July 23, 2017

Inside Europe: Jolt From Italy’s Elections May Not Be Enough

BRUSSELS — European policy makers should be asking themselves, “Who lost Italy?” after a grass-roots revolt against austerity, unemployment and the political elite caused an electoral earthquake in the country, the third-largest economy in the euro zone.

Instead, most still insist that their policy mix for fighting the currency area’s debt crisis is right, even though the latest E.U. forecasts have pushed any prospect of meaningful economic recovery in southern Europe back into the middle distance.

A surge in support for the anti-euro populist Beppe Grillo and the surprise resurrection of the former prime minister Silvio Berlusconi on an anti-austerity platform in the election last week have forced Rome into political deadlock.

Italy, which had been governed by the respected technocrat Mario Monti for the 15 months since Mr. Berlusconi’s last government fell, is hardly the country worst affected by the 3-year-old debt crisis. Unemployment there stands at 11.7 percent, less than half the rate of Greece and Spain, where one of every two young people is without a job.

If a milder recession and less-severe spending cuts and tax increases can cause such a social and electoral revolt in Italy, the risks of an explosion in Greece and Spain ought to be greater. Yet the official reaction from Brussels and Frankfurt is to act as if nothing — or almost nothing — has happened.

“The crisis is not yet over and efforts must not be relaxed,” the European Commission president, José Manuel Barroso, said in a joint statement with Mr. Monti two days after the election.

At a Reuters forum on the future of the euro zone, Mr. Barroso appealed to European leaders to stay the course and “not give in to populism.” Despite bleak economic forecasts, structural overhauls were starting to bear fruit, he said.

Mr. Barroso reeled off figures showing that current account deficits in Portugal, Spain, Italy and Greece were shrinking and Ireland was back in surplus. Exports from Spain and Portugal were rising, and the labor competitiveness gap between Northern and Southern Europe was narrowing.

Those numbers have another side, however. Payment imbalances are down mostly because those countries’ imports have shrunk because of sinking demand. The labor cost gap has declined largely because of mass layoffs in southern states, rather than productivity gains. Exports account for less than 20 percent of output in Spain and Portugal, less than half the German ratio and too little to offer a fast track to recovery.

While the European Central Bank removed the danger of a financial meltdown of the euro zone with its bond-buying plan, there is now a growing risk of a social crisis that could lead to the departure of one or more southern countries from the currency group.

“I absolutely think it can get a lot worse,” said Clemens Fuest, the incoming president of the ZEW economic research institute in Germany.

“There is really the current plausible scenario for a breakup of the currency union,”’ he said at the same forum. “It may very well be that in these countries at some point the population will say, ‘We don’t believe things will get better.”’

The degree of despair would have to be high to risk leaving the euro group, “but if things continue, if unemployment goes up to 30 percent,” he added, “in Spain, there certainly is a danger that might happen.”

Zsolt Darvas of Bruegel, a study group in Brussels, said South European countries would be trapped in a downward spiral of economic contraction and rising debt for some time to come but had no alternative to fiscal consolidation.

The only way out was to alter Europe’s fiscal policy mix by stimulating demand in Northern Europe, notably with tax cuts in Germany, and giving the European Investment Bank a huge capital increase to lend to companies in Southern Europe, he said.

Article source: http://www.nytimes.com/2013/03/05/business/global/jolt-from-italys-elections-may-not-be-enough.html?partner=rss&emc=rss

News Analysis: Italian Deadlock Rekindles Anxiety About Euro Zone

Judging by the panic that seized financial markets on Monday and carried over into European stock and bond trading on Tuesday, the answer seems to be no.

After months of calm, investors are nervous, and not only because Italy again seems to have become ungovernable after an inconclusive political election. They are also worried because voters in Italy, the euro zone’s third-largest economy after Germany and France, soundly repudiated government austerity policies that the region’s leaders have long embraced but that have hampered growth in Italy and elsewhere in the euro currency union.

By supporting a protest-vote candidate, the comedian Beppe Grillo, and backing the return of former Prime Minister Silvio Berlusconi, who has vowed to reject austerity, Italians appear to be embracing a return to nationalism, experts say.

Swept aside by the Italian elections was the technocratic government led for the last 13 months by Mario Monti, who has been crucial to an unwritten accord: the European Central Bank promised to help contain the financial contagion that was threatening the euro zone as long as political leaders like him made headway in improving their economies.

The upheaval in Italy means that other euro zone leaders may no longer have a reliable partner in the drive to create a more durable currency union and that Rome’s voice in making European policy will be diminished, for now at least.

“This brings back all the political risk issues” that had seemed to fade from the euro zone, said Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington.

On Tuesday, stocks fell across Europe, with the Euro Stoxx 50 index, a barometer of euro zone blue chips, down 3.1 percent. Investors also continued to dump Italian debt, pushing up the yield on the 10-year sovereign bond 40 basis points to almost 4.9 percent. Portuguese, Spanish and Greek bond prices also fell. Perhaps most significant is the role of the European Central Bank in this period of renewed euro zone uncertainty. The bank rode in as a white knight in September by agreeing to buy large amounts of bonds from countries with shaky finances, including Italy, to calm a contagion of fear then sweeping the euro zone. The bank, run by Italy’s former central banker, Mario Draghi, vowed to do “whatever it takes” to hold the euro union together.

The issue now, experts say, is that Mr. Draghi’s promise was based on an implicit trade-off with euro zone governments. If countries agreed to conditions intended to make their economies perform better, the central bank would buy their bonds to hold down market interest rates.

So far, the bank has not bought any bonds. The mere commitment to do so has been enough to reassure international markets. But Italy’s new political turmoil might prompt investors to test the central bank’s resolve. If so, many experts doubt that the bond-buying program is workable — for Italy, at least.

“Without a stable government, it will be hard to qualify” for the program, said Lucrezia Reichlin, a former director of research at the bank who is now a professor at the London Business School. “Draghi has to have somebody to talk to.”

Europe’s debt crisis is not nearly as dire as it once was. Although Italy’s borrowing costs, as measured by its 10-year bond yield, hit a three-month high on Tuesday of nearly 4.9 percent, that is still nowhere near the 6.5 percent danger zone of last summer.

And despite renewed fears of instability, no one is talking about a breakup of the euro zone — as might have happened last year if such political uncertainty had troubled one of Europe’s most crucial economies. A shift in sentiment took hold last autumn after Mr. Draghi and European politicians, led by Chancellor Angela Merkel of Germany, made clear that the euro union was here to stay — no matter what.

But experts said the Italian vote served as a warning shot that a new round of political instability could be coming in the neighboring large economies of Spain and France. Their leaders have also adopted austerity programs to keep the euro debt crisis from engulfing their economies, despite concerns that the programs are impeding the economic rebound that might help them grow their way out of financial distress.

Liz Alderman reported from Rome, and Jack Ewing from Frankfurt.

Article source: http://www.nytimes.com/2013/02/27/business/global/italian-deadlock-rekindles-anxiety-about-euro-zone.html?partner=rss&emc=rss

Italian Bond Rates Rise to New Levels

Is the endgame near for Italy?

Interest rates on Italian bonds rose to euro-era records on Monday, close to the level that have forced Greece, Ireland and Portugal to seek financial rescues.

Most economists do not expect Italy to plead for a bailout yet. Instead, they say they think the higher rates will force the European Central Bank or other European neighbors to intervene more forcefully with measures to push down rates.

The yields on Italy’s 10-year bonds, a measure of investor anxiety about lending money to the country, rose to 6.63 percent at one point during trading on Monday. Five-year yields were even higher, at 6.65 percent, up half a percentage point on the day. The two-year yield also rose, to 5.9 percent.

Economists and investors say the dynamic is worrying. They fear the higher rates may incite bond clearing houses — the middlemen between buyers and sellers of the bonds — to demand higher collateral payments from traders of Italian debt. That, in turn, could lead to a further damaging spike in interest rates. Higher rates also threaten to sap Italy’s long-term ability to support its debt load, nearly 120 percent of its annual economic output at the end of last year, which is among the highest for countries that use the euro currency.

“This is feeding on itself,” said Eric Green, an economist at TD Securities. “It continues to put pressure on Italy.”

Bond rates are being driven by investors’ doubts that Prime Minister Silvio Berlusconi of Italy can push through sweeping changes to improve economic growth, including making pensions less generous and selling off some of the country’s assets. The measures are widely considered necessary to tackle Italy’s heavy debt load and revive its stagnating economy.

Investors are also selling Italian bonds because they fear that other European countries will not provide billions of euros to support Italy if conditions deteriorate even more.

They worry that European leaders have not come up with sufficient details about an expanded bailout fund, which is meant to provide ample firepower for Italy and other countries, like Spain, should the markets turn against them.

“Euro zone policy makers have yet to announce a policy bazooka,” Jens Nordvig, an economist at Nomura Holdings in New York, said in a research note. He said the structure of a purported $1.4 trillion bailout fund, announced at a meeting of European leaders in Brussels last month, “is insufficient to provide a credible backstop.”

Italy’s interest rates rose early Monday, then fell back slightly as rumors spread through the markets that Mr. Berlusconi was intending to step down, although they rose again later in New York trading.

Mr. Berlusconi denied the speculation that he was leaving office. Yet the markets seemed to say that investors would be happier about Italy’s future if he yielded power.

“The government needs to do a lot more to gain the full confidence of the Italian people, external creditors and the markets,” said Mohamed El-Erian, chief executive of the bond giant Pimco.

Andrea Schlaepfer, a spokeswoman for LCH.Clearnet, the big European clearing house that trades in bonds, said the spread between the yield on Italian bonds and the yield on a basket of AAA-rated bonds is one factor the company would consider before deciding to raise collateral requirements. Other factors include rates on credit default swaps.

The credit default swap rates that measure the cost of insuring Italian debt against default rose to near-record highs on Monday. It now costs $511,000 a year to insure $10 million in Italian debt for five years, according to the data provider Markit, compared with $145,000 in June.

The higher interest rates present hurdles for issuing new debt. Italy’s next auction of debt is on Nov. 14. It must raise 30.5 billion euros in November, and another 22.5 billion euros in December, according to Daiwa Securities.

When its interest rates were just above 6 percent, Daiwa estimated, the extra bond yields were already adding as much as 3 billion euros a year in additional interest payments compared with around 4.5 percent, the rate as recently as the summer.

Now those debt costs are rising with every basis point increase in bond yields.

The climbing yields could present a worrying spiral that, before Italy, affected Greece, Ireland and Portugal. When rates for those countries’ bonds reached around 7 percent, they suddenly jumped even higher and have still not come down to more sustainable levels.

Italy, the euro zone’s third-largest economy after Germany and France, is on a different scale than those much-smaller nations.

Italy is also, in a way, in a healthier situation. Although its debt mountain is large, it is actually running a primary budget surplus, which means that its budget is running a surplus before debt service costs.

According to Mr. Green of TD Securities, this means Italy could survive paying rates close to 7 percent for some time — but not forever. Eventually, the higher rates would worsen economic growth, and as the economy contracted, a wider and wider deficit would begin to open up.

Before Italy is forced to seek assistance from the European Union or the International Monetary Fund, economists say, the rising rates will force the European Central Bank to increase its purchases of Italian debt in secondary markets, which began in August.

Because the central bank bond purchases have failed to keep Italian interest rates down, economists expect that the bank will soon have to act much more aggressively.

Mr. Green said the design of the bailout package announced last month might, in fact, have encouraged investors to sell Italian bonds. The new fund may only protect holders of newly issued Italian bonds, which reduces investors’ incentives to hold existing securities.

The deal to allow Greece to write off 50 percent of its debts to private investors without setting off credit default insurance protection has also left many investors feeling vulnerable, encouraging them to sell now.

Article source: http://feeds.nytimes.com/click.phdo?i=4e72a1f62e732d27f1212933e1df6250

Italy’s Borrowing Costs Rise Amid Uncertainty About Rescue

European Union and International Monetary Fund officials hoped that the deal announced early Thursday would soothe market anxiety by easing the terms of Greece’s debt repayments enough to avoid default, as well as by building a war chest for safeguarding the larger Italian and Spanish economies against possible contagion.

Italy was supposed to help its own case this week by producing concrete evidence that it was streamlining its economy and cutting public debt. But Prime Minister Silvio Berlusconi’s government, weakened by internal strife, delivered only promises, handing officials in Brussels a “letter of intent” describing hoped-for measures.

While Italy has a relatively low fiscal deficit, its debt is equivalent to 120 percent of its gross domestic product, second-highest in the euro zone after that of Greece.

The market’s skepticism showed in the auction results Friday, when the Italian Treasury sold €7.9 billion, or $11.2 billion, of debt of varying maturities. It paid an average yield of 4.93 percent to sell bonds maturing in 2014, the highest since November 2000 and up from 4.68 percent on Sept. 29, according to Bloomberg News.

It had to pay 6.06 percent to sell 10-year bonds,  the highest yield it has paid at auction in the euro era.

Stocks on the Milan bourse fell 1.8 percent and the yield on the Italian 10-year bond rose 5 basis points to 5.91 percent, having reached as high as 5.97 percent, just under the 6 percent level that has signaled danger for other embattled euro-zone countries, including Ireland and Portugal.

Major european stock indexes were slightly lower at midday after rising in early trade.

Fears of contagion to Italy and Spain led the European Central Bank to begin buying the two countries debt on the secondary market in early August, after their 10-year bonds ticked over the 6 percent mark.

The spread, or gap, between the Italian security and the German 10-year bond, a gauge of market confidence, rose by 4 basis points to 3.7 percentage points, suggesting investors were more nervous about holding the Italian debt.

Article source: http://feeds.nytimes.com/click.phdo?i=41cccecd12375a00a5a87dd10a15f7d1

Italian Workers Strike Against Austerity Measures

The eight-hour strike shut down transport and businesses nationwide. It was called by the C.G.I.L. union, which represents 2 million public and private sector workers, in opposition to a 45.5 billion-euro austerity package of tax hikes and spending cuts proposed by the Italian government last month to reduce Italy’s budget deficit by 2013.

The measures were required by the European Central Bank in exchange for buying Italian debt to help keep the country’s borrowing costs from rising out of control. But the measures have come under near-daily revision, as Prime Minister Silvio Berlusconi struggles to satisfy objections from within his governing coalition and from the center-left opposition.

The latest incarnation, which comes up for a vote in the Senate later this week, would change Italian labor law to permit Italian to bypass national labor contracts, making it easier to hire and fire workers.

In a statement on Tuesday, Mr. Berlusconi’s office said the bill would also raise VAT tax to 21 percent from 20 percent; adding an additional “solidarity tax” of 3 percent on Italians who earn more than 500,000 euros annually; and increasing the retirement age for women in the private sector starting in 2014.

The Northern League, the most powerful party in Mr. Berlusconi’s coalition, had been vehemently opposed to raising the retirement age for women, since in Italy public day care is scarce and grandmothers routinely serve as child care providers.

On Tuesday, the government said it planned to call a confidence vote on the measures in the Senate, where Mr. Berlusconi has a significant majority.

Addressing a crowd of an estimated 70,000 people in Rome on Tuesday, Susanna Camusso, the leader of C.G.I.L., called the change to the labor law “unjust” and threatened more strike actions if it weren’t removed.

“If Parliament doesn’t strike this from the bill, they have to know that we will use every path and initiative possible so that this shameful measure is removed,” she told an estimated 70,000 supporters outside the Colosseum on Tuesday.

Pierluigi Bersani, the leader of the center-left opposition, criticized the measures. “This package should be strengthened and made more equitable,” he said. “It’s useless to pass it quickly if it’s not done well. Otherwise we will end up having a new austerity package every week.”

After dropping a proposed 1.8 billion euros in cuts to regional governments, the new austerity bill proposes stepping up efforts to crack down on tax evasion, which Finance Minister Giulio Tremonti estimates will bring in billions in evaded taxes.

In recent days, Mr. Berlusconi has come under intense European pressure to pass the measures, which are seen as vital to the strength of the euro.

On Monday, Mario Draghi, the outgoing Bank of Italy president and incoming president of the European Central Bank, became the latest European leader to pressure Mr. Berlusconi to approve the measures swiftly.

He said that Italy should “not take it for granted” that the European Central Bank would continue buying Italian debt.

But the measures are not popular with many Italians, who are feeling increasingly squeezed. As he walked around Rome’s Piazza Navona, Pasquale Nappo, 47, a public employee in the Rome Province, wore a butcher’s apron covered in fake blood to protest what he called the “social butchery” of the austerity measures.

“The politicians don’t seem to understand and haven’t for years that they need to give people answers,” said Mr. Nappo, who said that three of his four children were unemployed. “They don’t understand that if I earn 1,300 euros a month, I can’t pay a rent of 1,200 euros, which is what it costs to live in Rome.”

Gaia Pianigiani contributed reporting.

Article source: http://www.nytimes.com/2011/09/07/world/europe/07italy.html?partner=rss&emc=rss

Backing Austerity, Italy Bids to End Deficit by 2014

The lower house voted 316 to 284 for the measures, in what politicians called the fastest approval of a budget bill in modern Italian history. The upper house approved the bill on Thursday. Prime Minister Silvio Berlusconi, who won two confidence votes on the measures, had vowed to push the bill through this week because of worries in the financial markets that Italy would become the next euro nation to suffer a sovereign debt crisis like those in Greece, Portugal and Ireland. The bill was originally supposed to be debated later in the summer.

Italy’s high debt and low growth have placed the country in an uncomfortable international spotlight. The rates the country had to pay to borrow rose this week to the highest levels in three years. The leading index of Italian stocks slid almost 1 percent on Friday, part of a sour day on European markets generally.

The center-left opposition voted against the measures, but did not present the kind of obstructionist amendments that are often used to block a bill’s passage in debates over budgets. On Friday, opposition leaders amplified their calls for Mr. Berlusconi to step down, saying he was no longer able to run the country.

Addressing Parliament on Friday, the opposition leader Pier Luigi Bersani called the budget bill “disastrous” and “homicidal,” saying it unfairly made Italians pay for the Berlusconi government’s “misguided” economic policies.

“How much did it cost us to have a prime minister who lost international credibility?” Mr. Bersani asked.

He added that the austerity measures would not protect Italy from market attacks. “Our bond spreads are widening again today, showing that this plan won’t shield us from the crisis,” Mr. Bersani added, referring to signs that investors’ confidence in Italy was still shaky.

Other troubled nations in the euro zone have also struggled to satisfy the credit markets, most notably Greece. The European Union decided Friday to hold an emergency summit meeting the following Thursday to try to break a deadlock over a second bailout plan for Greece.

The Italian austerity package aims to eliminate the country’s budget deficit by 2014. The deficit is now 4.6 percent of gross domestic product, below the average for the euro zone. The package includes 40 billion euros ($57 billion) in spending cuts. It also increases taxes, including those on gasoline and some trading accounts; introduces a co-payment for some health care services; raises the retirement age; and cuts some high-level pensions.

The majority of the bill’s provisions take effect in 2013 and 2014, after the current government’s term ends.

Mr. Berlusconi’s center-right coalition is divided, and his approval rating has been rocked by scandals. Momentum has been growing, at least among the opposition, for early elections and a caretaker government to manage the country until then.

Mr. Berlusconi was present in Parliament on Friday for the voting, his first public appearance during a week in which he had been notably out of sight. A front-page editorial on Friday in Corriere della Sera, Italy’s leading daily newspaper, was titled “The Loud Silence of the Great Communicator.”

Uncharacteristically, Mr. Berlusconi did not offer televised remarks on Friday, but he spoke to reporters in the halls of Parliament. He said that “Italy is stronger after the vote,” but that “uncertainties” of the economic crisis remained, the ANSA news agency reported.

He also explained his recent reticence. “Things that affected me closely were such that, if I had said what I think, they really wouldn’t coincide with the interests of the country in this moment of international attacks,” Mr. Berlusconi said, according to ANSA. “My sense of responsibility prevented me from saying what I think.” A press officer for Mr. Berlusconi said he could not confirm the remarks.

Among Mr. Berlsuconi’s many recent legal problems, a Milan court last week ordered one of the Berlusconi family holding companies to pay 560 million euros ($795 million) in compensation to a rival company to settle claims of corruption in a takeover battle.

Article source: http://www.nytimes.com/2011/07/16/world/europe/16italy.html?partner=rss&emc=rss