a8374091.html

 

Sacked the government and put a banker in charge, and now italy have done the same  xD

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TCON, could start a contagion - Italy will expose other banking frailties, the bailout which most definitely will be forthcoming should it be needed will bleed in  Brexit and other EU tensions.  

This is what can happen to rates when you manipulate them for long enough.

 

image.png.01831ec419aa978f4f1573c1ff3b69d4.png

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4 minutes ago, onlyme said:

TCON, could start a contagion - Italy will expose other banking frailties, the bailout which most definitely will be forthcoming should it be needed will bleed in  Brexit and other EU tensions.  

This is what can happen to rates when you manipulate them for long enough.

 

image.png.01831ec419aa978f4f1573c1ff3b69d4.png

More likely to spark a revolution.

 

Not ever nations people are as dumb as us brits

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3 minutes ago, onlyme said:

TCON, could start a contagion - Italy will expose other banking frailties, the bailout which most definitely will be forthcoming should it be needed will bleed in  Brexit and other EU tensions.  

This is what can happen to rates when you manipulate them for long enough.

 

image.png.01831ec419aa978f4f1573c1ff3b69d4.png

Those 10 year yields are interesting, from 1.8% start of year to 2.3% (referenced in the programme I heard last week) and now 3%.

That the Euro would collapse was always inevitable because you cannot have a one size fits all approach to very different economies, as many said at the outset, the only question being when.  If Italy starts tearing up the rule book then yields will shoot up for all the weaker economies and the Euro will be gone as there will be multiple interest rates and no currency can sustain that.

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7 minutes ago, TheCountOfNowhere said:

More likely to spark a revolution.

 

Not ever nations people are as dumb as us brits

Tusk --- soft soap or should that be sop before the shit comes down the pipe.

https://twitter.com/eucopresident

My appeal to all EU institutions: please respect the voters. We are there to serve them, not to lecture them. #Italy @dwnews

 

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Italy's govt shows complete contempt for the Globalistas.#bondsyieldsRus

https://www.themaven.net/mishtalk/economics/pack-your-bags-italy-threatens-to-deport-500-000-immigrants-KIKRSnA0mEKnpjh-hxTTIw/

 

'Things are about to heat up in the EU. Italy's ministers threaten the EU/EMU with mass deportations.

 

Italy's new leaders tell 500,000 immigrants: Pack Your Bags.

 

The right-wing Lega party, which formed a coalition government with Five-Star Movement (M5S) last week, is the driving force behind anti-immigration rhetoric and it is looking to fulfil a pledge to deport as many as 500,000 illegal migrants.

Lega leader Matteo Salvini — who is now Italy's deputy prime minister and interior minister — reiterated the government's aim to deport illegal migrants on a visit to Sicily last weekend.

On Saturday, speaking at a rally in northern Italy, Salvini had told illegal migrants "get ready to pack your bags."

On Sunday, Salvini said the only way to avoid more deaths was to stop people getting on boats in the first place. He caused a diplomatic row by accusing Tunisia of sending "convicts" over to Italy in migrant boats.

Michael Flynn, executive director of the GDP, told CNBC that the Italian government's proposals to deport around 500,000 people were "ridiculous," costly and impracticable.

Noting that Italy managed to remove, by forced deportations and voluntary returns, nearly 6,000 people in 2016 and 6,500 in 2017, when it had bed space for less than 400 in its immigration detention centers, Flynn said removing more people was unfeasible.

"Imagine the size of the system necessary to detain 500,000 people to facilitate their deportation? It is an absurd sum of money, not even counting the cost of the deportation flights.

"The costs are astronomical because forced returns involve a massive amount of work by law enforcement agencies and resources in terms of compelling people to leave, actually handling people — literally to the plane, on the plane then to the end (of the process)," he said. "If commercial flights are chartered then the numbers returning on these will be small too."

Salvini and his fellow coalition leader, Luigi Di Maio, head of M5S and the new minister for labor and economic development, know this. It's not for nothing that the Lega party campaigned ahead of the March 4 election with the slogan "Prima gli Italiani" — Italians first.

This is just the beginning of a fight. Budget rules and pension reform that the the EU will not like are coming up.

Mike "Mish" Shedlock'

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Posted (edited)

Italy will take the EU down I suspect.

https://www.themaven.net/mishtalk/economics/germany-points-finger-at-moochers-of-rome-ilR1apXKnUONme3Y2qPbRA/

'A Spiegel editorial compares Italy with a moocher who fails to say thank you for a donation.

 

Eurointelligence notes that German politicians and media have embarked on a xenophobic anti-European rampage, reminiscent of the discourse of the 1930s.

 

The editorial by Jan Fleischbauer titled "the moochers of Rome" is seething with contempt. He wonders how to call those who finance their dolce far niente lifestyle with the money of others. No prizes for guessing whom he had in mind. And for good measure he writes that the beggar at least says thank you if you fill his bag. He concludes no respectable nation should asks for help if it can help itself. No respectable nation wants to be known as a moocher. Italians have long passed this stage he concludes.

The French magazine Marianne notes that the Spiegel cover displays arrogance, stereotypes and authoritarianism consistent with their coverage of the political crisis in Italy. It is not an example of solidarity.

After the injudicious comments by Günther Oettinger last week, other German politicians continued in a similar spirit. CDU MP Eckhardt Rehberg warned that Italy is playing with fire and putting the eurozone in danger. And Markus Ferber, a CSU MEP, told the ZDF that in the worst case scenario of insolvency the troika (IMF, ECB and Commission) should march towards Rome and take over control of the Italian finance ministry.

Andreas Kluth wrote in Handelsblatt that Germany represents the opposite of the ideas that unite the southern euro area. Kluth says these two sides cannot be reconciled in the long run, no matter how much Merkel fudges a solution in the short run. Instead the divide gives rise to cultural narratives that use the worst stereotypes. It is this chasm that dooms Emmanuel Macron's eurozone reform proposals, which Kluth refers to as southern-flavoured. He calls for the proponents to accept a shrinking of the union rather than jeopardising the whole eurozone. Of course, there was no reflection at all about Germany's own contribution to this crisis.

Lazy Italians and Ugly Germans

The Handelsblatt discusses 'Lazy Italians' and 'ugly Germans': How the euro sows discord

A common currency was supposed to unite Europeans. Instead, it increasingly divides them, as Italy showed again this week.

Listen to Matteo Salvini, leader of the right-wing League, one of the two populist parties that will form the next Italian government: “We have a basic principle,” he said. “Only Italians make decisions for Italy, not the Germans… A minister the Germans don’t like is exactly the right minister for us.” A colleague added that it was time “to free the country from the chains that Brussels and Berlin have put on our ankles.”

What, you might ask, did Germany even have to do with the events in Rome this week? Good question. Superficially, nothing.

Below the surface, however, Germany has a lot to do with Italy’s political crisis. That’s because Germany represents the opposite of the ideas that, more or less, unite the southern euro area, from Greece to France and Italy. Whereas the south demands “solidarity,” Germany fears a “transfer union,” in which northern money permanently subsidizes bad loans and fiscal licentiousness in the south. Where the south clamors for stimulus, Germany demands austerity. Where the south wants fiscal discretion, Germany insists on strict Ordoliberal rules.

North vs. South

As I have been discussing North vs South (Germany vs peripheral) for well over a decade. These are irreconcilable differences.

 

The structural flaws in the Euro itself are the root cause of much of the pain.

Structural Flaws

  • The ECB runs policy as "one size fits Germany". Yet, interest rates suitable for Germany are not suitable for other countries.
  • Productivity and regulations vary widely from country to country. Greece is a basket case of rules and regulations. French work rules are insane. Despite alleged "freedom of movement", try setting up a bake shop in Germany.
  • Target2 is a structural payment flaw with no solution.

 

Target2, which guarantees repayments, is out of balance by close to €trillion.

  • Germany is owed €902.4 billion, mostly by Italy and Spain.
  • Italy owes creditors €426.4 billion.
  • Spain owes creditors €389.3 billion.

How the hell is this supposed to be paid back? The unadmitted answer is: It can't and won't unless the ECB steps in and bails Germany out.

The final structural flaw is it takes 100% agreement to change the treaty. This ensures that the Maastricht treaty which created the eurozone can never be revised in a meaningful way. The North-South divide is such there can never be changes.

Merkel compounded the problems with inept immigration policy.

Known Going In

The euro flaws were recognized going in. The bureaucrats insisted the Euro would bring nations together over time.

In good times, there was an illusion the idea worked.

A rise in populism everywhere, even in Germany, proves otherwise.

Lack of European Reform Will Break the Eurozone

Wolfgang Münchau, associate editor of the Financial Times, and founder of Eurointelligence says Lack of European reform, not Italy, will break the eurozone.

Once again, I agree with Münchau on what is happening but disagree about solutions.

Münchau proposes "Italy could use its weight in the upcoming appointments of the EU’s most important jobs: the presidents of the European Commission, the European Council and the ECB."

He concludes "If you are really pro-euro, my advice is to stop treating the euro as an article of faith but fight for its sustainability. That fight cannot be won in Italy alone. It requires big policy shifts in Brussels too."

Dream On

The structural flaws noted above show that a big shift in Brussels is impossible.

Moreover, Trump is widening the Eurozone split with his policies on Germany, Iran, and the Russia pipeline.

At least Münchau understands the need for Plan B (leaving). His plan A is structural Fantasyland.

Germany Will Pay

Germany will pay one way or another. Here are the possibilities.

 
  1. Germany and the creditor nations forgive enough debt for Europe to grow. This is the transfer union solution.
  2. Permanently high unemployment and slow growth in Spain, Greece, Italy, with stagnation elsewhere in Europe
  3. Breakup of the eurozone

Those are the alternatives.

Germany will not allow number 1. It is unreasonable to expect number 2 to last forever. The only door left open is door number 3.

The best move would be for Germany to leave the eurozone. Germany is in the best shape to suffer the consequences.

Unfortunately, the most likely outcome is a destructive breakup of the eurozone, starting in Italy or Greece.

Meanwhile, covers accusing Italy of being ungrateful moochers cannot possibly help matters.

For further discussion of the alternatives please see my September 2016 articles:

Mike "Mish" Shedlock'

Edited by sancho panza

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Posted (edited)

Yep, that article outlines all the issues and the fact its rapidly coming to a head. Italy's economy hasn't grown in the time its been in the Euro, whilst Germany uses its underpriced currency to sell to everyone at prices where no one else can compete.

He even has the only solution that works without serious disaster, Germany leaves the euro leaving everyone else to it. Unfortunately France won't accept that so it's never going to happen. 

 

Edited by eek

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Posted (edited)
1 hour ago, eek said:

Yep, that article outlines all the issues and the fact its rapidly coming to a head. Italy's economy hasn't grown in the time its been in the Euro, whilst Germany uses its underpriced currency to sell to everyone at prices where no one else can compete.

He even has the only solution that works without serious disaster, Germany leaves the euro leaving everyone else to it. Unfortunately France won't accept that so it's never going to happen. 

 

That sums it up nicely.

Another situation where I'll end up laughing either way

1) Germany leaves the Euro first

and/or

2) Italy leaves the Euro

and/or

3) They both stay in the Euro and the Germans get told to bugger off by the 5 Star/League govt.

Edited by sancho panza

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What Europe really needs is a trade and customs union.  Unfortunately the only option is to be in or out of the German empire.

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Shaun Richards is on this today.

https://notayesmanseconomics.wordpress.com/2018/06/08/italy-faces-another-bond-market-crisis/#comments

' The situation in Italy has returned to what we now consider as a bond market danger zone although this time around the mainstream media seems much less interested in a subject which it was all over only a fortnight ago

Retail Sales

These attracted my attention on release yesterday and you will quickly see why.

In April 2018, both the value and volume of retail trade show a fall respectively of -4.6% and -5.4%
comparing to April 2017, following strong growth in March 2018.

Imagine if that had been the UK Twitter would have imploded!

 

Thus the bond market has been sold off quite substantially again this week. If we look at it in terms of the bond future ( BTP) we see that the 139 and a bit of early May has been replaced by just under 123 as I type this. Whilst there are implications for those holding such instruments such as pension funds the main consequence is that Italy seems to be now facing a future where the ten-year benchmark yields and costs a bit over 3%. This is a slow acting factor especially after a period where the ECB bond purchases under QE have made this cheap for Italy. But there has already been one issue at 3% as the new drumbeat strikes a rhythm.

There has also been considerable action in the two-year maturity. Now this is something that is ordinarily of concern to specialists like me but the sharp movements mean that something is going on and it is not good. It is only a few short week’s ago that this was negative before it then surged over 2% in a dizzying rise before dropping back to sighs of relief from the establishment. But today it is back at 1.68% as I type this. In my opinion something like a big trading position and/or a derivative has blown up here which no doubt will be presented as a surprise at some future date.'

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