In most countries, it would be an act of mind-bending chutzpah, or perhaps a display of political insanity, but in Italy it barely made ripples: for a government official, a minister no less, to declare that the country cannot pay its long overdue bills, and not for a month or two, but for the rest of this year! Due to "technical" problems.
The Italian government is out of money. Not that the US government is in any better shape in that respect, or the Japanese government for that matter, but they have central banks that print the missing moolah with lavish abandon. Italy doesn't. It has the ECB which is run by an Italian who promised last year to print with lavish abandon to keep countries like Italy afloat. But that promise is not the same thing as having your own central bank.
On July 4, Italy's budget fiasco
came to lightonce again. Wracked by the pretense of austerity, expenditures
rose 1.3% in the first quarter, while revenues remained flat. So the deficit rose to 7.3% of GDP, up from 6.6% last year, bringing the national debt to 130% of GDP. Ballooning debt and deficits in a shriveling economy – Italy has been in recession since the fourth quarter of 2011 – is a toxic combination in the Eurozone.
How will Italy force its deficit under 3% of GDP, the line in the sand that would trigger the Eurozone’s excessive deficit procedure? The government is desperately trying. Economy Minister Fabrizio Saccomanni
announced that he’d identified a1,600 “unused” properties that could be dumped. In the near term, this could haul in about €600 million, he said, though former Prime Minister Mario Monti's plan to do that had run aground on the reefs of the declining property market.
In any case, despite appearances to the contrary, "the trend of public finances in the first half is consistent with the achievement of a net deficit of 2.9%," he said. But €600 million, if they materialize, would be a drop in the rusty Italian budget bucket. Much more would be needed.
Hence, a eurocratic deus ex machina: José Manuel Barroso, president of the European Commission, told the European Parliament on Wednesday that the budget rules would bereinterpreted for 2014 so that some public spending on infrastructure projects could be excluded from the deficit figures – something Italy has long pushed for in its valiant efforts to keep its deficit under 3%. If all else fails, monkey with the rules. Abracadabra.
“For countries with high levels of public debt,” such as Italy, “this will be of limited use in the short term,” an EU official
cautioned to appease any remaining Germanic deficit hawks. But these kinds of details didn't stop Italian Prime Minister Enrico Letta from declaring victory. “
We made it!” he tweeted triumphantly. It would give “more flexibility in coming budgets for countries like Italy” that had their “accounts in order.”
What exactly he meant with “accounts in order,” given Italy’s deficit and debt spiral, remains a mystery – particularly in light of the fact that it cannot even pay its past-due bills.
Beppe Grillo, leader of the opposition 5-Star Movement, has long hammered on this point. In April, during the post-election interregnum, he’d
clamored for “the immediate payment of about €120 billion” that the government and public entities owed the private sector.
The government’s refusal to pay its suppliers violates EU rules. But the EU has soft-pedaled the issue, for two very big reasons: payment of arrears would force Italy to sell a truckload of bonds when there might not be any demand; and it would push the deficit way beyond the 3% line in the sand. Thanks to cash accounting, only actual disbursements make it into the deficit figure. Italy has achieved its “austerity” goals by not paying its suppliers. Once again, abracadabra.
But it’s strangling businesses. So, paying a portion of those past-dues, namely €40 billion, has been kicked around. Most recently, Renato Brunetta, leader of the House and member of Silvio Berlusconi’s PDL party, demanded at a coalition meeting that payment be made by the end of the year. In a surrealist show of noble governance, Letta himself jumped into the fray and committed to pay those debts even faster – not in July or August, but sometime in the fall! Rousing applause!
"I would love to" pay the past-due debt of the Public Administration by 2013, "but I don’t know if it can be done,"
retorted Economic Development Minister Flavio Zanonato the next morning. "It's not ill will, but there is a technical problem,” he said. “The government has removed the obstacle; now all the various sources of expenditure must take action to pay." They don’t have the money, apparently. To say that it’s difficult to pay the debts of the Public Administration is "obvious and true," he conceded.
It would normally be an admission of default. But not for the Italian government. For them, it’s just another illustration of a budget absurdity: staying by hook or crook on this side of the 3% line in the sand – even if it strangles companies and the economy and makes the deficit and debt spiral worse.
Italy has become legendary about tax evasion, which is part of its budget absurdity. So now the G-8 wants to crack down. The first four items at the recent meeting was the need for governments to share information to “fight the scourge of tax evasion.” If only their primary targets were multinationals, banks, and hedge funds. But they’re going after the little guy. Read....
Beware, the Borderless Taxman Cometh
Portugal......
http://www.google.com/hostednews/afp/article/ALeqM5jWcNEj5HMk1S89jNDIWB7AwpsPIA?docId=CNG.12bb87a43347b3c35cbcb9812b041898.31
Accord reached to save Portuguese government coalition
By Thomas Cabral (AFP) – 2 days ago
LISBON — Portugal's centre-right government coalition on Thursday averted its break-up in a dispute over austerity policies after finding "a formula" that secures its survival, Prime Minister Pedro Passos Coelho said.
"A formula has been found that will secure the stability of the government," said Passos Coelho after talks with President Anibal Cavaco Silva.
The policies squeezing the bailed-out nation had led markets to plunge on Wednesday before rallying after
Passos Coelho said he was "convinced" he could maintain government stability despite his finance and foreign ministers saying they were quitting.
Foreign Minister Paulo Portas said Tuesday he was resigning, a day after the shock departure of finance minister Vitor Gaspar.
European Central Bank chief Mario Draghi sought Thursday to soothe market nerves, saying Portugal's economy was "in safe hands" with Gaspar's successor, Maria Luis Albuquerque.
The Portuguese reform process has been a "painful route and the results achieved have been quite significant, remarkable, if not outstanding", Draghi told a news conference in Frankfurt.
The Portuguese stock market's PSI-20 index rose to close 3.73 percent higher on Thursday, after plunging 5.31 percent the previous day.
Pressure on the bond market eased, too, with the Portuguese benchmark 10-year government bond yield sliding to 7.40 percent in the afternoon, having soared to 8.106 percent Wednesday.
The foreign minister's resignation had threatened to sink the government because Portas is also leader of the junior partner in the governing coalition, the small conservative CDS-PP party,
But the prime minister, desperate to hold together the coalition led by his Social Democratic Party (PSD), refused to accept Portas's resignation.
The prospect of a deal emerged when the CDS-PP leadership asked Portas to meet with the premier to find "a viable solution for the government of Portugal".
Passos Coelho and his foreign minister held talks in a "very positive atmosphere", the premier's office said earlier.
Portuguese newspapers said the prime minister could reshuffle the cabinet to give Portas the post of deputy premier in charge of the economy.
"The prospect of a snap election is so terrifying for the PSD that the prime minister will do anything to save the coalition", said Antonio Costa Pinto, a political scientist at Lisbon University.
Socialist opposition leader Antonio Jose Seguro had urged the Portuguese president to call snap elections in a meeting Wednesday.
European Union leaders, fearing a resurgence in tension in the eurozone's debt-laden periphery, pressed Lisbon to resolve the crisis.
"The political situation should be clarified as soon as possible," the European Commission's Portuguese president, Jose Manuel Barroso, said Wednesday.
The government has imposed unpopular spending cuts and tax rises under the 2011 bailout deal agreed with the "troika" of creditors -- the European Commission, the European Central Bank and the International Monetary Fund.
It is now under pressure to present a further 4.7 million euros in spending cuts to the troika when its delegates visit on July 15.
The austerity measures have plunged Portugal into a deeper recession with higher unemployment than had been expected, sparking mass protests and strikes.
In his resignation letter, Portas had said he disapproved of the prime minister's naming of Treasury Secretary Maria Luis Albuquerque as the new finance minister.
Her appointment was seen as an indication that Passos Coelho intended to push on with austerity despite protests.
"The big fear is this country has failed to demonstrate economic growth since its bailout and its government has also been unable to meet targets set out by the troika," said Ishaq Siddiqi, strategist at London-based brokerage ETX Capital.
"Now, without a stable government in power, investors are concerned Portugal will be unable to meet its debt obligations."
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