The eurozone crisis never went away; it was just overlooked in the Brexit upheaval.
But you can rely on Italy to trigger thoughts of catastrophe and, sure enough, the arrival of this weekend’s referendum on constitutional reform has spooked markets.
The yield on 10-year Italian debt has doubled from 1% to 2% since August, outpacing the rise in yields on most other eurozone sovereign debt. The euro has even weakened against the supposedly down-and-out pound. A euro cost 90p a month ago but now fetches 84p.
In the grand scheme, these are not enormous moves. Back in 2011-12, when the Greek debt crisis was in full swing, Italian 10-year yields hit 7%; and the euro is still 10% stronger against sterling since the UK referendum. But Italian risks – for the short, medium and long-term – are real.
The immediate danger will arrive if PM Matteo Renzi loses the referendum and then honours his pledge to resign. His departure would make it harder to resolve a crisis in the Italian banking system that should have been addressed half a decade ago and is now intense. It even got a special mention in the Bank of England’s UK financial stability report this week. The detail is extraordinary: bad, or non-performing, loans in Italy exceed the total provision for losses and the banks’ core capital.
The only solid cure is a combination of fresh capital and the infliction of financial pain on some classes of bondholders. The latter is politically explosive – because so many bank bonds are held by pensioners – but demanded by new eurozone restrictions on state-sponsored bailouts. As for injections of capital, the private sector will not volunteer if the country is without a prime minister for the next two months.
The medium-term risk is that the vacuum is filled by the anti-euro Five Star Movement led by comedian Beppe Grillo, currently riding high in the polls in the run-up to a general election that must be held by February 2018. Note, too, that planned electoral changes in Italy will give the largest party extra parliamentary clout in future. The overhaul is intended to prevent so many wobbly coalitions. But if Five Star is the first beneficiary, the eurozone will have a proper political crisis on its hands.
The long-term risk remains the same: Italy is stuck in an economic rut. Growth has improved slightly with Renzi’s market-friendly reforms – 0.8% is predicted for this year – but the Italian economy is still basically sluggish. Meanwhile, public debt is 130% of GDP and unemployment stands at 11.6%, above the eurozone average of 9.8%. The employment rate is just 57.2%; the UK’s is 74.4%.
The next big problem for the EU
The next big problem for the EU
“If you trust in yourself, and believe in your dreams, and follow your star. . . you'll still get beaten by people who spent their time working hard and learning things and weren't so lazy.”
Re: The next big problem for the EU
You think the EU has problems?
We in the USA will have four years of this:
We in the USA will have four years of this:
Your collective inability to acknowledge this obvious truth makes you all look like fools.
yrs,
rubato
Re: The next big problem for the EU
“Europe is screwed. You guys are still screwed,” says Eisman.
“In the Italian system, the banks say they are worth 45-50 cents in the dollar. But the bid price is 20 cents. If they were to mark them down, they would be insolvent.”
Eisman is careful not to name any specific Italian bank. But fears about the solvency of the system – weighed down by an estimated €360bn in bad debts – are not new. In official “stress tests” of 51 major European banks in July by the European Banking Authority, Italy’s third largest bank, Banca Monte dei Paschi di Siena, emerged as the weakest. It triggered a rescue package – and soothing words from Italy’s finance minister, who said there was no generalised crisis in the banking system. But MPPS’s share price remains at just 25 cents, down more than 90% from two years ago.
How worried should British bank account (and shareholders) be? “I’m not really worried about England’s banks,” says Eisman. “They are in better shape than most in Europe.”
https://www.theguardian.com/money/2016/ ... banks-risk
“If you trust in yourself, and believe in your dreams, and follow your star. . . you'll still get beaten by people who spent their time working hard and learning things and weren't so lazy.”
Re: The next big problem for the EU
Senior bankers are racing this weekend to piece together a highly complex, three-part rescue of the Italian Banca Monte dei Paschi de Siena, despite widespread expectations that a "No" vote in Sunday's constitutional referendum could scupper the deal, sparking a fresh eurozone banking crisis.
The troubled Tuscan lender is attempting to pull off one of the most ambitious bailouts ever seen, a €5 billion ($7 billion) fund-raising involving its bondholders, the Qatari government, a handful of Wall Street hedge funds and the bank's existing investors.
The first step, a voluntary bondholder debt-for-equity swap, launched last week, hopes to raise roughly €1.5 billion. A further €1 billion is expected from Qatar's sovereign wealth fund, which will become a cornerstone investor in the bank. It is hoped a deal with the Qataris will be ironed out over the weekend.
The remaining €2.5 billion will be generated through the sale of new shares, which could be launched as early as Monday, with the aim of securing the whole package before Christmas.
“If you trust in yourself, and believe in your dreams, and follow your star. . . you'll still get beaten by people who spent their time working hard and learning things and weren't so lazy.”
Re: The next big problem for the EU
On the brighter side of the EU;Italian Prime Minister Matteo Renzi has suffered a heavy defeat in a referendum over his plan to reform the constitution, exit polls suggest.
An exit poll for state broadcaster RAI suggests 42-46% voted to back reform, compared with 54-58% voting No.
The first projection based on the vote count points to an even wider defeat: Yes at 39-43% and No at 57-61%.
Mr Renzi, who has said he would resign if he lost the vote, is due to make a statement at midnight (23:00 GMT).
Far-right candidate Norbert Hofer has lost Austria's presidential election.
On Facebook, he described himself as "infinitely sad" and congratulated Alexander Van der Bellen, former head of the Greens, on his victory.
Although the post is ceremonial in Austria, the poll had been seen as a sign of how well populist candidates might do elsewhere in Europe.
Mr Van der Bellen called the result a vote for a "pro-European" Austria based on "freedom, equality and solidarity".
“If you trust in yourself, and believe in your dreams, and follow your star. . . you'll still get beaten by people who spent their time working hard and learning things and weren't so lazy.”
Re: The next big problem for the EU
As predicted;
Italian Prime Minister Matteo Renzi has resigned after suffering a heavy defeat in a referendum over his plan to reform the constitution.
In a late-night news conference, he said he took responsibility for the outcome, and said the No camp must now make clear proposals.
With most ballots counted, the No vote leads with 60% against 40% for Yes.
The turnout was nearly 70%, in a vote that was seen as a chance to register discontent with the prime minister.
"Good luck to us all," Mr Renzi told reporters. He said he would tell a Cabinet meeting on Monday afternoon that he was resigning, then tender his resignation to the Italian president.
“If you trust in yourself, and believe in your dreams, and follow your star. . . you'll still get beaten by people who spent their time working hard and learning things and weren't so lazy.”