With Rajoy quietly gloating at his political fraud being off the front-pages thanks to Italian elections, it seems the more we dig into Italian reality, the weaker the story becomes. The meme of the last few years has been that "at least we're not as bad as Greece" and rightly so, for as Bloomberg's Niraj Shah notes today, Greece's poverty rate is a stunning 31% (against Holland's 15.7%). However, while all eyes have been focused on Spain's dismal economy, the sad reality is thatItaly is worse than Spain in that its poverty rate is a breath-taking 28.2% (relative to Spain's 27%) - even though the unemployment rates in the two nations are vastly different (Spain 26% and Italy 11.2%). Given this fact it is perhaps not surprising that the 'people' voted against austerity and furthermore, that Italy's CDS has pushed above Spain's for the first time in over a year.
Italy gridlock deepens as Europe watches nervously
By Dario Thuburn (AFP) – 8 hours ago
ROME — Italy's political gridlock deepened as a spat between the main leftist party and a new anti-establishment movement hit prospects for a new government, after elections that have spooked Europe.
Comedian turned populist firebrand Beppe Grillo said his Five Star Movement (M5S) would not endorse the Democratic Party (PD), which won the most votes in the election earlier this week, but not enough to form a majority in parliament.
"The M5S is not going to give a vote of confidence to the Democratic Party or to anyone else," Grillo, who has channelled the frustrations of austerity-weary Italians, wrote on his blog Wednesday.
The comment appeared to be a rejection of overtures from the PD, which on Tuesday suggested working with M5S on key measures such as slashing government costs and helping Italy's poorest through a grinding recession.
Grillo said the PD had made a series of "indecent proposals".
PD leader Pier Luigi Bersani retorted with a statement saying: "If Grillo has something to say to me, including the insults, I want to hear it in parliament."
Grillo, who has called for a referendum on the euro and won a quarter of the vote in parliament, suggested the PD could ally with Silvio Berlusconi's centre-right coalition for a short-term before new elections.
The scandal-tainted Berlusconi, dismissed as a spent force just months ago after 20 years in politics, came an extremely close second to the centre-left, ahead of the Five Star Movement.
The three-time prime minister and billionaire tycoon said in a video message that waiting until the new parliament is due to meet on March 15 to begin talks on forming a coalition government was too long.
Berlusconi has promised to refund an unpopular property tax -- if necessary out of his own pocket -- and has blamed a "hegemonic" Germany for many of Italy's current economic woes.
After initial market panic on Tuesday, investors were more measured on Wednesday, especially after a better-than-expected bond auction in Rome.
European capitals remained nervous however amid fears Italy could turn back the clock on reforms following an election that has been seen as crucial for the future of the eurozone.
-- 'Clowns' and confusion --
Italian President Giorgio Napolitano cancelled planned talks with the man bidding to unseat German Chancellor Angela Merkel, Peer Steinbrueck, after he referred to both Berlusconi and Grillo as "clowns".
Commenting on the inconclusive vote in Italy, Steinbrueck said late Tuesday he was "downright appalled that two clowns won" -- a reference to the two political leaders' strong showing in the election.
Steinbrueck's spokesman Michael Donnermeyer confirmed to AFP that Napolitano had cancelled the meeting because of the comments.
In comments published in Thursday's Bild newspaper Napolitano said: "Peer Steinbrueck explained to me by phone that he had not meant to be offensive. But in my view a meeting was no longer possible after the remarks he made."
German politicians have urged Italy to stick with the reform programme pursued by outgoing Prime Minister Mario Monti, which, while unpopular in Italy, did improve confidence in the financial markets.
Monti was the big election loser, taking just 10.56 percent in the lower house, the Chamber of Deputies.
Bersani has already said that the huge anti-austerity protest vote should be heeded beyond Italy's borders.
In his first speech following the vote, Bersani said on Tuesday: "The bell tolls also for Europe."
Moody's credit ratings agency meanwhile warned it might downgrade Italy, saying the vote result "increases the risk of political paralysis and prolongs political uncertainty.
"This week's elections have implications well beyond Italy itself and are, indirectly, credit-negative for other pressured euro area sovereigns," it added.
The PD-led coalition took the lower house of parliament but no party won a majority in the upper house and support in both chambers is needed in order for a government to be formed.
The current government stays in place until then.
Analysts have acknowledged that a minority centre-left government reliant on votes from other parties in the Senate on a case-by-case basis could be formed, but describe the situation as "highly unstable".
Leading Italian bank Intesa Sanpaolo warned the suspense -- and the political uncertainly -- could last for weeks.
Italy is enduring its longest recession in 20 years and unemployment rates are at record highs.
Later Wednesday, in the currency markets in New York, the euro recovered against the dollar after the successful Italian debt auction reassured markets.
Italian treasury had sold 6.5 billion euros of treasury bonds.
However Christopher Vecchio, currency analyst at DailyFX, cautioned that the 10-year bonds were sold at an average yield of 4.83 percent compared with 4.17 percent at the previous auction on January 30.
- Earlier today the Italian President Napolitano said it there would be difficult problems ahead. He added that he is confident Italy will continue to take its responsibilities, accept sacrifices needed to continue European project. But it is not possible to speed up process of forming new government as Monti's government still in office.
Reaction details:
- DAX immediately moved lower by 8.5 points from 7736.00 to 7727.50, but was then pared.
- Bunds imeediately moved higher by 5 ticks from 145.08 to 145.13, but was then pared.
- EUR/USD immediately moved 8 pips lower from 1.3115 to 1.3107, but was then pared.
Just days before the UK's Barclays bank is set to unveil the number of staff who earned more than GBP1 million last year in its annual report, as part of a push for more transparency, the FT reports that a provisional EU deal - set to go into place in January 2014, will bring the most severe pay crackdown since the 2008 crisis began.European Bankers' bonuses (and their US subsidiaries) are to be capped at two times bankers' salaries and banks will be subject to a strict transparency regime after a late Wednesday European parliament vote secured agreement on a mandatory 1:1 ratio on salary relative to variable pay, which can rise to 2:1 with explicit shareholder approval. With the UK 'threatening' referenda in the future, the deal, if confirmed, is a major victory for the EU parliament negotiators, who insisted on pay curbs as their price for passing Basel; and a sign of London’s relative isolation on some financial services issues. As far as aworkaround, the EU commissioner responsible for the reforms, said it was"difficult to imagine now that we would scrap this compromise," though we are sure they will find a way, especially as MEPs want the tougher version eventually to apply to hedge funds and investment managers.
The impact, however, will be partly softened for the City of London by giving morefavourable treatment to long-term pay linked to the health of a bank, such as equity or bondsthat are written down when an institution fails.
...
While the deal preserves the freedom for national authorities to require banks to hold more capital, the most important UK priority throughout the negotiation, the remuneration exemptions, fall well short of the London’s demands.
George Osborne, the UK chancellor who led frantic diplomatic efforts to blunt the curbs, must now decide whether to force a debate or a formal vote at a meeting of finance ministers next week.
Senior bankers warned that the pay curbs – which were not part of the Basel accord – will reset the balance of arguments for operating in Europe, with potentially far reaching implications. While average pay levels at banks fit within the ratio, star performers can receive multiples of salary of 10 times or more.
[The Workaround] - As part of the compromise, up to a quarter of variable pay can be issued in instruments deferred for more than five years.
...
The European Banking Authority will be given the task of determining the type of instruments that win favourable treatment and the discount rate that is used to calculate their value within the ratio.
Industry hopes of an exemptionfor international offshoots of EU based banks, as well as US or Asian banks operating within the EU, were dashed.
...
While the threat of a bonus clampdown has been hanging over the City for almost a year,the severity of the overall package will come as a big shock, especially given the lack of significant exemptions.
...
Banks pleaded with David Cameron, the UK prime minister, to fight the crackdown, warning that it would undermine the City and force banks to move top staff or lucrative operations to New York or Asia.
The reverberations of the cap will be felt beyond the banking sector. MEPs want the tougher version eventually to apply to hedge funds and investment managers, who are subject to existing bonus rules designed for banks.
THE RULEBOOK AT A GLANCE
Capital: There will be an effective minimum core tier one capital ratio of 7 per cent, rising to up to 9.5 per cent for globally systemic banks, by 2019. The definition of capital is also being tightened although not by as much as the global Basel III agreement required. Regulators may also impose countercyclical capital buffers if they believe an economy is overheating.
Liquidity: Banks will be required to keep on hand enough easy to sell assets to survive a 30-day market crisis. The requirement is phased in between 2015 and 2018, a year faster than Basel III requires. The definition of acceptable assets has not been finalised so it is unclear how closely the EU will follow the Basel III rules.
Bonus curbs:A tentative deal is taking shape where bankers’ bonuses exceeding salary will be banned in normal circumstances. Shareholders could raise the ratio to 2:1 or vote to exempt some long-term forms of pay. All banks must disclose the number of staff paid more than €1m.
Flexibility: Member states can ask individual banks to hold more capital. But they are more constrained about raising capital requirements to tackle systemic risks. The UK and Sweden are content with the complex approval procedure but the commission is pushing for a stronger means to intervene.
( The Eurocrats are very nervous about Italy.... )
Van Rompuy confident Italy will stick with euro
More assurances that Italy will stick with the euro project. The faster they come the weaker they sound.
Here's European council president Herman Van Rompuy, who this morning expressed his full confidence that Italy will continue to remain a stable and strong member of the European Union and of the eurozone.
Van Rompuy met outgoing Italian prime minister Mario Monti today to discuss the upcoming council, which will discuss growth and job creation.
Spain's deficit comes down to 6.7%
Spain will miss its target for deficit reduction this year, but not by too much.
The public deficit has come down to 6.74% in 2012, from 8.9% in 2011. That misses the target of 6.3% agreed with Europe, but should be enough to appease the markets.
The European Commission is said to be happy with Spain's performance and is expected to give the country another extension on shrinking the deficit to below 3%. At present, that target is set (somewhat ambitiously) for next year.
Spain's treasury minister Cristobal Montoro said there was no need for new budget cutting measures, and that strict rules on autonomous regions' spending are working.
No risk of contagion from inconclusive elections - Italian president
Back to Italy, where the president Giorgio Napolitano said he sees no risk of wider European contagion from the Italian political situation.
Reuters reports him saying there is a difficult path ahead but that he is convinced Italy's future is in Europe. He says he is confident that Italy will continue to take its responsibilities and accept sacrifices needed to continue the European project.
The Italian people have made a democratic choice that must be respected, he says. The constitution does not allow the process of forming a new government to be accelerated.
Eurozone inflation drops to 2%
Eurozone inflation eased in January to 2%, paving the way for a possible rate cut from the European Central Bank.
Eurostat said the annual inflation rate came down from 2.2% in December. That brings the 12-month average to 1.9%, just below the ECB's inflation target, which could let the central bank cut rates in a bid to boost activity.
Berlusconi investigated for corruption
Reports are emerging that Silvio Berlusconi – who won a sizable portion of the vote at the Italian elections – is being probed in Naples for suspected corruption and illegal party funding.
Italian news agency ANSA said the case regards money allegedly paid to Senator Sergio De Gregorio – who defected from the centre left to join Berlusconi's party some years ago – citing judicial sources.
German unemployment down in February
We'll keep one eye on that. Meanwhile, German unemployment fell in February, although slightly less than forecast (in seasonally adjusted terms).
The number of people out of a job dropped by 3,000 to 2.9m in February, while economists were expecting it to fall by 5,000.
The unemployment rate held steady at 6.9% (after January's rate was revised up to 6.9%).
The closely watched jobless total (which is not adjusted) remained above the 3m mark.
Bankia posts biggest loss in Spanish corporate history
Sticking with Spain, one of the country's nationalised banks today posted a loss of €19bn, by far the largest loss ever reported in Spanish corporate history.
The bank has undertaken a major operation cleaning its balance sheet of soured property loans and other loss-making activities over the past year.
Investors were expecting a big number after Bankia warned of huge losses when it was bailed out late last year.
The Bankia chairman Jose Ignacio Goirigolzarri said in a statement that the bank's priority is...
To make Bankia a profitable institution in order to return to the community the support it has given us.
Spanish fourth quarter GDP drops 0.8%
There is some miserable data out of Spain this morning, which saw itsGDP figures revised down to -0.8% for the final quarter of last year, from an initial estimate of -0.7% That means the Spanish economy shrank by 1.9% over the year.
That is the sixth straight quarter that Spain's economy contracted and the downturn appears to be speeding up, with GDP dropping at its fastest quarterly pace since mid-2009.
German finance minister 'never said the crisis was over'
Though European markets are settling down after the inconclusive election results, there is still plenty of nervousness out there. And eurozone policymakers are falling over themselves to point out they never said the crisis was over.
German finance minister Wolfgang Schauble said that Italy's inconclusive weekend election had raised the risk of market turmoil spreading to other euro countries and urged Italian politicians to form a stable government quickly. He told Reuters:
The election result in Italy has sparked doubts in the market that a stable government can be formed. When such doubts arise there is a danger of contagion. We saw this last year when elections in Greece led to political uncertainty. Other countries are then infected.
I never said the euro crisis was over. I only said that we have made significant progress. We need to continue on this path, but we will have setbacks.
Overnight, EU leaders agreed to introduce what will amount to the world's strictest curbs on bankers' bonuses, railroading opposition from the UK Treasury.
The basic agreement will cap bankers' bonuses at a year's salary. While it still needs approval from EU governments, the main points could become law as early as next year.
And the UK cannot veto it. This will rock the City of London, where bonuses can sometimes be as much as 12 times a bankers' salary.
The UK financial sector was dealt a withering blow on Wednesday night when the European Union agreed on moves to slash the bonuses that may be paid to bankers, defeating strong Treasury opposition to the new rules.
A meeting of officials from the 27 countries of the EU with MEPs and the European commission agreed to cap bankers' bonuses broadly at a year's salary, with the proviso that the bonus could be doubled subject to majority shareholder approval.
The agreement has still to be approved by EU governments before coming into force next year. While details may still be tweaked, it is expected that the main points will become EU law.
Britain, strongly opposed to the new legislation, will not be able to veto it as it will be carried by a qualified majority vote of the EU member states.
The deal will be another blow for Chancellor George Osborne who strongly opposed the deal. The FT reports:
Tensions were so high that George Osborne, at one point snapped and said defending the package would make him "look like an idiot".
Just hopeless: hilarious video of George Osborne skipping and falling over his feet in MPs' contest
- Videos show red-faced politicians puffing and panting
- David Davies fittest with 348 skips in two minutes
- Exclusive video shows George Osborne jumping rope
- Scroll down for vids of Nick Clegg and Ed Balls skipping
Submitted by Tyler Durden on 02/28/2013 20:27 -0500
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