http://www.euronews.com/2012/12/07/berlusconi-s-party-promise-not-to-push-italy-into-crisis/

Silvio Berlusconi’s centre-right People of Freedom party has pledged not to trigger a disorderly crisis as Italy prepares for a possible early election next year.

It follows the PDL’s withdrawal of their support from Prime Minister Mario Monti’s government.

The party’s secretary Angelino Alfaro also announced that Berlusconi will stand for re-election: “As founder of first Forza Italia and then this party, there’s no need for primaries. That would be useless” he said.

There has been a mixed response to news of Berlusconi’s but most Italian dailies agree the days of Mario Monti’s government are numbered.

An opinion shared it seems among some people in Rome.

Businessman, Vittorio Rubelli said: “We have already taken 30 points on the spread. I just can’t understand what he (Berlusconi) is doing. I hope he gets three votes and goes home.”

“We’re worse off than ever, worse off than ever. I have to support my son who is unemployed and I should be collecting my pension at some point but we still do not know when,” said Antonella Silvani.

All eyes will now fall on the presidential palace, the Quirinale, with Giorgio Napolitano set to hold talks again with party leaders in the hope of prevent a damaging political crisis.

and......

http://www.nytimes.com/2012/12/08/world/europe/italys-government-nears-the-end-as-party-loses-faith-in-monti.html

MILAN — The secretary of Italy’s largest political party said Friday that the technocratic government of Prime Minister Mario Monti had run its course, paving the way toward early elections.

Angelino Alfano, the secretary of the People of Liberty party, told the lower house of Parliament that his party would not bring down the government, “because we don’t want to send the institutions and the country into ruin.” But he made clear that the party would no longer support Mr. Monti, who has headed an emergency government with bipartisan support for more than a year.

On Thursday, People of Liberty signaled their disapproval of Mr. Monti’s economic policies by walking out on an important vote.

President Giorgio Napolitano, who has the power to dissolve Parliament and call for elections, met with the speakers of both houses of Parliament on Friday as well as with leaders of several political parties to discuss the situation. The mandate of the current Parliament ends in April.

Mr. Napolitano made clear Thursday that he expected Parliament to approve various measures, including a 2013 budget, before the end of the year, calling for an orderly conclusion to the legislation.

So far, Mr. Monti and his technocrats have appeared unaffected by the brewing turmoil. “The government’s commitment has not been touched by the current atmosphere,” Justice Minister Paola Severino said Friday.

People of Liberty’s decision hints at the return to politics of its founder, Silvio Berlusconi, who stepped down as prime minister in November 2011 amid personal and political turmoil. After repeatedly vowing that he would not seek re-election, Mr. Berlusconi on Wednesday abruptly accused his successor of dragging Italy “to the brink of a precipice,” a situation that had led supporters to call for Mr. Berlusconi’s return to politics, he said.

“Attacking Monti is viewed by him as the fastest way to create consensus, but it looks quite irresponsible,” said Massimo Franco, a political analyst with the Milan newspaper Corriere della Sera. “Berlusconi doesn’t expect to win, he just wants to create a group that will help him to survive and defend his interests.”

Mr. Berlusconi, 76, was recently convicted of tax fraud and is facing trial on accusations that he paid for sex with a minor. Yet he has retained control of his party, which was unable to anoint a credible alternative leader in the year after Mr. Berlusconi’s resignation.

Any election is likely to be won by the Democratic Party, which has 30.3 percent support, according to a poll by the SWG institute for RAI television, enough to become the primary party in Italy, but far short of the 50 percent needed to form a Parliamentary majority, so deals will have to be struck with minor parties.

Mr. Berlusconi’s party still has supporters — it is polling at nearly 14 percent — and he is likely to attract the votes of a segment of the electorate unhappy with Mr. Monti’s reforms, said Giovanni Orsina, who teaches political science at Luiss University in Rome. Mr. Monti, who has been credited with restoring the country’s credibility with financial markets, “put out the fire but he also created some malaise,” Mr. Orsina said, citing new property taxes.

The open question remains how many people will desert the polls after recent electoral walkouts in local ballots have suggested that Italians are fed up with their political class. There have been widespread calls for change — of candidates and of ideas — which explain in part the popularity of a new anti-establishment party lead by comic Beppe Grillo that is polling at 19.7 percent.

Italians seem mostly resigned. “We are being hit by the crisis so badly — a crisis that did not start last year — that we aren’t even following these developments day by day, said Cinzia Bellisario, 38, strolling down a Rome street on Friday. “We don't trust these politicians anymore, we don't want to see the same faces in Parliament over and over again. We really want things to change, now.”

Gaia Pianigiani contributed reporting from Rome.

and....

http://ransquawk.com/headlines/italy-s-president-napolitano-says-he-met-with-head-of-berlusconi-s-party-but-refused-give-any-details-on-the-meeting-07-12-2012

Italy's President Napolitano says he met with head of Berlusconi's party but refused give any details on the meeting

Update details:

- Italian PM Monti's government won a confidence vote in the Chamber of Deputies yesterday.

- PDL party secretary Alfano said we will decide in the next few days whether to bring down the government early, after walking out of the vote yesterday.

and........

http://www.nytimes.com/2012/12/08/business/global/greek-banks-sign-on-to-bond-buyback.html

Banks Agree to Sell Back Some Greek Bonds

By LANDON THOMAS Jr.

Published: December 7, 2012

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LONDON — Greece moved a step closer to completing a complex debt-reduction deal on Friday when the country’s largest banks said they had agreed to sell their discounted bonds back to the government.

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Tracking Europe's Debt Crisis

The buyback, which aims to trim about 20 billion euros, or nearly $26 billion, from Greece’s 323 billion euro debt, was scheduled to close at the end of the day on Friday. But people involved in the transaction said they did not expect an official announcement of the results until early next week.

Greece’s so-called troika of international overseers has said meaningful participation by bondholders in the buyback program will be crucial to the release of more than 40 billion euros in the next installment of bailout loans. The country desperately needs those loans to recapitalize its banks, service the interest on its debt and pay billions of euros in bills.

“It looks as if they will hit the higher range of their expectations,” said Dimitris Drakopoulos, a sovereign debt expert at Nomura in London.

Bankers involved in the transaction say it is too early for Greece to declare victory in the buyback. Given the political and financial sensitivities involved, they say, last-minute snags are still possible.

“It is not done until it’s done,” said one banker involved in the transaction, who spoke on condition of anonymity. “But I am reservedly optimistic.”

The better-than-expected participation of hedge funds, which bankers say have sold 50 to 70 percent of their 24 billion euros in bonds, together with the involvement of the banks, have increased the chances that the buyback will succeed.

The Greek banks are one of the larger groups invested in the country’s bonds. They hold 17 billion euros of the 63 billion euros in private sector debt that is in circulation after Greece’s most recent debt restructuring.

That write-down was overseen by the troika that determines when and if Greece receives each round of bailout money: the European Commission, the European Central Bank and the International Monetary Fund.

The combined participation of Greek banks and foreign investors could be enough to reach the goal of 20 billion euros in net debt reduction that Greece and the troika set for the buyout. To reach that goal, Greece would need to buy back bonds worth 30 billion euros in face value because the country has borrowed 10 billion euros from Europe to conduct the buyback program.

The I.M.F. has said it will provide additional bailout loans to Greece if the buyback is successful and the country continues to reduce its debt toward sustainable levels.

Analysts say that while many hedge funds indicated that they might hold out for a higher price, tough talk by government officials and bankers persuaded many investors to take profits now, rather than risk having to absorb losses later.

Since the government announced on Monday a price range of 30 to 40 cents on the euro, the bonds have increased in value, hitting a high of 35 cents late this week. Investors say the increased demand is coming from buyers who think the bonds will push even higher once the buyback is complete and Greece’s financial position improves.

“We are seeing a lot of real money buying these bonds now,” said one large investor who had participated in the exchange. “I am not surprised. Things are finally improving in Greece.”

and....

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_07/12/2012_473513

Greek lenders submit all their bonds for buyback

Greece is expected by Monday to announce the successful completion of the bond buyback scheme that is key to the release of its next bailout tranche and the overall program to reduce the country’s debt to sustainable levels by the beginning of the next decade.

The deadline for holders of Greek debt to take part in the auction for their bonds expired on Friday and, according to sources, the participation of Greek banks and hedge funds was high enough for the government to meet its target of buying back more than 30 billion euros’ worth of bonds with the aim of reducing the country’s debt by some 20 billion euros.

Banking sources told Kathimerini that Greece’s four main banks – National, Eurobank, Alpha and Piraeus – submitted all their bonds, with a nominal value of 11.5 billion euros, to the buyback process. The participation of several other smaller Greek banks meant that local lenders submitted a total of 16 billion euros’ worth of bonds.

A total of 63 billion euros of Greek papers was eligible for the buyback. It was not clear last night exactly how big the contribution of hedge funds was.

Sources said local banks are hopeful that investors’ take-up of the offer from the Greek government, which had set a price range of between 30.2 and 40.1 percent of the principal amount, was big enough to allow lenders to eventually hold on to some of the bonds they submitted.

Greek banks were hoping to keep 20 to 30 percent of their bond holdings to minimize their losses. Although Greek banks will make a small short-term gain from the buyback as the bonds had been recorded in their books at a value of 30 percent, Greece’s four main lenders will lose 7.5 billion euros as a result of not holding the bonds to maturity.

Sources said that Greek bankers are hoping that the government will provide other ways of absorbing this cost, such as tax breaks. The success of the buyback should secure the release of further EU-IMF funds, with most of the next tranche going toward bank recapitalization.

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_07/12/2012_473504

Tax bill 'ready' after differences overcome

A controversial tax bill demanded by foreign creditors in exchange for continued rescue funding was basically complete late Friday after representatives of the three parties in the coalition reportedly bridged most of their differences in a second round of talks with Finance Minister Yannis Stournaras.
The bill, which is expected to go to Parliament by Tuesday so it can be voted on before European leaders meet to approve the release of 34 billion euros in rescue funding for Greece, was tweaked to overcome some objections by PASOK and Democratic Left while some enduring reservations remain to be addressed, sources said.
The bill, which is to be sent to the troika for approval over the weekend, reportedly sets out some tax breaks for certain categories of self-employed professionals. Those who work for a single employer but are not on the payroll will not be obliged to pay the annual levy which will increase to 650 euros from 500 euros. Also those in the first three years of their career will be taxed at a more favorable rate.
In a related development, the Finance Ministry asked the Public Power Corporation to continue levying a property tax via electricity bills, despite a court ruling that deemed the attachment of the tax to power bills as illegal, until the Supreme Court hears the ministry’s appeal for the decision to be overturned.

http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_07/12/2012_473406

Greece to sell 1-month and 6-month T-bills Dec 11

Greece will auction 2.125 billion euros of one-month treasury bills and 1.25 billion of 6-month paper on Dec. 11, the country's debt agency PDMA said on Friday.

The T-bills will be sold into a rollover. The settlement date will be Dec. 14. Only primary dealers will be allowed to participate and no commission will be paid.

Monthly T-bill sales are Greece's sole remaining source of market funding. Greek banks buy the bulk of the issues and deposit them as collateral to draw liquidity from the central bank.

[Reuters]

http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_07/12/2012_473387

Greece to shield banks from buyback lawsuits

Greece aims to shield its banks from possible lawsuits linked to a crucial buyback of sovereign bonds and has no plans to extend the acceptance deadline for the scheme beyond Friday, a senior finance ministry official said.

A successful buyback is central to Greece's efforts to slash its debt. Greek banks will hold board meetings on Friday to decide whether they will join in and must declare their interest by 1700 GMT.

Greek lenders' participation is key for the success of the plan, under which Athens aims to spend 10 billion euros of borrowed money to buy back bonds far below their nominal value, cutting its debt by a net 20 billion euros.

Newspaper Kathimerini said there was a possibility the government would extend the deadline to early next week.

But the official, who spoke on condition of anonymity, played down the report.

"The process will close today and there is no need for an extension,» he said.

The government would provide legal cover to protect the management of banks choosing to participate in the plan from possible lawsuits from shareholders who may suffer losses, the official said, without giving details.

Greek lenders hold an estimated 17 billion euros of bonds out of the 63 billion eligible for the buyback. They are expected to participate because they depend on the bailout funds Athens stands to receive once the buyback is completed.

http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_07/12/2012_473410

Hedge fund firm LNG bets on short-dated Greek bonds

Hedge fund firm LNG Capital is betting on short-dated Greek bonds as one of a number of managers to believe the debt-laden country could end up paying back some of its bondholders at face value.

Louis Gargour, chief investment officer at the London-based firm, told Reuters he has built up positions in Swiss franc-denominated Greek bonds maturing in May next year and U.S. dollar-denominated bonds maturing in July.

The bet is that Greece, which is currently buying back some longer-dated bonds in the secondary market at a discount to nominal value in an effort to cut its debt and unlock aid from international lenders, will be relatively unconcerned about small tranches of debt with just months to run.

Gargour also hopes the fact the bonds were not issued under Greek law will make it harder for any adverse terms to be imposed on creditors holding out for a full pay-out.

"I think it's a great opportunity to make a lot of money,» said Gargour, whose LNG Europa Credit fund is up 11 percent in the first 10 months of this year.

"The logic behind the trade is that they have a very high probability of arriving at par due to the reluctance of the government to default again and restructure those bonds."

Gargour accumulated the positions at a price of between 65 and 75 cents on every dollar of face value. They now trade around 82 cents, he said.

The bonds would not be the first to be paid out at par since Greece's debt crisis began.

In May Greece performed an about-face when it paid in full the holders of one bond who had earlier rejected an offer to exchange it for lower value debt despite the government having said at the time of the offer in March that any 'holdouts' on the exchange would get nothing.

Gargour's bet also has parallels with the positions taken by hedge funds who bought longer-dated Greek bonds at knock-down prices earlier this year and have since seen huge gains.
Some of these funds are preparing to reject Greece's buyback, believing that English law offers them greater protection and increases the chance of a higher payout.
Some cite court rulings in the long-running legal battle between Argentina and holdout creditors, which have said Argentina must pay holders of restructured bonds and holdouts simultaneously.
Gargour added that there were plenty of bargains to be found in Greece, due to international investors' poor perception of the country.
"We're also long (the bonds of rail company) Hellenic Rail, which mature in December,» he said. «There are a lot of opportunities for anomalous trades that not a lot of people are focusing on, as they consider Greece a basket case."

http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_06/12/2012_473332

Hedge funds, local banks eager to see who blinks first

Finance Ministry seeks to secure big buyback participation

The tactical play observed between Greece’s Finance Ministry and international hedge funds regarding the latter’s participation in the bond buyback program is set to culminate on Friday, with the submission deadline for offers from bondholders slated for 7 p.m.
Hedge funds and Greek banks hold the bulk of Greek bonds eligible for a buyback (worth about 40 billion euros from a total of 61.4 billion). Up until last night most hedge funds were waiting to see what local lenders would do, as each side wants to keep their participation to a minimum in a bid to contain their losses. Still, some hedge funds have already applied to take part, with their bonds adding up to some 4 billion euros.
Finance Minister Yannis Stournaras has not ruled out an extension to the deadline, possibly until the beginning of next week, depending on the offers the ministry gets.
Bank chiefs had a final meeting with Stournaras on Thursday ahead of the decision-making board meetings to be held by all main lenders on Friday. The most likely scenario is that they will all take part, but not with all the bonds they hold.
However, it does look as though banks have had it their way this time, as in return for their participation in the buyback program, they appear to have secured a tax exemption for their losses from the PSI debt restructuring, amounting to taxes of 4.2 billion euros, and from the buyback, equal to 2 billion euros.
They have also reportedly secured the protection of the banks’ governing boards from civil liability.

and...

Pre-NFP Party Spoiled By Reality, Bundesbank And Another Japanese Earthquake

Submitted by Tyler Durden on 12/07/2012 - 07:01European Central Bank Eurozone Germany Greece Gross Domestic Product None Reality Unemployment

In a day in which it was all supposed to be about today's far weaker (because there is a perfectly good alibi in the face of Hurricane Sandy) Nonfarm payroll report, expected to print at 85,000, due out in 2 hours, once again it is the the "rest of the world" that stole the scene, starting with a reality slam out of Germany whose Bundesbank came out with revised forecast for German economic growth, which collapsed projected 2013 growth from 1.6% to a tiny 0.4%, adding that there are "growth projections risks to the downside" in effect all but sealing Germany's recessionary fate in the coming year, and send the EURUSD to overnight lows. Sure enough, as if to confirm this forecast, moments ago German Industrial Production in October tumbled -2.6%, on expectations of an unchanged print. None of this should come as a surprise to our readers whom we have been warning for weeks and months that the European economic malaise is spreading closer to the core with each passing day. What this means is that as we have been saying for months, slowly but surely the narrative that the ongoing German bailout of Greece is crushing the AAA-rated economy will become louder and louder until it is the German people themselves who demand a severing of all ties with Greece.And speaking of Greece, there are simply no words to explain the stupidity of what may be happening there. Perhaps the following Bloomberg headline captures it best: Greece to Buy Debt It Already Owns to Reach Target. Er, LOLWUT?

http://www.guardian.co.uk/business/2012/dec/07/eurozone-crisis-german-growth-forecasts-bundesbank

Greek banks were holding meetings this morning to discuss whether to take part in today's debt buyback, and there are now reports on the wires that they will take part:

German industrial output slides

Another blow to the German economy -- industrial output fell 2.6% in October, from September, according to data just released by the economy ministry.

Construction (-5.3%) and Capital goods (basically large equipment) -4.3%, were the biggest fallers.

In a statement, the ministry said expected 'subdued' output in the last three months of 2012.

Economist had only expected a 0.5% drop in output.

The sharp fall is particularly surprising as yesterday we learned that factory orders has posted strong gains in October (as DemocratCHpointed out in the comments below).

Here's a breakdown of the data (seasonally adjusted)

Intermediate goods: -1.1%

Capital goods: -4.3%

Consumer goods: 0.9% (durables -6.2%, non-durables +0.1%)

Energy: - 3.2%

Construction: - 5.3%

Bundesbank predicts higher German unemployment

The Bundesbank has also warned that German unemployment will be higher than previously forecast.

Here's a round-up of the latest Bundesbank forecasts

Unemployment

2012: 6.8% (vs 6.7% previously)

2013: 7.5% (vs 6.5% )

2014: 7.0%

Inflation:

2012: 2.1%

2013: 1.5% (vs 1.6%)

GDP:

2012: + 0.7% (vs 1% previously)

2013: + 0.4% (vs 1.6%)

Crucial meeting in Italy today

Supporters of former Italian premier Silvio Berlusconi expose a banner reading "Silvio Italy trusts you" in front of Palazzo Grazioli, the residence of Berlusconi, in Rome, Thurdsday, Dec. 6, 2012.

Yesterday, supporters of former Italian premier Silvio Berlusconi exposed a banner reading "Silvio Italy trusts you" in front of Palazzo Grazioli, his residence. Photograph: Alberto Pellaschiar/AP

The political turmoil in Italy continues today, after yesterday's drama (in which Silvio Berlusconi’s backers abstained from key parliamentary votes yesterday, technically leaving Mario Monti without a majority).

From Rome, Tom Kington reports:

All eyes are the meeting this morning between Angelino Alfano, Berlusconi’s party secretary, and Italian president Giorgio Napolitano, who has the power to dissolve parliament and call elections if he decides Monti’s time is up.

Alfano meanwhile confirmed that Berlusconi has definitely thrown his hat back in the ring. Prime minister Mario Monti has said he awaits instructions from Napolitano.

Napolitano has already tried to calm the waters and Alfano has said yesterday’s walk out from parliament was a sign of disapproval of Monti’s handling of the economy rather than a bid to pull the plug.

He also denied that it had anything to do with the cabinet’s issuing of a decree yesterday which will exclude from parliament politicians with certain criminal convictions, a measure that could affect Berlusconi as he plans an appeal against his conviction in October for tax fraud.

Another view is that Berlusconi wants to pressure Monti into bringing forward national elections planned for March to coincide with key regional elections in Lazio and Lombardy currently planned to be held in February.

In both regions, the authorities hitherto run by Berlusconi backers collapsed because of corruption scandals. Should Berlusconi take a drubbing in these regional elections, the fear is it could rebound on his chances in the national election if it is held shortly after.

And the negative reaction of the markets to Berlusconi’s sabre rattling? His former culture minister Sandro Bondi dismissed it as “the little games of the markets,” adding “the real situation of this country is not revealed by the spread, but by the desperation of citizens."

10.24am GMT

Austria also slashes growth forecasts

Breaking: The Austrian central bank has also just issued new GDP forecasts, and like the Bundesbank it has slashed its predictions.

The Austrian National Bank forecasts growth of just 0.5% next year, agreeing with the Bundesbank that 2013 will be difficult.

Here are the new forecasts:

2012: +0.4% (down from 0.9% previously)

2013: +0.5% (down from 1.7% )

2014: 1.7% (down from 2.1%)

UK manufacturing output falls

More gloom - this time in the UK, where the latest factory production data is much worse than forecast.

Manufacturing output fell by 1.3% in October compared with September, much weaker than the forecast of a 0.2% decline.

Among industrial firms output fell by 0.8%, against predictions of a month-on-month rise of 0.7%.

Economists and City traders aren't impressed:

Catharsis Ours

Friday, December 7, 2012