Europe: Running out of Time
By Walter Kurtz, Sober Look
Italy’s Prime Minister Mario Monti is in a race against time. He needs to secure government funding via a pan-Eurozone bond buying program before Italy’s economic conditions deteriorate further.
Bloomberg/BW: – Italy’s Prime Minister Mario Monti is pressing his European counterparts to sign on to collective action to fight the financial crisis, trying to bridge a north- south divide in the euro area for help to lower borrowing costs.
Monti, who is due in Helsinki today for talks with Finnish Prime Minister Jyrki Katainen, is seeking to capitalize on a pledge by European Central Bank chief Mario Draghi to do whatever it takes to defend the euro. Bundesbank President Jens Weidmann said the ECB shouldn’t exceed its inflation-fighting mandate, according to an article published on the German central bank’s website today.
He has a reason to move quickly. The onset of Italy’s deep recession may damage the nation’s fiscal conditions as tax revenues decline. Without a backstop from the Eurozone (ESM and ECB) it may become increasingly difficult to roll government debt. With over €100bn of bonds to roll this year alone, this backstop becomes critical. And the latest economic indicators from Italy are showing a further deterioration.
Manufacturing PMI (source: Markit)
Source: DB
Markit: – “July saw the recession in the Italian manufacturing sector extend to a year. Moreover, the downturn was shown to have deepened as the PMI sank to its lowest level in three months, primarily reflecting a sharper reduction in staffing levels. A solid and accelerated decrease in stocks of purchases also dragged the headline index lower, and suggested that firms had grown more concerned about cash flow and were not anticipating a rise in production requirements in the near term.”
6 Comments
Europe needs its Alexander Hamilton.
http://www.voxeu.org/article/europe-s-fiscal-union-lessons-us-federalism
I don’t see any big name EU politicos with the stature of the US founding fathers. They are just not there. Just look at Merkel, LaGarde, Hollande, Monti, Draghi, etc.. Do you see “Founding Fathers”?
Is it me? Or does it seem that every commentator now shrieks that Europe is running out of time, money, people, bonds? It seems the only thing that is running out is the patience of investors and commentators.
Why is there a need to fix it immediately? I have been hearing that for the past 2 years that Europe is done for. Greece – done for, Spain – done for, Italy next, then France and finally Germany.
Funnily enough, no collapse no nothing. Maybe commentators are bored and want to scan every piece of data for an angle? Misery loves company.
People change when they’re forced to. Spain and Italy could have avoided many of these problems by dealing with the capital accounts deficit years ago, but the problem has compounded as time has gone on.
So, no, there’s no need for an immediate fix. The EZ members are great can-kickers, and all that’s happening is the situation slooooowly resolves itself as the PIIGS eventually can’t fund themselves, then they start asking for bailouts, then those bailouts come with austerity requirements, etc.
Italy/Spain are going through one of the slowest bear markets I’ve ever seen. Funding problems will keep coming up, getting half-resolved, and we’ll move a couple inches closer towards either a solution or Euro collapse. One.. step.. at a time.
Italy has more latitude to make up falls in revenue than most countries because tax avoidance there is a national sport.
Make no mistake Italy’s got real wealth available from which to collect more tax if more tax is needed.
I’ve spent more than my share of tme there both for pleasure and for business and I’ve seen it all firsthand.
I’ve never really understood other than as a trite saying why Italy should be in the PIIGS because I have always felt Italy was capable of solving it’s own debt issues if it resolved to do so and getting rid of the clown Berlusconi was great first step.
Cracking down on tax evasion would still effectively be no different from a tax increase. Perhaps it would at least be a progressive one (the rich are generally more successful at evasion as the poor here) but it would still hit business hard as every business shirks as much tax as possible, especially Italy’s numerous small businesses. Really stopping evasion in Italy is impossible though, it’s just too engrained in the culture.
And sure Berlusconi’s the king of clowns, but the reason Italian yields are so high was always the Euro, not Silvio the slimeball.
Recent elections in Spain, France, and Greece haven’t really done anything to really change the situation in the EZ. Italy’s election just might. The parties are shaking themselves into the coalitions that will be on the ballot next spring (or sooner). Basically there’s just three spots to speak of, a sort of pro-Euro coalition, various anti-Euro “protest” parties, and… Berlusconi, who seems to be flirting with a populist anti-Euro stance. Berlusconi might just be the clown who finally tells Germany to take their Euro and stick it.
PIMCO’s El-Erian says there is a 35% chance the Euro currency zone breaks apart during the next 6 months. Also sees a major global slowdown to 2.25% global growth over the next 12 months. http://www.bloomberg.com/news/2012-08-02/pimco-s-el-erian-says-world-in-serious-slowdown.html