Sicliy reveals the problems in Italy resemble those in the other PIIGS - more like Spain than Ireland as regions woes and bank woes will bring Italy to its knees.

http://www.zerohedge.com/news/sicily-greece-italy-provides-eur400-billion-risk-free-bailoutloan

Sicily Is Greece As Italy Provides EUR400 Million 'Risk-Free' Bailout/Loan

Submitted by Tyler Durden on 07/18/2012 15:51 -0400

• default
 
• Greece
 
• Italy
 
• Recession

Italian premier Mario Monti is mulling emergency action to take direct control of Sicily’s regional government before the island spirals into a full-blown financial crisis, fearing contagion to the rest of Italy. We thought it was coming (as we wrote yesterday); we heard the rumors; but now the 'temporary liquidity problem' that faced Sicily has been resolved by... yes, you guessed it - the transfer of EUR400 million from the Italian government. Do not worry though. As one official noted "there's no default risk for Sicily, whose budget was in surplus in 2010 and 2011". Unbelievable.

As Bloomberg notes:

"The developments in Sicily are very serious," said Prof Giuseppe Ragusa from Luiss University in Rome. "It is just the sort of negative shock we don’t want right now. Everything has to go perfectly for Italy to pull through."

"We mustn't let the disaster in Sicily infect Italy"

"We are victims of disinformation, lie, and falsehoods. What are we supposed to do? Cut even further? Detonate a social explosion in Sicily? Turn Sicily into a land of desperation where everything is destroyed," Sicily's governor Lombardi said.

"Sicily is not at risk of default," said Mr Lombardo, blaming the crisis on cuts by Rome itself under its EU-imposed austerity regime. "We face a liquidity crisis linked to the recession in the rest of the country. It is hard for lots of regions, and not just Sicily."

and....

http://www.telegraph.co.uk/finance/financialcrisis/9410275/Monti-plans-Greek-style-takeover-of-Sicily-to-avert-default.html

By Ambrose Evans-Pritchard

8:43PM BST 18 Jul 2012

21 Comments

Mr Monti held an “urgent” meeting with the country’s president Giorgio Napolitano on Wednesday to grapple with the constitutional issue after it emerged that the region faces a deficit of up to €7bn (£5.49bn) this year and is in danger of default without sweeping cuts.

Sicily’s regional councillor Andrea Vecchio warned that the island has run out of money. “I’m afraid we will soon no longer be able to pay civil servants’ salaries,” he said.

“The developments in Sicily are very serious,” said Prof Giuseppe Ragusa from Luiss University in Rome. “It is just the sort of negative shock we don’t want right now. Everything has to go perfectly for Italy to pull through.”

The full extent of Sicily’s crisis came to light just before Moody’s downgraded a string of Italian regions, cutting many to levels even lower than Sicily. Piedmont, Abruzzo, Calabria, Lazio, and Campania were all slashed. The City of Naples fell to junk status, plagued by “systemic pressure” from a deep social and economic crisis.

“We mustn’t let the disaster in Sicily infect Italy,’’ said Pier Ferdinando Casini from the liberal PDC party, leading a chorus of politicians and business leaders calling for a takeover along the lines of the EU-IMF troika operations in Greece.

This is a highly delicate situation. Sicily has had a special status since the Second World War — reflecting its long tradition of separatist revolt — with control over health care, schools, and regional affairs. Rome has power to suspend the government in Palermo but only for “grave violations”.

Sicily’s governor Raffaele Lombardo is under investigation for Mafia ties, which he denies. Mr Monti has demanded that he abide by his promise to resign before the end of month, a move that will clear the way for a control team imposed by Rome.

“Sicily is not at risk of default,” said Mr Lombardo, blaming the crisis on cuts by Rome itself under its EU-imposed austerity regime. “We face a liquidity crisis linked to the recession in the rest of the country. It is hard for lots of regions, and not just Sicily.”

“We are victims of disinformation, lie, and falsehoods. What are we supposed to do? Cut even further? Detonate a social explosion in Sicily? Turn Sicily into a land of desperation where everything is destroyed,” he said.

There is a little doubt that Mr Lombardo’s headquarters in Palermo’s Palazzo dei Normanni is grossly overmanned, with a bigger staff than Downing Street. The EU has suspended €600m of project aid over alleged misuse of funds, a move widely seen as a pressure tactic to force him from office.

Yet Mr Lombardo’s emotional outburst is a reminder that Italy’s drastic austerity measures — net tightening of 3.2pc of GDP this year — is bleeding the regions and causing most hardship in areas heavily reliant on the state. Sicily has developed a small technology belt in computers and cell phones in the Etna Valley but depends on public sector jobs and subsidies from North Italy.

The Bank of Italy expects the Italian economy to contract by 2pc this year as cuts start to bite, while the Confindustria industry lobby fears it will be 2.4pc or worse — pushing the country deeper into perma-slump.

Critics say the austerity measures have gone too far. The primary budget surplus will be 4.9pc of GDP by next year, the best in the G7 bloc. This may prove a Pyrrhic victory if it causes public debt to shoot up to 126pc of GDP this year and erodes political support for the whole reform process.

Mr Monti has said his technocrat government will step down next March. It is unclear whether the splintered political system can produce a stable coalition.

Former premier Silvio Berlusconi is launching a comeback bid with calls for a withdrawal from the euro unless Germany and the European Central Bank step in to stabilise Italian bond yields. A study by Bank of America found that Italy might benefit from breaking free of EMU and restoring competitiveness with a weaker currency.

Sicily is a microcosm of the same misaligned North-South relationship within Italy. Like the rest of the Mezzogiorno — or South — it is caught in a welfare trap, held back by a currency union with a stronger industrial economy in the north.

This is made worse by national level pay deals that do not reflect productivity levels on the island. Sicily’s workforce has been priced out of global markets for decades.

Sicilian patriots say the island was a flourishing hub of commerce under the Normans in the High Middle Ages. It could be so again with full control over its own destiny.

and.....

 

http://www.telegraph.co.uk/finance/debt-crisis-live/9406901/Debt-crisis-as-it-happened-July-18-2012.html

16.53 This afternoon, the Sicilian governor has apparently said the state has a liquidity crisis because the Italian government owes it €1bn.

Mario Monti, the Italian prime minister, held an urgent meeting with the Italian president today to discuss Sicily's financial position. Sicily had a budget deficit of €5.3bn at the end of last year.

16.47 While Greece wrestles over its spending cuts, there are warnings that Sicily could become the "Greece of Italy". Italian prime minister, Mario Monti, said yesterday that he's "gravely concerned" that Italy's autonomous region may soon default. Italian news reports say Sicily's government may soon be unable to pay salaries and pensions.

Think tank, Open Europe, has published this article on Siciliy's predicament, arguing that Sicily shows Italy still has a lot to do:

Politically, the situation is obviously serious, but not particularly controversial. Regional autonomy in Italy is not the same thing as, for instance, in Spain. The right for the central government to step in and grab the helm if regional administrations go off course is enshrined in the Italian constitution. However, the unbelievable list of waste and mismanagement examples which led Sicily so close to default (some of which featured in our 50 examples of EU waste, 2010 edition) offers a clear explanation of why Italy still has a lot to do to find its way out of the woods of the eurozone crisis.

and.....

http://www.openeuropeblog.blogspot.co.uk/2012/07/why-sicily-shows-italy-still-has-lot-to.html

Why Sicily Shows Italy Still Has A Lot To Do...

As if Mario Monti didn't already have more than enough to work on this summer, another urgent item has taken the top spot on his agenda. The regional administration in Sicily (whose building, the beautiful Palazzo Normanni in Palermo, is pictured) is at serious risk of default. Its debt stood at a record €5.3 billion at the end of last year. The governor, Raffaele Lombardo, had already suggested that he would step down at the end of July. However, Monti felt the need to send him a letter yesterday, urging him to confirm his intention to quit. Given the shambolic state of affairs in Sicily we will overlook the fact that this essentially involves a technocrat calling on an elected politician to quit - far from ideal, but it's clear that Lombardo has to move on.

According to the Italian press, Monti and Lombardo are planning to meet next Tuesday, with the Italian government ready to send an administrator to take control of the region from the moment the Sicilian governor resigns. This statement made by Sicily's regional councillor for infrastructures, Andrea Vecchio, gives an idea of the gravity of the situation. He said yesterday,

Is Sicily on the verge of bankruptcy? I think so. I'm afraid we will soon no longer be able to pay the employees' salaries.

Politically, the situation is obviously serious, but not particularly controversial. Regional autonomy in Italy is not the same thing as, for instance, in Spain. The right for the central government to step in and grab the helm if regional administrations go off course is enshrined in the Italian constitution. However, the unbelievable list of waste and mismanagement examples which led Sicily so close to default (some of which featured in our 50 examples of EU waste, 2010 edition) offers a clear explanation of why Italy still has a lot to do to find its way out of the woods of the eurozone crisis.

Courtesy of Italian journalist Sergio Rizzo - co-author with Gian Antonio Stella of the bestseller 'La casta' ('The caste' in Italian) - here are some interesting and concerning examples:

- At the end of 2011, the Presidency of the Sicilian region employed a total of 1,385 people - i.e. more than the UK's Cabinet Office, which had 1,337 employees;

- According to the Italian Court of Auditors, the entire regional administration in Sicily employs 17,995 people. Last year, while Berlusconi's government was piling up austerity packages, 4,857 of these employees, previously on a temporary contract, were put on a permanent one;

- In 2011, these employees cost the region over €760 million just for their salaries and allowances - 45.7% more than in 2001. If social security charges are taken into account, the cost rises to almost €1.1 billion;

- Sicily's regional administration employs the same number of directors as 15 other Italian regions put together. This means that in the island's administration there is on average a director for every nine employees (the average in the Presidency office is one for every five or six).

Italian daily La Stampa offers a couple more colourful (but equally worrying) examples:

- The allowances of the 90 members of Sicily's regional assembly include €5,000 for 'funerary expenses';

- Back in 1984, Sicily decided to buy two killer whales (yes, you read it right) from Iceland, at a cost to the taxpayer of over 200 million of Italian lire - i.e. over €100,000. They were supposed to be admired by tourists visiting a water park in Sciacca, in the province of Agrigento - on the south-western coast of the island. A real shame that the park was never finished and the killer whales had to spend the rest of their lives in a swimming pool, at a cost of 6 million of Italian lire - i.e. over €3,000 - a month.

It looks like Super Mario will definitely have to live up to his moniker on this one...