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Italian report Italian report
by Euro Reporter
2012-08-22 10:48:22
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Italy makes financial progress compared to last year

Italy’s financial situation has made progress compared with last year; the premier said Sunday, believing the country will eventually emerge from the bleak economic crisis. Mario Monti said the condition of the economy was “worse” in 2011, before he was appointed to lead Italy down a tough path of austerity, new taxes and pension reforms. But Monti, an economist who put together a government of technocrats in November, didn’t venture any timeframe for the hoped-for exit from financial distress. “I work daily to grapple with the crisis,” Monti said in a speech to politicians, labour and industry figures to the Adriatic beach resort town of Rimini. “But are we really in crisis? A year ago, we thought we were less so, but perhaps we were more so,” Monti argued. “I see the moment approaching in which we’ll emerge.”

He explained that by pushing through Parliament measures that politicians had avoided for years, like reining in Italy’s generous pension system, the country is in many ways in better shape now than when he took the helm. Monti was appointed to replace media mogul Silvio Berlusconi, who resigned under intense market pressures as Italy’s borrowing costs soared against a backdrop of a high deficit, sluggish economy and stubborn unemployment. With elections looming in spring, there is the risk that political leaders will increasingly resist Monti’s prescription for financial healing, which so far has included the revival of property taxes, higher sales taxes, slashing spending and raising the age Italians can retire with generous pensions. Monti has said repeatedly that he won’t run for a new term. In his speech, Monti lavished praise on lawmakers from a wide political spectrum, who so far have generally given him his way in his anti-crisis strategy. “Daily I see the miracle” of rival politicians pulling together to back his proposals, Monti said. One of the few political parties to oppose Monti has been Berlusconi’s ex-ally, the regional Northern League. But the League, weakened by scandals, has lost much of the clout it had enjoyed as the lynchpin party in three Berlusconi coalitions since the early 1990s.

Referring to the widespread legislative backing he has so far experienced, Monti said that “it wasn’t easy to predict that they would have been imbued with a sense of responsibility. “ Still, Monti said, Parliament during his government has “taken decisions that were put off for years.” But he lamented that Italy’s youths have paid a “very high” price in terms of bleak job prospects, because politicians avoided for years had avoided tough action, such as labour market reforms. Monti boasted that Italy now has “more respect, credibility and even influence in Europe” thanks to Parliament’s achievements. As a highly respected economist not representing any political party, Monti has been seen in Italy — and in Europe — as being in a strong position to challenge German Chancellor Angela Merkel when it comes to forging European-wide decisions aimed at saving the euro.

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More than 350 migrants rescued off Italian coast

Italian coastguards rescued more than 350 African migrants off the small Italian island of Lampedusa over the weekend as they tried to reach European shores on rickety wooden boats, a coastguard official told Reuters on Sunday. Last year tens of thousands of refugees and would-be migrants arrived in Lampedusa during the upheavals in North Africa, setting off a crisis that threatened to overwhelm the tiny island, but the flow has eased this year.

Coastguards rescued 231 people from sub-Saharan Africa on Saturday from a 15 metre wooden boat, including 33 women and four children, a coastguard official said. Later on Saturday coastguards launched another rescue operation, this time involving 126 Tunisians who were on board a 10-metre-long wooden boat, the official said. The migrants were taken to a reception centre on the island and were going through an identification process and screening to see if they had rights to asylum, he said.

Italy has borne the brunt of a wave of clandestine seaborne migration from Africa to southern Europe that has reached crisis proportions at times in the past few years. Most migrants risk the dangerous voyage across the Mediterranean Sea in small, overcrowded fishing boats, and thousands have died as a result of shipwreck, harsh conditions at sea or lack of food and water.

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Is Italy in Denial of Its Public Debt?

This week, the amount of government debt of Italy at the end of June was published: 1,972 billion Euros. By this time it must have exceeded 2,000 billion Euros ($2.4 trillion). Mario Monti, the Prime Minister cum Minister of Finance, toured the capitals of Europe to obtain support for Italy, indicating that Italian sentiment would turn anti-Euro without such help. He chose Berlin to accuse Germany of profiting from the European sovereign crisis. Needless to say, it immediately backfired. It was, to put it bluntly, particularly stupid. In an interview with the Wall Street Journal he stated: What we ask is that European authorities certify Italy's good conduct by translating that into interventions to keep spreads within reasonable limits. I have often told Merkel that, if this isn't done, she risks finding herself before an Italian parliament that repudiates Europe, monetary stability and the euro and is not friendly toward Germany.

What is worse, however, is that he sent completely contradictory messages: he said that the European crisis was reaching the end of the tunnel. The reality is much scarier: Italy is facing 500 billion Euros of refinancing and deficit financing between now and the end of 2013. The measures taken by the Italian Government did not translate into an interest rate decrease, let alone a debt decrease. When he states that Italy does not need a bail out he is right: not that Italy is not in need, but that there is no way the current resources, even if they were entirely allocated to Italy, would be sufficient to bail the country out.

What is currently missing, however, is a serious crisis debt management. It would be perfectly possible to launch a consolidation bond issue, open to holders of 2012 and 2013 debt. With a maturity of 5 years and an interest rate of 5 percent it would not require any haircut from the banks and it would help the country bridge the reimbursement gap of the next two years. But Italy is scared to propose what would be a voluntary transaction. Should there be an increase in its refinancing rates, it would be a disaster. This lack of debt management might create the perfect conditions for a European tornado that would affect global markets everywhere. France would definitely be next.  The main source of discontent for the investors is not only those facts. It is the benevolent way, with which the Italian Treasury is handling the problem, shortening the maturities of its bonds, and not increasing its refinancing risk. We are talking about actions, not words. E la nave va...



         
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Emanuel Paparella2012-08-22 13:10:17
“E la nave va” [and the ship sails on] is the title a 1983 Fellini film depicting the events aboard a luxury liner, the Gloria, of a bunch or aristocrats and elitists who have come to pay tribute to a famous opera singer. It is a circus at sea, so to speak full of clowns and absurd characters having a good time. This reference is powerfully ominous, for at the end of the movie the ship sinks. If we think of the ship as the ship of state or Italy, it is not hard to imagine how this story too will end. As one watches the RAI international channel one does not get the impressions that Italians are over-concerned as to where the ship may be heading or whether it will arrive at its destination, if indeed a destination is known; the good times go on with soccer games on Sunday in a nation in denial that continues to delude itself that it is one of the wealthy prosperous countries of the world…But we have seen this movie before and we know how it ends.


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