Significant pieces of news from Italy, the current epicentre of the ongoing European financial landslide.
First Reuters says,
Italian economic growth is likely to fall short of the government’s official forecast of 1.1 percent in 2011 and 1.3 percent in 2012, probably coming in under 1 percent, a senior government source said on Monday.
Why do people ever, ever listen to “government official forecasts”? They are about as reliable as the rhythm method of contraception. Lots of to-ing and fro-ing with a success rate of around zero.
Hot on the heels of Reuters comes the FT’s Alphaville, with a rumour, attributed to Societe General, that Italy is now facing a credit rating downgrade from one or all of the ratings agencies. Such a downgrade would torpedo the already sinking Italian Banks whose credit rating would be tipped off a cliff shortly thereafter. Banks whose shares have been stopped on the Italian market yet again today after getting another kicking.
The reasons given are: the lack of growth (without the fantasy growth Italy’s austerity measures will have failed before they start) and the fact that interbank funding in Europe has all but ceased.
It must be clear to everyone by now that Europe’s banks are going to run out of funding soon. The biggest banks have already raised most of the funding they need for the next 6 months at least. But that’s hardly the point. In the current state all it will take is for a couple of the weaker but still large European banks to run dry and the whole system will seize up. This point was graphically proved just over a week ago when the Greek banks who were themselves at that moment failing, had to find €200 million in order to ‘save’ the small Proton Bank. Had it gone down the rest would have followed like train carriages in a derailment. As it was Proton was ‘saved’ and days later two of its ‘saviours’ (EFG EuroBank and Alpha Bank) had to merge in order to stave off their own implosion. Apparently negative solvency times negative solvency equals positive solvency.
But the imaginary number accounting won’t last (thanks to Neil for providing the link to the source article at “The Street Light” blog, for this) because, as The Street Light article points out European financial institutions seem to have been withdrawing their cash assets from Europe’s banks hand over fist – about €700 billion in the last year. The article matches this withdrawal to an increase in deposits in US banks of $500 billion in the last 6 months. The article asks where the rest has gone. I would suggest either National central banks or the ECB.
Wherever it’s gone it is clear that Europe’s banks are bleeding deposits which will mean their Capital base for liabilities is eroding fast.
And now from Bloomberg is news that,
Sept. 5 (Bloomberg) — Finance Minister Giulio Tremonti canceled a public appearance in northern Italy to rush to Rome for budget talks as bonds plunged amid concern the government may backslide on its latest austerity package.
“The minister received a request to head to Rome immediately to go to the Senate, just as he was coming to Piacenza,” Stefano Rodota, moderator of the conference
Cue major showdown over Italy’s austerity measures. Politics and economics on a collision course.
The Italian bourse is down on the day just under 4%, as is France. While Germany is down 5.28%.
Two more pieces of Italian news. Thanks to Mark for the link in his comment below showing Italian Trade Unions already occupying the Italian Stock Exchange in Milan in anger and opposition to the proposed austerity measures. Meanwhile inside the exchange our old friend UniCredit is making the news again.
This from Investment News – (sorry I can’t access the whole story)
Unicredit may sell Pioneer in pieces, sources say
FIRESALE! I take this as a sure sign of the stress and worsening situation at Italy’s big banks. Pioneer is UniCredit’s massiver US subsidiary. UniCredti was going to sell Pioneer then said it wouldn’t after it got little interest. Now it looks like they have no choice and will sell it for scrap if they have to.
"They are about as reliable as the rhythm method of contraception" How do you mean unreliable? My wife managed to keep it down to 4. Over 25 years and 300 cylces at a strike rate of 1.33rec, and yes I shot fully loaded bullets!
Oh yes I forgot, Italy, F****d, at least the Italian language is full of words for it.
http://en.wikipedia.org/wiki/Italian_profanity
Its the euro wotdunit. It cant be its very Conservative banking sector can it?
To play Devil's advocate: They've got to keep stringing us along for as long as possible to continue the transfer of wealth to the top few percent. The next collapse is inevitable, but what's the point of restructuring until that happens, there are still quite a few billions of rich pickings to be had from a bit of public sector asset stripping; lowering the expectations of the working class won't do any harm in the long run either.
A whole generation is growing up with little hope of owning a house, financing university education, retaining healthcare free at the point of use, or receiving even a pittance of a pension before they're 70. Compare that with those of us who grew up in the 50s and 60s when home ownership was a rising expectation, university education taken for granted, a 'job for life' wasn't considered fanciful, and a decent retirement, with well-financed social care was taken as a birthright.
The scale of the changes can be seen in these graphs, showing the increasing share of national income taken by the top 1% in the US – http://goo.gl/g6O8H – the UK isn't quite in the same Robin Hood-in-reverse league but is on a similar trajectory.
As long as they can get away with it, they'll continue the trend – bugger the consequences.
Sean,
Bravo! I stand corrected.
"Debt Generation" goes Italy (see time mark 0:47)
http://www.youtube.com/watch?v=Ehw2LEunuqY
Hello Marc,
How funny! Obviously other people think it's a good title too. Thanks for the link.
@ Charlie
I went to see my Father who is 74 last week, he was very angry at how things are being stripped away from ordinary people. He knew it was something to do with the bankers, but was confused by the MSM bullshit.
He spent almost a day reading this blog, I left him with my copy of "Debt Generation" & he is going to get the "Inside Story" dvd. He feels that everything he worked for is slipping away & that the unions, & all the political parties are run by the same sort of people, who are only concerned with their own self interest.
He's still angry but he feels better for knowing the why of it. I would say there are a lot of people out there like him. He must be keeping up to date, he saw my comment about Schrodingers cat & rang me up to tell me to think more before I comment, that's Dads for you.
@Golem
Seems that Paul Mason on Newsnight lifted this EU to US desposit transfer story!!
I noted that Alistair Darling was doing a good job of playing things down, so as to support the strategy outlined by Charlie:
"They've got to keep stringing us along for as long as possible to continue the transfer of wealth to the top few percent."
I would say they've got us just where they want us:
http://www.bbc.co.uk/news/business-14781254 !
Charlie
Re.: the “reverse Robin Hood”
I first began to suspect that this was in fact a deliberate and planned strategy back in the mists of Thatcher’s “trickle down”, “no such thing as society” days (I grew up in Wales).
Over the years, what I had thought was merely my own socialist scepticism and prediliction for ‘masonic’ conspiracy appeared to become an observable reality.
In more recent years – the last four, say – this suspicion has become my firm conviction. So called Western democracy has devolved into a feudalistic, sometimes brutal, hegemony that Dickens would happily be inspired by. Poverty and narcotics everywhere in the real world, narcissist celebrities and holidays permeate the vitual.
Thanks for your succint appraisal.
It would seem that significant unemployment, say 15% as measured or 25% in reality, and unrelenting consumerist culture are here to stay.
It leaves me wholly depressed, we live subjugated within a savage pack, sauve qui peut.
So much for all that optimistic political philosophy I’ve read in the past….