Italy update
The current consensus is that Berlusconi is toast, or, as Krugman would say, Crostini.
It is a bit risky to change horses in mid crisis and change Prime ministers in mid stream, but Berlusconi is a large part of the reason no one trusts Italy. Also everyone is totally sick of him especially his closest allies.
update update: The evidence that Berlusconi is falling is now somewhat stronger. The opposition parties are now discussing who they might support as Prime minister of a government of national unity. Basically the question is whether they will accept a member of Berlusconi’s inner circle so long as he is not Berlusconi or whether they demand Mario Monti. They are suggesting that they will stand firm (yeah sure tell me about it).
La Repubblica is confusing me. The headline and abstract guy suggests that UDC the wimply centrist ex Berlusconi allied party is ruling out a government lead by Berlusconi’s right hand man Gianni Letta “L’Udc (video) chiude a un incarico a Gianni Letta.” That is the UDS is rejects a nomination of Gianni Letta. But the linked article says that the not quite so wimpy center-left main opposition party, the Democratic party PD, insists on someone untainted by Berlusconi (when asked, in effect, do you mean Monti, PD general secretary Bersani noted that the decision about who to ask to try to form a government is made by the President of the Republic, or in plain English yes.
OK now video. The video does not make the advertized veto. It is amusing as it shows the totally spineless center right long term Berlusconi ally P Casini advocating “revolution” but he in the video he doesn’t rule out a revolution lead by Berlusconi’s right hand man Letta. Also the revolution is a revolution in the cause of austerity which is achieved by national unity and by ending intra-Italian conflict.
Huh you ask ? How can a revolution be an alternative to conflict ? The fact is that this abuse of Italian is about average for around here. A “revolution” is “a very big improvement,” not, you know, a revolution. So Casini doesn’t even understand how absurd it is to talk about all parties united in the name of austerity as a revolution. The video does show that Italy’s leading daily isn’t up to angrybearblog editorial standards, but it is funny*. Imagine George Bush talking about the importance of knowledge and expertise.
* Before anyone else mentions it, I admit that they do spell words correctly. My spell checker keeps telling me that I am not typing correctly spelled Italian. I can’t spell, but I usually find some way to get a computer to check my spellling (my computer isn’t working and I am embezzling the services of the computer which the Italian Public bought for Elisabetta’s research).
speaking of changing horses in mid crisis, it appears papandreau is out, & venizelos is in in greece..
If confirmed, does it bode well? From his Wikpedia page: There is mounting criticism in Greece for the last 5 years about the law “about responsibilities of ministers” which Venizelos authored during the previous Simitis government. According to this law which has been passed, ministers are practically immune to public prosecution for cases of political corruption. The case is a subject of repeated and regular commentary in Greece for the last years, triggered from the political situation in Greece. Venizelos has never commented on the commentaries. As a result of this particular law there was not even one politician that could be prosecuted effectively, contrary to the extend of huge financial scandals that shaken Greece the last decade. “
as i understand what happened, venizelos went straight from his hospital bed to plead the Greek case before the G20 without consulting papandreou, to argue for greek submission without the referendum…so papandreou caved, scrapped the plans for a vote, and called an emergency meeting with his opposition, and thus europe’s elites were saved from a referendum…
since i menioned it, an update: Leaders in Greece Agree to Form a New Government – After crisis talks on Sunday night, Prime Minister George Papandreou and his main rival agreed to create a new unity government in Greece that will not be led by Mr. Papandreou, according to a statement released Sunday night by the Greek president, who mediated the talks. Mr. Papandreou and the opposition leader Antonis Samaras agreed to meet again on Monday to hammer out the details. The name of the new prime minister is not expected until then.
I heard a discussion on the radio the other day suggesting that Italy is a far greater problem than is Greece in regards to a potential financial crisis reaching across Europe, if not the globe. Question. Do the people in any part of the world, with serious wealth, pay taxes? There was wealth and income five years ago. Where does all of this debt come from? And why is it government debt if it first arose from a banking and mortgage process that may have been out of control?
I didn’t know about that horrible law Judith. Here in Rome it really looks as if Berlusconi is falling. He claims he still has the confidence of a majority in Parliament but everyone else thinks otherwise. So it looks to me as if the crooks are winning one and losing one. One of the many appalling laws which Berlusconi had parliament pass to keep him out of jail gave immunity from prosecution. Berlusconi is uh quite focused on Berlusconi, so the law wasn’t quite as bad as the Greek law. It only blocked prosecution of five Presidents: the presidents of the cabinet (Berlusconi), the chamber of deputies, the senate, the highest court of appeal and of the Constituional court (to which mere citizens don’t have access).
The President of the Republic (who is also President of the body which controls the Judiciary or CSM and the totally other body at the top of the military chain of command which confusingly has the same acronym) is already immune. The Constitutional Court found the law to violate the provision of the constitution that everyone is equal before the law, so Berlusconi’s trials started again.
I regret Papandreau’s fall. I admit this is partly petty nationalism (his mother is American and he was, I think, born in the USA) partly just because he was handed the mother of all messes when he took office, partly because he is so unlike his dad (who got on my nerves see “petty nationalism”) and partly because I like his face. The way it played out made him a martyr for direct democracy. To be serious, he must have voted for the Venizelos drafted law (no way he would be party leader if he violated party discipline) and the author of the law is just the guy doing the dirty work for the good of the party’s many crooks.
Some numbers. For perspective Argentina’s default was about $70 billion, and Greece’s proposed 50% haircut amounts to $250 billion. A domino effect of defaults, and suprerssing economic growth means the situation becomes quite large.
Country and Debt Load
Portugal $200B
Greece $500B
Spain $1T
Italy $2T
Ireland $200B
Total Debt at risk $3.9 Trillion
25% Haircut = $975B
50% Haircut = $1.95T
With a debt level of approx $2.5 trillion, each 100 basis points increase in bond yields increases the borrowing cost with $25 billion. Yields have risen from less than 4% to more than 6% in 1 year. This will increase the borrowing cost with more than $60 billion a year. According to the CIA – World factbook, revenue and taxes stand at 46.6% of GDP revenue. The 0.8% GDP growth only provides an additional $8 billion in government revenue. In other words, Italy requires an additional $52 billion a year just to cover the increase in interest payments.
just a footnote: greek bonds held by the ECB and IMF don’t get a haircut, so the greek govt didn’t get half of their debt cut – only the part of it investors hold, or about 28% of the total…
“This will increase the borrowing cost with more than $60 billion a year.” mcwop
This has the beginnings of a useful discussion. So we see that bond holders, whom ever they may be, are making a killing on the debt, if the debt is ever actually paid as either interest or principal.
But what of the origins of the debt? That the increased interest on shaky bonds now increases the debt load of the borrower is an interesting point. You have difficulty paying back the debt so naturally the smart thing for the debt holder to do is increase the interest on that debt and as a result increase the difficulty the borrower has in paying the debt. Very clever. It sounds like a crisis feeding on itself making the crisis yet more critical. Where did the crisis start? I can see where it is gooiing, but where did it get its beginnings? What I’ve read about Greece, and I assume that Italy is a similar story and I know that I read a while back that Ireland is the same, is that the Greek government took over the debts of the Greek banks. Who got the money that those Greek banks were handing out so prodiciously with an understanding in their executive offices that the Greek government would handle, or be handed, the fall out. Sounds like what happened here. BTW, where is all that bad debt that was lurking in US banks?
It is not the debt itself, but rather Italy’s ability to service the debt, that has changed. There was wealth and income 5 years ago, but not now, is exactly right. Italy has a very high debt burden, but has been pretty close to primary budget balance lately – not adding to the debt. As Mcwop points out, the cost of servicing Italy’s debt has risen rapidly, and is still rising. You read a lot about 7% being the critical point. That is, as I understand it, the ten-year yield (assuming nothing weird about the yield curve) at which Italy’s debt begins to rise simply because of rising interest payments.
That’s the real risk of having a high debt/GDP ratio. No corrective action will work once rates begin to rise. The quickest way to bring down the debt/GDP ratio is more GDP, but you can’t do that when both the public and private sector are trying to reduce spending.
It depends on whether you include bank recapitalizations in that default figure. The amounts are staggering IMO.
http://investmentwatchblog.com/the-50-greek-haircut-is-really-just-22-of-interest-is-that-the-50-haircut-is-only-for-privately-held-greek-paper-i-e-it-does-not-apply-to-ecb-and-imf-holdings/
Jack,
Also, some of that ‘wealth’ was a housing bubble through Europe similar to ours in the US. Its popped there also and that ‘wealth’ went with the bubble – but the debt stayed behind. It was never there to begin with, but people beleived…
Italy is an issue becuase the ECB cannot cover an Italian default or even come close. It would literally bring the system down. A TBTF country if you will. Greece’s debt is just a fraction of Italy’s.
Islam will change
Jack,
As I mentioned upthread. A lot of the debt is Europe’s version of the housing bubble (and much larger governments and social spending). The crises started when the housing bubble crashed. instead of tightening their belts as the market (and thus tax revenue) crashed they kept spending or even increased spending even though the economies weren’t keeping up with the ever increasing debt. basically no one wanted to be holding teh bag telling people the bad news. And they kept doing everything possible to push teh day of reckoning to teh right in hopes they would be out of office and safe.
Well, its time to pay the piper. And it was the Greek and Italian Governments doing the borrowing – you continue to blame the banks. the banks didn’t sign the loans. This is similar to the USG – it wasn’t BoA that made the USG borrow 40% of its operating budget last year – that was Obama and Congress…Same with Italy and Greece – their governments were the ones who took out the loans vs. raising taxes and/or cutting the government.
As for the bad debt for the US Bamks – look at Freddie and Fannie….
Islam will change
Italian Bond yields – From Bloomburg via Mish’s site.
Puts a little numbers to the crises and the cost to finance the debt.
Islam will change
Like someone said, the debt of the many is the fortune of the few.
Jeez Buff. It isn’t always the Democrats done it. Yes, it started with all of those mortgages on inflated real estate. So who got all of those inflated dollars and euros? Better yet, the mortgage loans and all their derivatives weren’t government debt until governments bailed out the holders of the bad debt. You keep harping on social spending and Fannie and Freddie. The social spending didn’t blow up the debt market. Fannie and Freddie were late to the funny mortgage party. And the derivatives of all that mortgage crap was the creation of the banksters.
Buff
All that you neat charts prove to us is that a crisis will make some rich. Of course the bankers now holding the new debt (and buying discounted old debt) are counting on the European Commission and the IMF to bludgeon Italy and Greece into a pauper’s sumbission. Pretty good business those bankers have. First you make a killing selling make believe financial derivatives. When those instruments blow up you beg the government to bail you oout and take the crap off your books. Then when those governments have to borrow to finance and pay that debt you raise rates due to the risk that never occurs because the leaders of the free world will make certain that austerity reigns and these new government debts (that were private debts not long ago) have to be honored. Pretty good scam.
Jack,
It all started with those inflated mortgages – so who got the money? Well I did for one. I, by pure accident, happened to sell at the top of the housing bubble in Fairfax Cty, VA outside DC. This let me take a rather large chunk of change from there down to the DFW area (were prices had not gone hay-wire due to the tax system in TX). Which I promptly used to buy a better house and end up with a far smaller mortgage. The guy I bought it from sold the house in 2009 for $50K less than he bought it for. He lost big bucks.
So who got the money in this instance? (And I freely admit I was just lucky).
As for blaming the Dems – I have been posting here since 2003 (I think). During the Bush years every post on the front page right now would have mentioned him as President, his party, and that everything was his fault (personally) at least 5 times per post. It was actually pretty pathetic & amusing. Now, after 3 years of Dem controll of the White House, including 2 years with total control of the legislature also, its incredibly quiet on who is running the show here. We have post after post about defending SS (which I agree with) that never seems to mention the Dem President Obama as instaigator of the catfood commission or the fact that Obama is making the run at SS and other key New Deal programs. The war coverage is even more pathetic – basically a reflection of the left’s dead anti-war protest movement. Stopped dead right after the inaugeral even though Obama and the Dems basically did everything Bush did and expanded it. I could go on, but the lack of mentioning the Democrat President Obama is almost comical. He’s your guy – he’s been in charge almost 3 years now. This is all his now. yet its like he’s not President in AB.
I have no problem with a social safety net. It should be at the state level – I have a big problem with the increasing size of the Federal government. The Leviathon is too big. Why does the Dept of education have a SWAT team? We could cut the entire USG budget by 5% and not have thing get hurt or anyone freezing. Yet the beuracracy grows and our freedom gets reduced at every turn.
And in a lot of cases the Dems did it – and the Reps just stood by and let it happen or actively helped. But if you want to solve teh problem – you need to fix Washington – not Wall Street.
But that would mean protesting a Dem President….
Islam will change
Jack,
Its all teh bankers fault – got it. Nothing done in Brussels or Rome or Athens or Washington had any effect.
Yea – call me when you get a reality clue – its the Government causing this not the bankers…
Islam will change
Buff
Just how dense ar? Do you truly believe that there is some difference between the governments of those countries or our own and their banking industries. How much money has Obama already collected from the financial industry? How much has Mitt Romney collected in his bid to unseat Obama? It makes little difference which becomes the President. They are both part of the sect of finance. They and their seem to be foes in the Congress. Funny thing is however that the foes are all on the same page when the legislative smoke finally clears. Bankers one. Americans 0. In case I haven’t made the point clearly enough, there is no difference in any practical sense between the bankers and the government. Another historically persistent phenomenon.
Jack,
Ok, we are getting somewhere. You believe the Banks have effectively taken control of the Governments. That none of the politicians who wrote the laws, borrowed the money, and orded the Government expenditures far in excess of tax reciepts have any fault at all?
Or do you think its more likely that none of the politicians wanted to raise taxes or cut the size and scope of the central governments in any of those countries. No one wanted to be the guy who ended the party. Heck, even the Dems and Obama, who had to do absolutely nothing to raise taxes by letting the Bush Tax cuts sunset, instead fought to get them reinstated as Obama’s Tax Cuts. Obama didn’t even have the savy to get something from the Rs in exchange (I bet B. Clinton would have cleaned their clocks, but I digress). The bankers just provide the cash since, as we have been told repeatedly by the SS guys, the US gov is the most secure debt in the world.
I blame our political class. And the current crop has got to go. (and if your pinning your hopes on the OWS idiots please send me a case of whatever you’ve been drinking.)
And they don’t call Obama President Goldman_Sachs for nothing
Islam will change
Here’s an interesting article by Mish. Basically saying the Greeks are toast. Nicely pointed out that in the last three months the Greek banks have seen 3.5 Billion Euros leave. 1.5 Billion in the last 5 days. If I was Greek I’d be getting my money out of the banks and into cash (Euros) or moved to dollar/Euro denominated accounts outside the country.
Its goign to get ugly shortly as someone is going to have to pay.
http://globaleconomicanalysis.blogspot.com/2011/11/history-suggests-greece-will-freeze.html?x#echocomments
(Safe for work)
Islam will change