Debt Contagion Threatens Italy

[Gerald]

Throughout Europe’s debt crisis, Italy has largely managed to steer clear of the troubles that have engulfed its profligate Mediterranean neighbors.

But the contagion that started in the euro zone’s smaller countries is suddenly moving to some of its largest. As Greece teeters on the brink of a default, the game has changed: Investors are taking aim at any country suffering from a combination of high debt, slow growth and political dysfunction — and Italy has it all, in spades.

In recent days, Italy has become Europe’s next weak link after Greece, Ireland, Portugal and Spain, harmed in particular by a power struggle between Prime Minister Silvio Berlusconi and his finance minister, Giulio Tremonti. The dispute threatens to turn the euro zone’s third-largest economy, after Germany and France, into one of its biggest liabilities.

On Monday, the Italian government struggled to rein in the tensions, as fears rose that political paralysis could make it harder for Italy to embrace the austerity demanded by outsiders to reduce one of the highest debt levels in the world. European policy makers also sought to figure out how they would put out a bigger fire if Italy were to succumb.

Those jitters hit stock markets on Monday not just in Italy, where the major index fell nearly 4 percent, but across much of Europe as well, with the markets in France and Germany off more than 2 percent each. The United States was affected, too, with the Standard & Poor’s 500-stock index down about 1.8 percent on European debt fears and worries about the showdown in Washington over raising the United States debt limit.

“Italy is too big to fail,” said Moisés Naím, a senior associate in the international economics program at the Carnegie Endowment in Washington. “If Italy really gets hit by contagion because of political mismanagement, it would be a threat not only to the euro zone, but to the global economy.”

Political soap operas in Italy — especially those featuring Mr. Berlusconi — are nothing new. Nor do they usually matter much to financial markets, even after the debt crisis hit Europe. The widespread problems in Italy’s economy, which has been sluggish for the better part of a decade, also rang few alarm bells.

http://www.nytimes.com/2011/07/12/business/global/italy-evolves-into-eus-next-weak-link.html?hp

Note: July 11, 2011

[Skybird]

Italy is responsible forone quarter of all summarised national debts of all members of the EU, and if debts are counted as share of its yearly GDP, it's debts are the second highest (119%) in the EU after Greece (148%).

Not just a contagion. Rotten roots from all Euro-beginning on. The Maastricht criterion said that nations must not have debts higher than 60% of their GDP to enter the Euro in 1999. Back then, Italy had 121% - like Greece it should never have been let in from all beginning on.

The currency union has failed on epic proportions. It is a giant money transfer and annihilation mechanism, and mocks every piece of economic reason and logic. Several candidates are in so worse economic conditions that even budget cuts cannot save them anymore, they will go bancrupt anyway, I am absolutely certain. The question is not if, but just when it will be admitted, and how many they will be allowed to pull down with them too. Greece, Portugal, Spain, I see as hopeless cases. Probably also Italy, maybe Ireland.

France could fall, too. And in the longer run: even Germany, due to it'S self-crippling monumental liabilities. The German Nibelungen-loyalty to the Euro is suicidal, and pathologic.

The Euro has to get broken up, to save at least the few countries that manage their economies responsibly. Finland for example, Austria. If they pay and pay and pay for all the other corrupt losers, they will get sucked into the maelstrom, too.

The way the transfer union is run now violates European treaties, the stability pact, and the German constitution. Originally, bail-outs of one country for another one had been prohibited, as a necessary enbcouragement that one country shoulkd not run mismanagement at the cost of the others, and stability of the currency can be maintained. Nothing, really nothing nothing nothing is left of all those foul promises and - still valid until today! - treaties.

To me, all those Euro-rescuers are just criminal gangsters, and conspirators. they should see prison cells from the inside for the coming twenty years. The whole political class - lock them away and hide the key.

[Snestorm]

Sounds like good news to be.

Let the defaults begin, and let the banksters go broke in jail, as nations regain control over their own economies AND POLITICIANS.

Perhaps the world can start cleaning up some of the corruption that's been going on for a very long time.

[Betonov]

Greece, Portugal, Spain, I see as hopeless cases. Probably also Italy, maybe Ireland.

You forgot us. €2 000 000 new depth per month (or is it day) and were sending billions to Greece, a package is being prepared to go to Spain, now Italy is going to play hello neighbours, can we borrow a couple of billlions for our bunga bunga parties.... :damn:

Snestorms has the right idea, the sooner this collapses the better. In the meanwhile we should stockpile gold

[Skybird]

Sounds like good news to be.

Let the defaults begin, and let the banksters go broke in jail, as nations regain control over their own economies AND POLITICIANS.


Nation's deficitary budget policies are caused not so much by bankers, but politicians. And corruptions is part of the political system, and in some nmations part of everybody's way of life.

[Snestorm]

Nation's deficitary budget policies are caused not so much by bankers, but politicians. And corruptions is part of the political system, and in some nmations part of everybody's way of life.

Unfortunately, the bankers and politicians have become overly interwoven.
This is a relationship that requires breaking.

[Feuer Frei!]

Unfortunately, the bankers and politicians have become overly interwoven.
This is a relationship that requires breaking.
Here we have a problem, because it's all too well known that each one is in the other's pocket.
So, that bond will likely never be broken.
Each feeds off the other. Each is very powerful.
And each one is not monitored regularly enough or tightly enough.

[Jimbuna]

Here we have a problem, because it's all too well known that each one is in the other's pocket.
So, that bond will likely never be broken.
Each feeds off the other. Each is very powerful.
And each one is not monitored regularly enough or tightly enough.

Something like that...but I don't see any tangible way of stopping it.

[Snestorm]

Something like that...but I don't see any tangible way of stopping it.

Shut down the Central Banks.
Each government returns to printing their own money, and controling their own economy.
Goodbye International & Transnational Corporations.
Welcome back, Mercantilism.

[Skybird]

Unfortunately, the bankers and politicians have become overly interwoven.
This is a relationship that requires breaking.
Not just bankers. Economy leaders and private business lobbies as well. We have no democracies. Our form of state is the lobby, the gang, the neofeudalism, the Seilschaft. Elections do not vote bad politicians and lobbyists out nof office. Election replace one bad guy with another bad guy, with the first one returning sooner or later in another office, often in a higher, and/or better-payed function.

You can'T vote them out anymore, you can'T get rid of them. Like zombies, they tend to return over and over again, all their life long. anbd if not themselves, than creatures anbd offsprings they have risen according to their own mindset. the system throzugh whose hierarchies they advance and raise to the top makes sure that you only can be successful in that when following the system'S rules. And the system's rules means: the gangs' rules.

Elections? Every lobbyist bypasses them and claims the right to be given more influence on legislation than a hundred thoisuand voters together! Elections are the opium of the masses.

And one could argue that inn casse of the EU, even more pluralism and more voices sin ging in the chorus and more democracy - would make the union even less capable to act and to decide.

Isn'T that ironic? Doomed if you demand more democracy in the EU, and doomed when calling the EU deficitary in democracy!

Too big in size, too much in details, too many people.

Processing overload, and loss of structural integrity are the result. The whole thing is set to collapse.

[Gerald]

European shares have fallen further on concerns that the debt crisis in the eurozone may spread to Italy and Spain.

Italy's main index was down 4%, while Spain's was 2% lower. German's Dax had lost 2.3% and the UK's FTSE 100 had shed 1.6%.

The yields on Italian and Spanish bonds also continued to rise as worries over the two countries grew.

On Monday, eurozone finance ministers said they were ready to pass new measures to stop the crisis spreading.

The euro was also lower, falling in early Tuesday trading to a four-month low against the dollar at $1.3958.
'Contagion risk'

The concern is that Italy and Spain may have to follow Greece, Portugal and the Republic of Ireland and seek a European Union and International Monetary Fund (IMF) bail-out.

Eurozone finance ministers said increased efforts to "improve the euro area's systemic capacity to resist contagion risk" would include "enhancing the flexibility and the scope" of the European Financial Stability Facility (EFSF).

This is the bail-out fund to which eurozone member states contribute.

Finance ministers also agreed to look at lowering the interest rates that Greece, Portugal and the Irish Republic have to pay, plus lengthening the maturities of their loans.

http://www.bbc.co.uk/news/business-14113796


Note: Update Record,12 July 2011 Last updated at 09:45 GMT

[Skybird]

Britons sometimes seem to think they are better of for not being in the Eurozone. But their debts are even more intimidating than those of many Euro nations: 4 trillion pounds, it was calculated last summer by the office of National Stastistics.

http://www.independent.co.uk/news/uk/politics/britainrsquos-debt-the-untold-story-2025979.html

I think, Euro or not, Britain also is one of those high risk candidates for a full belly-landing sometime in the future.

[Gerald]

I think not, given, among other things, a strong banking in U.K

[Jimbuna]

Britons sometimes seem to think they are better of for not being in the Eurozone. But their debts are even more intimidating than those of many Euro nations: 4 trillion pounds, it was calculated last summer by the office of National Stastistics.

http://www.independent.co.uk/news/uk/politics/britainrsquos-debt-the-untold-story-2025979.html

I think, Euro or not, Britain also is one of those high risk candidates for a full belly-landing sometime in the future.

Quite possibly but I'd still rather we left the EU and took our chances on our own.

All we need is a government with the courage to give the population the referendum they so clearly want...or is that the reason why said referendum still hasn't taken place?

[the_tyrant]

I translated this opinion a few weeks ago from a post on a Chinese forum:

First, lets consider Maslow's hierarchy of needs:
http://en.wikipedia.org/wiki/Maslow%27s_hierarchy_of_needs

now the fact that you are here reading this post and discussing political topics pretty much means you have fulfilled your layer 1-2 needs, and your here to fulfil your level 3- 5 needs.

people talk about the welfare state. Now practically, the problem is, a modern developed nation cannot afford the welfare of a welfare state. Everybody also wants to live well, we all (or at least most of us) want a good live from a materialistic point of view. It is impossible for all of us to live well, someone must receive the short end and be oppressed.

so what can a developed nation do?

Establish and expand colonies. Lets go back to Maslow hierarchy of needs. There are many places on earth where people cannot even fulfil their most basic physical ans safety needs.

Developed nation can establish colonies there. The colonial governments should focus on using the colonial citizens to provide support for the home countries.

So basically, the colonies provide the money required for the welfare state in the home country. The home country provides the military, the propaganda, and the management required to maintain control over the colony.

now it is pretty much a win-win situation. the people in the colonies have their physical and safety needs fulfilled, while the home country gets their welfare and fulfils their higher needs.

How is my style of colonialism different than traditional colonialism from the 18th century?

The colonizers should consider colonial citizens as assets. They should be treated well, with healthcare and education. Education of colonial citizens should be focused on pure technical education, with no political education or education in the humanities.

isn't this the perfect political system? the home country (a developed area) gets welfare and freedom, while the colony (a struggling nation) gets physical and security needs met


so if you agree with this, than wouldn't you think Europe almost got it right in the 19th century?

I do not fully agree with this opinion, and I unfortunately think many of these countries are going the same direction as Zimbabwe in 2008

[Skybird]

Quite possibly but I'd still rather we left the EU and took our chances on our own.

Reagrding the Euro, don'T get me wrong. I certainly do not recommend any people of sanity and reason to join it.

All we need is a government with the courage to give the population the referendum they so clearly want...or is that the reason why said referendum still hasn't taken place?
Safe bet! See EU constitution - same story.

P.S. Maybe we both are wronmg, and you would be better off in the Eurozone. Because that means they would bail you out once your fall has started. Who will bail you out while you stay with the pound? Canada? Australia? The Bahamas? From a German point of view, I'm therefore VERY happy you do not join the Euro! :D

[Jimbuna]

Reagrding the Euro, don'T get me wrong. I certainly do not recommend any people of sanity and reason to join it.


Safe bet! See EU constitution - same story.

P.S. Maybe we both are wronmg, and you would be better off in the Eurozone. Because that means they would bail you out once your fall has started. Who will bail you out while you stay with the pound? Canada? Australia? The Bahamas? From a German point of view, I'm therefore VERY happy you do not join the Euro! :D

Good point but I've yet to witness any bailout accomplishing what it was intended to do....take Greece for example, they need a further top up, a bit like being on a slippery slide :o

[joegrundman]

well it has been well argued that in the case of Greece and the bailouts, what you are not fully understanding is that Greece WILL default. And the people making the bailouts know that.

A country can only sustain so much debt in the long term (ie be able to pay interest on the debt, eventually pay it off, and still have a growing economy)

The debt in Greece is already well past that point, and that is the point at which Greece will default to, when it comes time to do it.

And we know it.

So any further bailout to Greece, we already know is money that will be lost forever.

In short, it is not a bailout, but a disguised money transfer. It is disguised because transfers are illegal in the European constitution, and by using the IMF, some of the burden is carried by other countries not in the eurozone.

Therefore there is no real urgency to the situation, bailout/transfers can continue until a better time to force the crisis. The better time meaning after a point in which a new EU legal framework has been created to deal with the problem, and the Greeks have calmed down enough for political decisions to take place. And there is always the offchance that something miraculous will happen.

[Skybird]

And there is always the offchance that something miraculous will happen.

Mind if I play the friendly tooth fairy? I go to Berlin into parliament and hit them some teeth out. :yeah:

[STEED]

Sounds like good news to be.

Let the defaults begin, and let the banksters go broke in jail, as nations regain control over their own economies AND POLITICIANS.

Perhaps the world can start cleaning up some of the corruption that's been going on for a very long time.

Hear, hear. :up:

Who will be next Italy or Spain and both are too big to bailout!

[joegrundman]

Mind if I play the friendly tooth fairy? I go to Berlin into parliament and hit them some teeth out. :yeah:


it's worth a shot. baseball bats are effective, but if you don't mind my saying, cricket bats have more style

[Betonov]

Mind if I play the friendly tooth fairy? I go to Berlin into parliament and hit them some teeth out. :yeah:

Play a plumber and hit them with a lead pipe

[STEED]

Good point but I've yet to witness any bailout accomplishing what it was intended to do....take Greece for example, they need a further top up, a bit like being on a slippery slide :o

Closer to home..

http://www.bbc.co.uk/news/business-14131959

Ireland is now looking like a second bailout.

[Jimbuna]

Closer to home..

http://www.bbc.co.uk/news/business-14131959

Ireland is now looking like a second bailout.

Well, being a home grown Brit, need I say anymore?

[Gerald]

The International Monetary Fund (IMF) has asked Italy to ensure "decisive implementation" of spending cuts to reduce the country's debt.

Its comments come as concerns continue that Italy may be the next country to be affected by the debt crisis in the eurozone.

The Italian government is now moving ahead with plans for an austerity budget.

The IMF said Rome may be being too optimistic about economic growth.

"[IMF] directors stressed that decisive implementation of the package is key and a number of them felt that more front-loaded spending measures would have a positive effect on market sentiments," said the IMF report.

It added that Italy's plans on tax reform lacked detail, and that the Italian government had to do more to boost the economy.

"Only sustained growth will reduce the burden of public debt." it said.

The IMF predicts that the Italian economy will grow by 1% this year, down from 1.3% in 2010.
Deficit target

Concern about Italy's finances saw its main share index, the FTSE MIB, fall as much as 4% at one point on Tuesday, before recovering to rise 1.2%. The index was up 1.2% in early Wednesday trading.

Italy's Finance Minister, Giulio Tremonti, is proposing 48bn euros ($67bn; £42bn) in budget cuts over three years, and aims to cut the deficit to zero by 2014 from this year's 3.9% of gross domestic product.

He left a meeting of European Union finance ministers in Brussels early on Tuesday so he could continue to work on the austerity plans.

In a sign that investors are worried about Italy's financial situation, the yield on Italian 10-year bonds on Tuesday increased to 5.8%, before falling back to 5.6% on Wednesday.

Analysts say the yield remains close to levels at which the Italian government will have problems servicing its debts, which are currently more than 120% of the country's annual economic output.

As concerns about the debt crisis in the eurozone continue, the Irish Republic had its debt-rating cut to junk status by ratings agency Moody's on Tuesday.

Moody's said there was a "growing possibility" that the country would need a second bail-out from the European Union and the IMF.

The Irish Republic is one of three eurozone countries that have so far needed such financial support, the other two being Greece and Portugal.

http://www.bbc.co.uk/news/business-14133548


Note; Update Record,13 July 2011 Last updated at 09:07 GMT

[Gerald]

The Italian Senate has passed a tough austerity budget, including cuts of 48bn euros ($67bn; £42bn) over three years.

The lower house must also adopt the measures in a vote on Friday. Correspondents say that is likely.

Italy has one of the largest debt mountains in the eurozone and wants to avoid any need for a bail-out.

Italian PM Silvio Berlusconi has said Italy is on the front line of the eurozone's economic difficulties.

Italy raised 2.97bn euros ($4.2bn; £2.6bn) through a sale of 15-year government bonds on Thursday, but had to offer a 5.9% rate of return - an all-time high for such bonds.
'Monster' threat

BBC Europe editor Gavin Hewitt, in Rome, says both the government and the opposition know that Italy is under fierce scrutiny by the markets due to its large debts.

Earlier this week, the International Monetary Fund (IMF) asked Italy to ensure "decisive implementation" of spending cuts.

In a report, the IMF said Italy must make efforts to reduce public debt, maintain the stability of its financial sector and introduce structural reforms to boost growth.

The package was put to parliament ahead of schedule, amid concerns that Italy may be the next country to be hit by the eurozone's debt crisis.

http://www.bbc.co.uk/news/world-europe-14149164


Note: Update Record, 14 July 2011 Last updated at 14:13 GMT

[Jimbuna]

I bet the government wish the answers were as simple as 'cut and paste' :doh:

[Snestorm]

Hear, hear. :up:

Who will be next Italy or Spain and both are too big to bailout!

Or perhaps, USA?
England may have to give them lessons on graciousely stepping out of Super Power status.