Eurozone crisis deepens, despite all the bluster


Despite all the hype, hurrahs, hosannahs, hallelujahs, and hails from the mainstream media over the so-called “rescue” of the euro last week, it’s becoming ever clearer that the reality is far grimmer than the blatherskite, ballyhoos, balderdash, and just plain bullshit so freely doled out.

Having disposed of the briefly independent-minded Greek Prime Minister, the powers that be are setting their sites on his otherwise loathsome Italian counterpart, Silvio “Bunga Bunga” Berlusconi.

But even the toppling of obstructionist European politicians won’t be enough, as you’ll discover after the jump.

Our first items hails from the BBC:

The Italian government’s borrowing cost has risen as fears grow over political uncertainty in Rome.

The yield on Italian 10-year bonds rose from 6.37% to a euro-era high of 6.64%, before retreating to 6.5%.

It is feared that Italy, the eurozone’s third biggest economy, could become the next victim of the debt crisis. PM Silvio Berlusconi faces a crunch vote on public finance on Tuesday.

Mr Berlusconi denied on Facebook reports that he was about to resign.

Stock markets across Europe bounced up on the chance of the Italian premier’s departure but returned to negative territory at Monday’s close.

In London, the FTSE 100 ended down 0.3%, France’s Cac 40 fell 0.6%, and in Frankfurt the Dax index closed down 0.6%. In early afternoon trading in New York, the Dow Jones industrial average was down 0.76%.

Read the rest.

And from The Guardian, more evidence that Berlusconi’s refusal to resign isn’t exactly boosting investor confidence:

The news that Silvio Berlusconi is planning to cling onto power and hold a confidence vote at an unspecified point in the future has hit Italian government debt again.

The yields on Italy’s 10-year bonds has been climbing for the last hour, hitting a new euro-era record high of 6.69%.

In the City, the FTSE 100 closed at 5510, down 16 points or -0.3%. Spain’s IBEX fell 1.5%, but the Italian MIB managed a 1.3% rally.

Joshua Raymond, chief market strategist at City Index, said the bond markets continued to “send ripples into equity markets today”:

With European leaders no closer to determining how their Euro zone bailout fund is to increase in size, there remains significant concerns that Europe may not have the firepower in place should [Italian] yields continue their upward momentum and push beyond the 7% level.

And from Don Lee of the Los Angeles Times, a telling quote from a former member of the Berlusconi government:

Mario Baldassarri, an MIT-trained economist and former vice minister of economy and finance in Berlusconi’s administration, eyed a large monitor in his office as it flashed news of Berlusconi’s denial. Back in August, Baldassarri said, he thought it would be just weeks before Berlusconi stepped down. But since 10 days ago, he said, “I started to say days.”

And more from Deutsche Welle’s Spencer Kimball:

Rome has come under pressure from its European partners, particularly France and Germany, to rapidly implement reform measures in order to fend off a debt contagion that could bring down the 17-member currency union.

Divisions within Berlusconi’s own cabinet, however, prevented the Italian premier from presenting a concrete reform package to his European partners in the run up to the G20 summit in Cannes, France last week. At the summit, Berlusconi agreed to allow the International Monetary Fund (IMF) and European Commission to monitor Italy’s progress toward economic reform.

Former Berlusconi ally Gianfranco Fini – speaker of the Italian parliament’s lower house – said that even if the prime minister could scrape together a majority, his government still had lost its credibility.

“The government must understand that it is not credible even if it wins in parliament by a vote, because with a majority of one vote you can survive but you cannot govern,” Fini said.

Read the rest.

Via Spiegel, graphic evidence that Berlusconi is loosing key support from the business community:

Their caption:

Enrico Frare, 36, runs a winter sportswear company. Last week he posed naked for an ad in Italy’s largest newspaper, Corriere della Sera. “Every day in Italy a businessman risks losing his underpants,” read the caption — a protest against Italian leadership during the euro crisis.

Corriere della Sera’s M. Antonietta Calabrò has more on Berlusconi’s refusal to abdicate:

“After me, only elections. No interim or broad-based governments with a puppet premier. I’ve got solid numbers and I’m not stepping down for Bersani, Di Pietro and Vendola. The opposition should vote for the crisis-containment measures presented in Brussels, and appreciated by everyone in the EU”.

Far from knuckling under, Silvio Berlusconi is in fighting mood (“Let’s cut the whining”). On the eve of this morning’s stock exchange test when all eyes will be on Piazza Affari, a confident premier claimed that he can still command a parliamentary majority to pass the measures demanded by international bodies, despite announcements of defections in the government coalition: “In the past few hours, I have verified that the numbers in Parliament are secure”. In a telephone link to an Azione Popolare convention organised by Silvano Moffa, Mr Berlusconi said “no one in this Parliament is capable of putting together a credible alternative majority”. The prime minister was unequivocal: “Italy has to face a dual threat from speculation in the markets and from political speculators seeking to use the crisis as a shortcut to power”. He concluded: “That is why I said that our friends who are leaving the majority at this time are enacting a betrayal not of us but of Italy”.

The PM also played down the significance of the IMF certification request: “The European Commission will conduct its verification activities. We have also asked the IMF to verify the progress of approval of these reforms to certify them for everyone, nothing more. The request, I want to insist, came from us and we can withdraw it whenever we like”. The premier went on: “Even in the worst case, Italy would still be solvent. And it’s not just me saying this. The governor of the Bank of Italy says so, too”. Mr Berlusconi did, however, stress the government’s commitment to passing the measures promised in Brussels. “These reforms included in the stability law must be approved as soon as possible, to the timetable agreed with the European Commission”. He then revealed that “we gave the document we took to Brussels to the opposition before we gave it to the commission. I hope that the opposition will review the negative attitude it has adopted thus far and facilitate approval of these reforms for Italy, as it did so positively last August with our budget. If it were to vote no, it would be taking sides against Italy. If it were to filibuster, it would do so against Italy”.

Read the rest.

And the contagion spreads to France

The bottom line of the Greek and Italian debacles is simple: The global financial barons are ordering Europe to implement more “austerity” measures, the hallmark of what Naomi Klein has dubbed “disaster capitalism.”

The end result will be the transfer of still more of the European commons into corporate hands and the destruction of pensions and other social programs.

If you need more evidence, consider this from Agence France Presse via FRANCE 24:

Prime Minister Francois Fillon announced plans on Monday to save 100 billion euros to eliminate France’s budget deficit by 2016, including 500 million euros in extra state budget savings next year.

“The time has come to adjust France’s efforts. With the president, we have only one goal: to protect the French people from the serious difficulties that many European countries are now facing,” Fillon said during a press conference.

“I believe that our citizens are now aware of the risks to our livelihoods and futures caused by deficits and debt. Bankruptcy is no longer an abstract term. Our financial, economic and social sovereignty require prolonged collective efforts and even some sacrifices,” he said.

Fillon announced a series of budget cuts and tax hikes aimed at keeping France’s finances on track and preserving its critically important triple-A credit rating.

“To reach zero deficit by 2016, which is our objective, we must save a little more than 100 billion euros,” he said.

“It is unthinkable to do this exclusively by raising taxes, as the opposition suggests. This would lead to the tripling of income taxes and the doubling of VAT.”

The government’s flagship reform of raising the retirement age from 60 to 62 will be brought forward from 2018 to 2017, he said.

The Value Added Tax (VAT) on many goods and services will be raised from 5.5 percent to 7.0 percent, except on essential goods such as food.

Corporate taxes will also be temporarily raised by 5.0 percent on corporations with annual turnovers of more than 250 million euros, he said.

Read the rest.

More on the French “reforms” from Radio France Internationale:

“Bankruptcy is no longer an abstract word” warned French Prime Minister François Fillon at the unveiling of a series of tough, new austerity measures aimed at clearing the country’s budget deficit by 2016.

He said the country’s financial, economic and social sovereignty meant “prolonged collective efforts and even some sacrifices” were necessary.

France needs to save 100 billion euros a year to eliminate the budget deficit by the 2016 deadline, including 500 million euros in extra state budget savings next year.

New measures include an increase in Value Added Tax, VAT, from 5.5 per cent to seven per cent, bringing forward by a year to 2017 the increase in the state retirement age from 60 to 62  and increasing corporate tax by five per cent for companies which have an annual turnover of more than 250 million euros.

The government also hopes to reduce spending on public health by 700 million euros and will increase some social benefits by just one per cent next year in line with expected growth figures.

The prime minister also said there would be wage freeze for the President of the Republic and government ministers.

The latest austerity measures follow an announcement in mid-October by ratings agency Moody’s that France would be watched closely over the next three months to guage whether it would keep its current AAA rating which allows it to borrow money on international markets at a favourable rate.

Read the rest.

And then there’s Britain’s stake in the game

For the euro “salvation” deal to work out, other players will need to ante up, starting with Britain, which has thus far retained an independent monetary system.

From Andrew Grice of The Independent, who details the curious circumlocutions required by the great game of international finance:

David Cameron will today come under pressure to spell out whether taxpayers will pay towards eurozone bailouts, after it emerged that Britain could lend a further £35bn to the International Monetary Fund (IMF).

Danny Alexander, the Liberal Democrat Chief Secretary to the Treasury, said he was happy for IMF funds to be used to help Greece. He appeared to adopt a different stance to Mr Cameron, pictured below, who has reassured Eurosceptic Conservative MPs that Britain will not bail out eurozone nations.

Mr Alexander said the UK could guarantee up to £40bn for the IMF without another vote in Parliament, since that ceiling was approved by MPs in July. So far, only £5bn has been committed.

The Treasury minister told the BBC’s Andrew Marr: “The IMF was a British invention. That’s why we should be supporting it. No country in the global economy can be an island – we are in an interdependent world. We have to play a role as a global leader, as one of the largest economies in the world.

“We’re not actually handing over cash – it is a promise to pay to back up the IMF’s lending if things go wrong. But it’s worth pointing out, too, that no government has ever lost money in terms of the resources we’ve made available to the IMF.”

Last week’s summit of G20 leaders in Cannes agreed to give more firepower to the IMF if it was needed, but could not agree on a figure. Mr Cameron said afterwards: “Britain will not contribute to the eurozone bailout fund. And we are clear that the IMF will not either.”

Read the rest.

And then there are the outsiders

We written about China’s role in the European bailout, and now Russia is coming into play as well.

From Agence France-Presse via Istanbul’s Hurriyet Daily News:

IMF chief Christine Lagarde met Russian President Dmitry Medvedev yesterday for talks overhung by the eurozone debt crisis, on her first trip to a big emerging economy since taking office.

Russia has not been hit by the debt crisis in the eurozone, but is nervous of the effect of the mounting problems on its economy.

“We have an opportunity to exchange views about life and the pressing issues of world economy following the Group of 20 summit,” Medvedev told Lagarde at the start of the talks. The two met after attending a G20 summit in Cannes, France last week.

Moscow has been looking to increase its profile within the International Monetary Fund (IMF) and has said it was ready to contribute to an EU bailout package through the Washington-based Fund.

The Kremlin has said Russia’s contribution being negotiated with the IMF would be limited to $10 billion. By comparison, China has dangled the possibility of contributing $100 billion to Europe’s bailout fund.

Medvedev has repeatedly said the world’s largest emerging economies like Russia, Brazil, China and India should have a more influential role in the management of the IMF and that countries should be represented in proportion to the strength of their economies.

Read the rest.

It’s sure getting interesting, no?

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