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12-26-2016, 02:40 AM
(This post was last modified: 12-27-2016, 01:53 PM by admin.)
Although it is a founding member of the EU, Italian public support for the European project is among the lowest in Europe; it is the eurozone’s third largest economy, but its economy is the same size as it was in 2000; and it still has the third largest sovereign debt burden in the world, after the US and Japan. Italy could yet pull the eurozone apart – and indeed the EU.
Europe's make-or-break country: What is wrong with Italy's economy? | Centre for European Reform
The European Central Bank has said that Monte dei Paschi di Siena’s capital shortfall has risen to €8.8bn from €5bn, significantly increasing the price tag of the rescue of Italy’s third-largest lender by the government. In a statement released late on Monday, MPS also revealed that the ECB had warned that the bank’s liquidity had suffered a “rapid deterioration” over the past month, as it tried in vain to muster enough cash from private investors to avoid a state bailout.
Monte dei Paschi shortfall hits €8bn, says ECB
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The yield on Portuguese 10-year bonds rose above 4 percent for the first time since February amid a wider selloff in European debt. The region’s securities are declining amid a seasonal pick up in supply at the start of 2017, with Portugal among nations expected to sell bonds via banks this month.
Portugal 10-Year Yield Climbs Above 4% as Selloff Deepens: Chart - Bloomberg
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Ever since the European Commission and ECB jointly decided that Italy’s government could bend EU banking rules out of all recognition in order to bail out the country’s third largest bank, Monte dei Paschi di Siena, Europe’s financial stocks have been on a tear. But the good times were brought to a grinding halt Monday after Italy’s largest bank, Unicredit, which employs 55,000 people in 17 countries, announced losses for 2016 of €11.8 billion.
Is Italy’s Banking Problem Becoming Too Big to Solve? | Wolf Street
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Concerns over the future of the European Union have increased as several key elections approach and issues surrounding sovereign debt remain. Italian, French and Greek government bond yield spreads over the German bund have reached new highs amid market nervousness that Europe could be back in a state of crisis. "Somehow the market is there already," Beat Wittmann, partner at Porta Advisors told CNBC on Wednesday.
European crisis: The markets are already there, says analyst
Any country leaving the euro zone would need to settle its claims or debts with the bloc's payments system before severing ties, European Central Bank President Mario Draghi said. The comment - a rare reference by Draghi to the possibility of the currency zone losing members - came in a letter to two Italian lawmakers in the European Parliament released on Friday.
Any country leaving euro zone must settle bill first: ECB's Draghi | Reuters
As of today, Italy can still switch half of its €1.9 trillion of traded sovereign debt to lira under the legal prerogative of Lex Monetae on roughly neutral terms, but the argument is that this calculus will shift as new debt with collective action clauses (CACs) displace the old bonds. Mediobanca's premise is that Italy is heading into a perfect storm as a host of troubles come to the boil and the Italian treasury runs out of buyers. The European Central Bank will soon start to wind down its programme of bond purchases, while new rules on tangible equity will force Italian banks to slash holdings of government bonds by €150bn. This will take place against a background of US monetary tightening and the Trump reflation shock. Everything is combining to push up real interest rates for an Italian economy still stuck in a low-growth deflationary trap.
The cost of leaving the euro is rising every month for Italy
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Target2 imbalances in the eurozone continue to mount. The ECB itself now has the third largest negative balance following Italy and Spain.Target2 is a measure of capital flight. Those needing a further explanation of Target2 may wish to consider Reader From Europe Asks “Can You Please Explain Target2?””
Target2 Imbalances Grow: ECB Overtakes Greece as Third Largest Debtor | MishTalk
From next year, European countries will resemble emerging economies in a new way: sovereign bonds they issue will include collective action clauses (CACs). These allow a supermajority of bondholders to agree to changes in bond payment terms, which then apply to all bondholders. CACs became popular following Argentina’s default in December 2001 and even more so after the financial crisis of 2008. German Chancellor Angela Merkel and French President Nicolas Sarkozy, meeting in the French seaside resort of Deauville amid the escalating eurozone debt crisis in 2010, agreed to make them de rigeuer for sovereign bonds European countries issue under U.K. law from 2013.
Collective Action Clauses No Panacea for Sovereign Debt Restructurings | PIMCO
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We took a look at three scenarios that could lead to the euro splintering—and three that could see the currency coming through the populist wave in even stronger shape. And we poll expert opinion on the chances they could happen.
Three Ways the Euro Could Break Up—and Three Ways it Could Be Saved
A Dutch election next week, a presidential vote in France in April and a potential summer snap election in Italy: The next few months could be decisive for the eurozone’s existence and investors are beginning to once again brace for the worst—a breakup of the currency union. Looking at credit default swaps, data suggest traders have started to buy “insurance” against a so-called credit event, which could happen if a country leaves the eurozone. In France for example, the CDS spread last week rose to the highest level since 2013 at 70 basis points, while the spread for Italy has jumped above 190 basis points.
One chart shows eurozone breakup fears are creeping back into the market - MarketWatch
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Recent debt crises have brought the fragility of the Eurozone into focus. It has been argued that members are vulnerable to sudden changes in market sentiment. This column examines how debt markets reacted to an ECB announcement that it would serve as a lender of last resort, finding that recent debt crises have strong self-fulfilling dynamics.
How did the ECB save the Eurozone without spending a single euro? | VOX, CEPR’s Policy Portal
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Berlusconi’s point then is that a parallel currency could be launched entirely legally within the constructs of European treaties, with the ECB potentially powerless to intervene once the decision has been taken. Either way, regardless of whether Italy goes down the path of an explicit parallel currency or the introduction of small-sized Italian government securities, it’s clear the will to break up the euro’s monopoly in Italy is growing. According to Citi’s analysts more than two thirds of Italian voters currently support parties with an anti-euro stance. That makes Italy a much greater source of potential European Union instability than most people appreciate. Not least because if Italy can go parallel, so can other countries.
Parallel currency talk gains ground in Italy | FT Alphaville
The exchange rate has risen 6pc in trade-weighted terms since early May. This is already eroding corporate earnings on European bourses. Germany’s DAX index of equities and France’s CAC 40 have both slipped 4pc since then. Corporate treasurers have budgeted for an exchange rate between $1.08 and $1.13 for this year and are not fully shielded on the derivative markets. The twist is that some countries will be hurt more than others. The International Monetary Fund said in its latest External Sector Report that (as of late 2016) the euro exchange-rate was 15pc undervalued for Germany, but overvalued by 7.5pc for Spain, 6pc for France, and 5pc of Italy. The situation has since deteriorated for the weaker states. The Club Med bloc as a whole is roughly 15pc overvalued.
Eurozone boom cools as surging euro starts to bite
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HSBC has warned clients that Italy’s economic recovery is weaker than it looks and the country risks a serious funding shock when the European Central Bank slashes purchases of Italian debt. Quantitative easing by the ECB has worked wonders for Italy’s apparent fiscal health. It has mopped up half the gross supply of Italian debt, shaving at least 100 basis points off Rome’s borrowing costs. But it has not changed the country's underlying pathologies. “The end of QE poses a threat to Italy. As the ECB pulls back, it will have to find new marginal buyers of its sovereign bonds. This might not be easy,” said Fabio Balboni, HSBC’s Europe Economist and a former trouble-shooter during the eurozone debt crisis for the UK Treasury. The country must refinance debt worth 17pc of GDP next year – one of the highest ratios in the world – yet there are no obvious buyers to step into the breach. Italian...
Italy risks storm as QE ends and politics go haywire, HSBC warns
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