After Spain, Italy. Let us not deceive risk premiums are going down these days.Rescue Me
The country is torn by taxes. In one year, VAT rose two percentage points, from 20 to 22%. And the contraction of consumption has been very strong. In a recent IPSOS poll, 68% of Italians admitted spending less on food. And, according to the latest government budget, local politicians have been "invited" to turn off the lights of cities from 2200 hours to spare. A measure that had seen only during the Second World War and during the oil crisis of the 70s.
The biggest risk for Italy lies in the elections next year. Berlusconi's party, the People of Freedom, dissolved like sugar because of factional power struggles. The Democratic Party, the center-left is still no clear leader.
It is, then, Beppe Grillo, founder of the Movement comedian 5 Stars, which continues to garner consensus. In fact, his movement is second in Italy, behind the Democratic Party and ahead of the People of Freedom. Antieuro, vulgar populist, the modus operandi of Grillo is considered by political pundits as the antithesis of Monti. In any case, more and more Italians who want to Grillo in Parliament.
Monti's government keeps repeating that the end of the recession will be held throughout 2013. So say the Treasury and the Bank of Italy. But the International Monetary Fund (IMF) says the opposite. After a contraction of around 2.5% during 2012, it is possible that even in 2013 there is still a recession more than two percentage points. All with a debt on its way to 130% of GDP. Furthermore, according to the IMF, the prospects are not very hopeful: Italy has a 95% chance that in 2017, public debt remains between 120 and 130% of GDP, and only 5% chance of getting a reduction below 105%.
These figures, however, do not show well enough what is happening. According to Morgan Stanley, in 2013, Italy will gross issuance of public debt in the amount of 401,000 million euros, with a redemption of 355,000.
If 2001 was the year of Greece, the 2012 is Spain. And 2013 will be to Italy. Once Madrid has asked the rescue, international investors will press Italy. Too much debt, too much spending, recession. There seems no alternative to call for help.
Note: I could not get Google translate to work directly on the link. However, Google could translate blocks of text.
It is going to be interesting to see how any country can be rescued when Angela Merkel placed more roadblocks on banking union.
"There will not be any retroactive direct recapitalization," Merkel told a news conference. "If recapitalization is possible, it will only be possible for the future, so I think that when the banking supervisor is in place we won't have any more problems with the Spanish banks, at least I hope not."Playing politics would not cross Merkel's mind? No one can possibly believe that.
The chancellor said the supervisory system would have to be effective and the euro zone would have to set up a bank resolution fund to which the banks would contribute if there was to be any direct capital assistance to troubled banks.
Merkel denied that the obstacles were intended to avoid any payments having to be approved by the German parliament before the 2013 election, saying the idea had never crossed her mind.
Regardless, Greece and Spain are screaming "rescue me", but Spain wants a "no strings attached" rescue without austerity conditions.
For now anyway, and likely up to the German election, Merkel says no dice for Spain. Moreover, 2013 is around the corner and Italy is coming right up with gross public debt issuance in the amount of 401 billion euros and 355 billion in refinancing.
Mike "Mish" Shedlock