http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100018882/imf-loses-all-faith-in-the-euro-project/
http://www.zerohedge.com/news/europes-fundamental-flaw-resurfaces
Submitted by Tyler Durden on 07/19/2012 19:54 -0400
and....
IMF loses all faith in the euro project
The IMF is now the de facto leader of the Eurosceptic movement
The IMF’s latest report on the eurozone is an astonishing document. When the full history of this episode is written, this "Article IV Consultation" will be cited as a key exhibit.
The euro area crisis has reached a new and critical stage. Despite major policy actions, financial markets in parts of the region remain under acute stress, raising questions about the viability of the monetary union itself."The adverse links between sovereigns, banks, and the real economy are stronger than ever. Financial markets are increasingly fragmenting along national borders.
It said the eurozone is unworkable in its current form, a half-baked currency union that spreads contagion like wildfire without the backup machinery to contain the damage:
The euro area is in an uncomfortable and unsustainable halfway point. While it is sufficiently integrated to allow escalating problems in one country to spill over to others, it lacks the economic flexibility or policy tools to deal with these spillovers.Crucially, the euro area also lacks essential financial and fiscal policy tools to stabilise the monetary union. As the crisis has illustrated, without a strong common financial stability framework, banking problems are hard to contain and resolve in an integrated market.
Most of southern Europe is at serious risk of a "debt-deflation spiral", and the dangers are masked by the austerity taxes themselves. "This disinflationary environment in much of the periphery will make it difficult for many countries to reduce the burden of debt."
Europe’s leaders have still failed to grasp the nettle:
The deepening of the crisis suggests that its root causes remain unaddressed. The crisis calls for a much stronger collective effort now to demonstrate policymakers’ unequivocal commitment to sustain EMU. Only a convincing and concerted move toward a more complete EMU could arrest the decline in confidence engulfing the region."As a result, the pernicious feedback loop between banks and sovereigns, as well as market fragmentation, have been accentuated during the crisis. In some cases, the necessary provision of ECB liquidity has led to further sovereign bond purchases by banks, deepening this link even more.The adverse bank-sovereign feedback loops at the heart of the crisis have intensified. Concerns about banks’ solvency have increased because of large sovereign exposures, particularly in periphery countries. Some sovereigns, in turn, are struggling to backstop weak banks on their own.Intra-euro area capital flight has created deintegrating forces in sovereign bond markets, interbank markets and lending and deposit markets.There is a "drastic decline in interbank activity":A failure of a large and systemic bank could test the ability of the ECB and crisis facilities to stem contagion. And reform slippage at the country level could have large negative spillovers throughout the euro area. The fear of euro area exit, if not countered swiftly and effectively, could spread to other economies perceived to have similar characteristics.In other words, the process has become self-feeding and extremely dangerous. The monetary transmission mechanism has completely broken down (as the Bank of France’s Christian Noyer warned earlier this week). The whole world is at risk.The IMF exhorts the EU authorities to go all-in with Eurobonds and a genuine banking union with pan-EMU deposit guarantees.It calls for "sizeable" QE by the European Central Bank – the full monty, not the pinprick efforts undertaken so far – "preannounced over a given period of time, buying a representative portfolio of long-term government bonds". That is: do what the Fed is doing, at long last."If the IMF report was a film it would be a summer blockbuster to match Batman," said Gary Jenkins from Swordfish."It’s difficult to argue with the basic thrust of the IMF’s report, in the sense that if they want to save the eurozone, the politicians probably do have to take dramatic action. However I dare say that if there is going to be a move towards a full United States of Europe some people might quite like to vote on it," he said.Indeed.For those of us who have been gently suggesting over the years that there might be a few structural problems with monetary union, the IMF report comes as bittersweet vindication:Adverse feedback loops are stronger in a monetary union than elsewhere. These adverse feedback loops are amplified by the absence of a domestic exchange rate that could buffer the impact of intra-euro area sudden stops on the borrowing costs of sovereigns, and that would help compensate the adverse impact of fiscal efforts on domestic demand compression by an exchange rate depreciation stimulating exports.That is: the victim states can’t break out of the trap through devaluation. They cannot offset a fiscal squeeze with exchange (or monetary) stimulus. They are suffocated:Moreover, sovereign borrowing costs can rapidly spiral out if market anticipations turn out pessimistic, making fiscal adjustment more difficult to achieve unless the monetary authority signals the possibility of future loosening.That is: EMU membership makes it harder to sort out public finances. This is the exact opposite of the claim we always heard from the euro missionaries, that the "discipline" would force wayward states to behave. In fact it makes it near impossible for them to keep their debt trajectories under control:Limited labor mobility in the euro area impedes adjustment to idiosyncratic shocks. If workers move in response to differences in wages and job opportunities, they reduce disparities in unemployment rates and real wages across regions. However, while there is some evidence that labor mobility in the euro area has increased in response to the crisis, it remains fairly limited.Only about 1 per cent of the working age population changes residence within their country in a given year, and even less move between euro area countries. This compares to about 3 per cent in the US, 2 per cent in Australia, and slightly less than 2 per cent in Canada.We told you so here at the Telegraph. The safety valves of labour mobility and fiscal transfers in euroland are totally inadequate.It would be very interesting to know exactly what has been going on at the IMF board over recent weeks. One hears that the White House – with the full support of China, Japan, Brazil, and others – has finally lost patience with Europe’s leaders. (I use that term euphemistically, since I don’t mean Monti, Hollande, Cameron, or even Rajoy, but one doesn’t want to be accused of picking on a defenceless, much-maligned, and vulnerable country between Poland and The Netherlands).The IMF could hardly be clearer. It is a pre-emptive move to pin responsibility for the coming deluge exactly where it belongs:On those who created this doomsday machine and pushed it through as a federalist Trojan horse, with scant concern for Europe’s democracies; on a second group of people who ran it for a decade with high-handed arrogance, disregarding warnings as the North-South gap grew to dangerous levels; and on a third group of leaders – led by Chancellor Angela Merkel – who now refuse to face up to the awful implications of what has happened.The IMF is the leader of the Eurosceptic camp now.
and......
Europe's Fundamental Flaw Resurfaces
"Two weeks after a summit that promised to bring solutions to the European financial crisis, the European Union has once again revealed its fundamental contradictions" is how Stratfor's Adrian Bosoni introduces a succinct clip on the reality the European leaders faced once they arrived home after that strenuous weekend of blithering. Between Asmussen and Schaeuble who have steadfastly stuck to the no-monetary-transfer-without-sovereign-transfer tack - which actually make a fair amount of sense on a long-term basis - a robust and unified budgetary regime is precisely what Europe has lacked. Unfortunately, Bosoni notes, "even in a best case scenario this could not be achieved before 2015" thanks to treaties, referenda, and ratifications. In a little over 3 minutes, the analyst outlines exactly what is holding it back and why the short-term is all they have as budgetary discipline is proving particularly difficult for the EU members to maintain (see more Spanish riots tonight).Between Spain's delays in meeting targets, Greece's 'impossible' budgetary goals, Ireland's demands for concessions, and Finland's collateral agreement with Spain, unifying anything over there seems impractical and impossible.
A must watch for the quickest summary of the state of Europe - and the best explanation of the reality to which European credit markets are cracking as opposed to the nominal price of global equities leaking higher...
and....
http://www.athensnews.gr/portal/8/57115
Democratic Left leader Fotis Kouvelis stressed on Thursday the need to attract investors in order to proceed with crucial privatisations, noting that the legal system does not facilitate the process and that there is currently no investor interest.
Speaking on Skai TV on Thursday morning, Kouvelis said that privatisations are a crucial source of revenue but added that they are “a complex affair” and noted that the state should retain control of assets of strategic importance such as DEI and OSE.
The Democratic Left leader also said that the risk of defaulting is still real and that “nothing is guaranteed”.
Kouvelis reconfirmed that no further measures will be taken for 2012 and that there will be no layoffs in the public sector.
With regard to the mid-term cutback plan, he said that 8 out of the 11.5bn euros have been identified.
Kouvelis also announced that the coalition will seek to reduce VAT from 23 to 13% at their next meeting with the troika. “This is a matter of crucial importance in order to combat unemployment and help revive the market,” he said.
The leftist leader also referred to low income citizens, saying that support will be provided when possible. Exemptions for the payment of the property tax will be made and annual tax payment will be made in up to 8 installments depending on the taxpayer’s income, he said.
Kouvelis repeated the government’s intention to renegotiate the terms of the bailout and get a two-year extension in order to reach its fiscal adjustment targets. (Athens News)
and.....
http://www.athensnews.gr/portal/8/57113
The International Monetary Fund's mission chief for Greece, Poul Thomsen, walked grim-faced into his first meeting with Prime Minister Antonis Samaras on July 5 wearing a black tie looking as if he was going to a funeral.
Whether he was making a point or not, the first meet-and-greet visit by the country's international lenders with the new government was blunt, both sides told Reuters.
"Talking to them was like going to a doctor, who is looking over your tests shaking his head, and you're wondering if you are going to live or die," a senior Greek government official told Reuters, on condition of anonymity, after the visit.
Now, the same officials are preparing for a new and crucial round of talks starting next week.
For three days earlier this month, senior inspectors from the troika of the International Monetary Fund, European Commission and European Central Bank rushed in and out of ministers' offices with their heads down, clutching files and avoiding reporters.
Sources from both sides said the meetings reviewed a track record of two years of broken promises to international lenders, who have pledged a total 240 billion euros to pull the euro zone member back from the brink of bankruptcy.
The coalition government, is racing against the clock to come up with cuts and reforms before the troika returns for a formal inspection to decide whether to grant another loan installment in September.
"As we suspected, they have fallen quite badly behind due to the election campaign and they are trying very hard to put the train back on track. The troika's main task next week is to see how we can get restarted," said a troika official who did not want to be named.
Angry and fed up
The first visit did not try to resolve specific problems but set a new tone for the relationship between Greece and its partners, making clear there was no time to waste on diplomatic niceties, and not much trust in the bank.
"They were clear and direct - as long as we produce results they will continue to support us, otherwise they will not," said a minister whose predecessor had fallen behind targets.
At another ministry, the message was equally no-nonsense, an aide said: "They were angry but mostly fed up. They said Greece would not get any money unless it showed some progress."
Among a long list of failures, Athens has not completed any substantial privatisations and is behind on tax reform, restructuring the public sector and properly opening up markets and professions. Poor tax revenues mean it will likely miss a 2012 deficit target of 7.3 percent of GDP.
The government blames these failings on a deeper than expected recession and wants two more years to catch up. The troika says half-hearted reforms are to blame for holding the economy back. The lenders are demanding extra cuts to the dismay of an austerity-hit public, which has often taken to the streets.
Samaras, initially a fervent opponent of the first bailout deal, has said he accepts the targets of the second plan but wants to change some policies in view of the country's worst recession in decades, estimated at close to a 7 percent contraction this year.
The troika chiefs made it clear to officials that they should not raise the issue of renegotiating the 130 billion euro bailout plan keeping the country afloat at a July 9 meeting of euro zone finance ministers and had to prove their credibility first.
Don't renegotiate
This was a difficult issue for the new government to handle - renegotiating the bailout was not just Samaras's pre-election pledge but also the foundation of his coalition with Pasok and the Democratic Left.
"They didn't exactly order us not to renegotiate but they strongly advised that it would be a good idea not to raise the issue now, before the new government shows it is serious about catching up," said a government official, who declined to be named.
Finance Minister Yannis Stournaras took the troika message seriously and avoided any mention of renegotiating the bailout when he attended his first Eurogroup meeting, a move the lenders welcomed.
"He understands the problems and is serious but he is alone," the troika official told Reuters.
The government is now scrambling to catch up. At the top of its list is a pledge to come up with an additional 11.7 billion euros worth of cuts for 2013-14, a task Greece was initially slated to finish in June.
Just days before the troika arrives, it had found around 8 billion euros of those cuts and was still looking for the rest, an official said. Part of the problem was that ministers asked to come up with savings did not produce enough cuts and were sent back to the drawing table.
Susbtantial as those cuts are, to the lenders, they are just the tip of the iceberg - resistance to reform from ministry workers and tax officers, unionists and industries used to easy profit has long been at the heart of Greece's woes.
"The delays are now putting more pressure on the second half of the year," the troika official said. "It's a question of political will." (Reuters)
and.....
http://www.telegraph.co.uk/finance/financialcrisis/9413545/Spanish-debt-crisis-returns-as-Germany-nears-bailout-fatigue.html
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Yields on five-year bonds jumped to a fresh crisis peak of 6.46pc at a closely-watched auction as hopes fade for fresh stimulus from the European Central Bank and direct recapitalisation of Spanish banks by the EU bailout find, the European Stability Mechanism (ESM).
“Demand for Spanish paper is collapsing, even for shorter-dated debt which is very worrying and raises the spectre of Spain losing market access,” said Nicholas Spiro from Spiro Sovereign Strategy.
Marchel Alexandrovich from Jefferies Fixed Income said the markets are already bracing for second bigger rescue of around €400bn. “A few more weeks like this and Madrid is going to decide to it has nothing more to lose and call for a full sovereign bail-out,” he said. “Then we will find out if there really is any money in the EU kitty.
“If the ECB goes on holiday without doing anything more, this is going to snowball. We’re way past point where any country can deliver fiscal measures on its own. People are not going to buy Spanish and Italian debt right now whatever ever they do. There has to be a circuit breaker.”
The failure to win back investors is a bitter blow for Spanish premier Mariano Rajoy as the country pushes through the harshest retrenchment in modern history, with cuts in public salaries of up to 7pc, lower dole payments, and a three-point rise in VAT to 21pc.
Public employees staged protests across Spain today and demanded Mr Rajoy’s resignation as the Cortes voted on the €65bn austerity package imposed by EU as a condition for the bank rescue.
Socialist leader Alfredo Rubalcaba said the cuts would push the country over the brink. “Over the next year we are going to see the destruction of 600,000 jobs, taking us deeper into depression,” he said. Unemployment is already 24.4pc, topping 32pc in Extremadura.
“There is no money left to pay for services,” said treasury minister Cristobal Montoro, calling for years of hard sacrifice. “We have to raise VAT to stay in Europe. There is no other option. All alternatives are worse. This has gone beyond ideologies.”
Madrid had thought the EU bailout terms would be “light” and that the ESM would inject money directly into Spain’s banks in order to break the dangerous nexus between banks and sovereign states, as sketched out at the summit deal in late June.
It has obtained neither. The terms are draconian, with sweeping intervention across the gamut of fiscal policy as well as demands for a `bad bank’ and the closure of crippled lenders.
The legislation passed by the Bundestag today made it clear that the government is entirely responsible for the cost of the bank package. “Spain made the request. The Spanish state will guarantee the money,” said finance minister Wolfgang Schäuble.
While the ESM is supposed to take over the burden once an EU banking supervisor is in place, this part of the summit deal seems to have withered and died in Berlin. “There will be no direct recapitalisation of Spain’s banks, at least not with us,” said Social Democrat (SPD) leader Frank-Walter Steinmeier.
“My parliamentary group is not at all convinced we are doing the right thing.. We’re only voting for this because the damage would be catastrophic if Germany refused aid,” he said.
Twenty-two of Chancellor Angela Merkel’s own coalition voted against the Spanish package, forcing her to rely on opposition support.
Bond markets are deeply confused by the loan terms for Spain. Investors are taking their lead from the International Monetary Fund, which has already added the €100bn rescue costs to its estimate of Spanish public debt. The total has risen from 68pc to 90pc of GDP in a single year, underscoring the dramatic worsening in public finances.
The IMF said in its yearly report on the eurozone that the deepening crisis raises concerns about the “viability of the monetary union itself”. It warned that the “adverse links between sovereigns, banks, and the real economy are stronger than ever.”
The report said EMU is “unsustainable” as constructed and called for a radical shift in policy, including a monetary blitz by the ECB, a banking union, and debt pooling.
The plea seems starkly at odds with the mood in the Bundestag. Bail-out fatigue has reached exhaustion. “We create red lines, only to cross them. We can’t go on like this,” said Mr Steinmeier.
“It’s a bottomless pit,” said Free-Democrat (FDP) spokesman Frank Schäffler. Most of the German people would agree.
and...
and Regions in Italy poses problems for Monti ..... along with the Banks , rolling all of that debt , Silvio B , etc.....
and...
and Regions in Italy poses problems for Monti ..... along with the Banks , rolling all of that debt , Silvio B , etc.....
Monti warns about default of Sicily
18.07.2012
Italian PM issues statement warning about the fragility of the autonomous regions, which has over €5.3bn in debt with an unemployment rate of 19.5%; Fitch contradicts Mario Monti and says there is no immediate threat of default; governor says region needs more time for reforms and a new growth plan; the Bank of Italy forecasts two years of recession for Italy; for registered users only.
and some good news for Italy - for now ....
http://online.wsj.com/article/BT-CO-20120719-713656.html
Fitch Ratings affirmed Italy's long-term ratings, pointing to the country's recent and prospective structural reforms to enhance the growth potential of the economy as well as the government's commitment to reducing the budget deficit and public debt.
Fitch affirmed Italy's long-term ratings at A-minus, placing it four levels into investment grade. The outlook is negative. The affirmation concludes a formal review initiated in June.
The affirmation reflects recent reforms to Italy's labor market and measures to render the economy more flexible, which if effectively implemented and aided by further structural reform, would greatly enhance the Italian economy's growth and employment prospects, Fitch said. The ratings firm also noted that pension reform has further strengthened the sustainability of the pension system and public finances.
The Italian government's commitment to reducing the budget deficit and public debt is demonstrated by parliament's approval of a balanced budget amendment to the constitution and ratification of the "Fiscal Compact," Fitch added. The firm projects Italy is close to realizing debt stabilization and placing government debt to GDP ratios on a downward path. Italy's four fiscal packages over the last year, which are equivalent to 5% of gross domestic product, should be sufficient to cut the budget deficit below 3% of GDP this year, Fitch said.
The ratings firm currently believes that in the absence of adverse shocks, the Italian Treasury will retain access to market funding, though at a relatively high cost. Fitch said contingent liabilities to the sovereign from the financial sector are moderate and don't pose a significant risk to public finances. The firm forecasts the Italian economy to contract 1.9% this year, followed by stagnation in 2013 and 1% growth in 2014.
Fitch's affirmation comes a week after Moody's Investors Service downgraded Italy's government-bond rating two notches to Baa2, saying the country faces a greater likelihood of a further sharp increase in funding costs or loss of market access given euro-area risks and that its economy has continued to deteriorate. Moody's also lowered its long-term ratings on 10 Italian banks and its issuer ratings on three Italian financial institutions by one to two notches earlier this week.
In January, Standard & Poor's Ratings Services cut Italy's rating by two notches to triple-B-plus.
