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Italy - financial and political stability...

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Itsallaguess
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Italy - financial and political stability...

#514471

Postby Itsallaguess » July 15th, 2022, 7:05 am

Some interesting news coming out of Italy yesterday, where things might be coming to a head again regarding the stability of their financial and political situation -

Eurozone rocked as Italy’s technocrats lose their grip on power -

Mario Draghi's potential departure marks a dangerous moment for Italy and its economy. It marks a dangerous moment for Italy and its economy, and threatens to rock the wider eurozone.

At more than 150pc of GDP, Italy’s debt is far larger than that of any other major economy in the currency area. Spain’s amounts to 118pc of its output and France is at 113pc. Germany is far less indebted with its Government borrowings equivalent to a mere 69pc of GDP.

As it stands, Italy’s debt is one-fifth higher than it was in the summer of 2012 — at 125pc of GDP — when Draghi pledged the ECB would do “whatever it takes” to support the eurozone. His unexpected but extremely valuable promise helped get the sovereign debt crisis under control.

Rome has been able to support surging debt levels thanks to rock-bottom interest rates. The cheap borrowing Italy relied on started to wobble recently, however, as central banks including the US Federal Reserve and the Bank of England raised rates to combat soaring inflation.

While the ECB has been more cautious, borrowing costs have risen in financial markets nonetheless. For Italy in particular, that risks making its debt pile unsustainable.

The country’s 10-year borrowing costs in bond markets have already risen from 0.7pc a year ago to 1.17pc at the start of 2022, to a current 3.4pc.

During the sovereign debt crisis, economists worried that sustained bond yields of above 7pc would leave Italy on an unsustainable path, its Government unable to cut spending or raise taxes enough to keep a lid on borrowing.

Given the increase in debts over the past decade, Jack Allen-Reynolds at Capital Economics now puts that tipping point interest rate at 5pc.

Elwin de Groot at Rabobank says the turmoil “is not providing any support for the single currency”, as the euro has fallen to parity with the dollar for the first time in 20 years.


https://www.telegraph.co.uk/business/2022/07/15/eurozone-rocked-italys-technocrats-lose-grip-power/

Cheers,

Itsallaguess

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Re: Italy - financial and political stability...

#514475

Postby servodude » July 15th, 2022, 7:53 am

Itsallaguess wrote:During the sovereign debt crisis, economists worried that sustained bond yields of above 7pc would leave Italy on an unsustainable path, its Government unable to cut spending or raise taxes enough to keep a lid on borrowing.


As a wean I literally kicked cans down the road.
It was a fun way to spend a bit of time if you didn't have a football (flyaway or bladder take your pick we didn't have either) but you couldn't keep doing it forever. Someone should look in to the opportunities there to see if they can find a metaphor.
What we didn't do was blame the cessation of the game on whatever most recent occurrence looked like a decent excuse.

Dod101
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Re: Italy - financial and political stability...

#514477

Postby Dod101 » July 15th, 2022, 8:00 am

servodude wrote:
Itsallaguess wrote:During the sovereign debt crisis, economists worried that sustained bond yields of above 7pc would leave Italy on an unsustainable path, its Government unable to cut spending or raise taxes enough to keep a lid on borrowing.


As a wean I literally kicked cans down the road.
It was a fun way to spend a bit of time if you didn't have a football (flyaway or bladder take your pick we didn't have either) but you couldn't keep doing it forever. Someone should look in to the opportunities there to see if they can find a metaphor.
What we didn't do was blame the cessation of the game on whatever most recent occurrence looked like a decent excuse.


And I hope our ministerial hopefuls are taking note when they advocate all those wonderful plans to cut taxes and borrow more.

Dod

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Re: Italy - financial and political stability...

#514497

Postby Dod101 » July 15th, 2022, 9:29 am

Snorvey wrote:Italy doesn't control it's own currency and that's an issue for them. On the other hand, they want to be part of the Eurozone. Austerity beckons for the Italians and I cant see that going down to well with them. In the short term though, the ECB have invented a new Italian debt tool just for Italy. Get that Can out and start kicking.

...but Look at Japan. Their debt to GDP is way higher than Italys. A lot of the debt, like Italys, is owned by the general population who dont invest in shares like we do. So the 'debt' is actually an asset to them.

At the end of the day, it's just a set of accounts that have to balance.


But, as Sri Lanka is finding out, debt can only stretch so far. So far we are OK in the UK because the international community still has some confidence in our currency as it is backed by a good sized economy, but even we can get into trouble as Jim Callaghan discovered all these years ago.

Dod

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Re: Italy - financial and political stability...

#514580

Postby odysseus2000 » July 15th, 2022, 12:38 pm

The Italians are getting something that many of their politicians have long wanted, a weaker currency that will make their exports more competitive and choke off some internal demand as prices rise at least relative to the US $. If the ECB does end negative interest rates as they say by late 2022 or early next year that will likely cause the Euro to rise, taking away the weaker currency advantages. At the same moment there is the danger of Russia cutting off its gas which is currently about 40% of Italian consumption:

https://www.politico.eu/article/italy-t ... ssian-gas/

The Italians are caught in a difficult place. If the UK politicians had made more of a success of Brexit the demands that Italy follow the UK may have grown, but at least the last chancellor did not get much UK growth, albeit hampered by Covid, and so Italexit is not such an easy sell but neither is remaining in the EU with policies that are in general not suited to Italy.

If interest rates continue to rise it will become increasing difficult for the Italians to continue to finance their government borrowings with out making more unpleasant spending cuts and upsetting their voters.

It is altogether strange that many of the world's politicians have forgotten that economic growth is a good antidote to many of the current problems. Even in China, growth has been cut to almost zero by their anti-covid policy.

Or perhaps I am expecting too much from politicians, is it more that the world is not creating entrepreneurs like it used to? Service sectors which are more about rotating money than growth, grow ever larger and many countries have seen fit to offshore manufacturing to China and folk can make comfortable livings in what is a far less risky service business than making things for people to use.

If politicians wanted to they could likely make it much more favourable for growth industries, but whether this would attract good business people and create growth is not clear, but it does seem to be worth trying. The UK should be able to prosper now as we control our currency, have abundant renewable power, a well educated population with historical strength in making stuff, sit at the centre of the global day and we are blessed by speaking the language of business.

It will be interesting to see what the next PM and Chancellor do, sadly I do not expect that creating conditions favourable to growth will appear but I am often wrong!

Regards,

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Re: Italy - financial and political stability...

#514673

Postby odysseus2000 » July 15th, 2022, 5:57 pm

This is an example of Italian engineering building giga press ( approx 30 mins):

https://youtu.be/IgTNynoVX-I

Regards,

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Re: Italy - financial and political stability...

#515062

Postby Itsallaguess » July 17th, 2022, 3:49 pm

From today's Telegraph -

Christine Lagarde readies a new weapon to save the eurozone from debt crisis -

Pressure is mounting ahead of next week’s crucial ECB meeting.

In a landmark moment, the central bank will begin to end the eight-year experiment of negative interest rates and also unveil a new controversial tool to stop Italian borrowing costs soaring — hitting the brakes while putting its foot on the accelerator.

The weapon is aimed at keeping the eurozone together and stopping another debt crisis breaking out in the south.

All the while, the euro’s plunge is becoming a headache by adding to inflationary pressures and Russia threatens to plunge the region into recession by cutting off gas supplies.

But economists fear Lagarde, a trained lawyer not economist, may come up short. Even ECB rate-setters warn the central bank could soon find itself in “dire straits”.

Bas Van Geffen, strategist at Rabobank, says the new tool to stop so-called “fragmentation” between southern and northern European bonds will be the “star of the show”, but warns there is a “significant risk that the measure disappoints”.

“Good luck explaining that the ECB is tightening policy if it is seen launching another tool through which it could be buying assets.”


https://www.telegraph.co.uk/business/2022/07/17/christine-lagarde-readies-new-weapon-save-eurozone-debt-crisis/

Cheers,

Itsallaguess

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Re: Italy - financial and political stability...

#515128

Postby ayshfm1 » July 17th, 2022, 9:34 pm

He who pays the piper calls the tune. Italy has a lot debt, little growth, bad demographics, etc The short version is their economy requires low interest rates to stand still and that means someone needs to buy their bonds at that low rate.

That someone will be the ECB (or removing the smoke, Germany.)

However it will only do so if Italy does what it is told. Silvio Berlusconi was removed by the ECB when he threatened to deviate from instruction (by remove I mean he was told if he didn't resign in favour of an EU selected Technocrat the ECB would no longer buy Italian debt and would make it known that it was not doing so.) The consequences of course would have been little short of catastrophic, so he resigned.

Nothing has really changed.

If I were to be transparent, from a political perspective debt has made Italy a vassal of the EU it doesn't matter who they elect the policies they will implement will come from Brussels. If the person elected won't do as they are told, then the ECB will force in a technocrat of it's choosing who will.

Italy is where all EU members will be one day, Union is all about States agreeing to devolve their sovereign powers to a central point where they will all be governed, Italy just gets their first because it is in so much debt it is effectively under the control of the ECB (and thus by extension the EU).

What does this mean? Well they only need to look at Greece to know how this plays out.

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Re: Italy - financial and political stability...

#515283

Postby 1nvest » July 18th, 2022, 12:44 pm

ayshfm1 wrote:He who pays the piper calls the tune. Italy has a lot debt, little growth, bad demographics, etc The short version is their economy requires low interest rates to stand still and that means someone needs to buy their bonds at that low rate.

That someone will be the ECB (or removing the smoke, Germany.)

However it will only do so if Italy does what it is told. Silvio Berlusconi was removed by the ECB when he threatened to deviate from instruction (by remove I mean he was told if he didn't resign in favour of an EU selected Technocrat the ECB would no longer buy Italian debt and would make it known that it was not doing so.) The consequences of course would have been little short of catastrophic, so he resigned.

Nothing has really changed.

If I were to be transparent, from a political perspective debt has made Italy a vassal of the EU it doesn't matter who they elect the policies they will implement will come from Brussels. If the person elected won't do as they are told, then the ECB will force in a technocrat of it's choosing who will.

Italy is where all EU members will be one day, Union is all about States agreeing to devolve their sovereign powers to a central point where they will all be governed, Italy just gets their first because it is in so much debt it is effectively under the control of the ECB (and thus by extension the EU).

What does this mean? Well they only need to look at Greece to know how this plays out.

Italy is no exception, most if not all of the member states are tied into the EU (German control) via debt. In 2009 (financial crisis) massive amounts of bad German bets (debt) was swapped over to the ECB (rest of EU). Had those bets paid off Germany won, bets turn sour and rest of EU bails them out. But only when you're pulling the strings, Greeks for instance were expected to pay for their own bad bets. That the German economy is the strongest in the EU is by design.

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Re: Italy - financial and political stability...

#515288

Postby 1nvest » July 18th, 2022, 12:52 pm

Itsallaguess wrote:From today's Telegraph -

Christine Lagarde readies a new weapon to save the eurozone from debt crisis -

Pressure is mounting ahead of next week’s crucial ECB meeting.

In a landmark moment, the central bank will begin to end the eight-year experiment of negative interest rates and also unveil a new controversial tool to stop Italian borrowing costs soaring — hitting the brakes while putting its foot on the accelerator.

The weapon is aimed at keeping the eurozone together and stopping another debt crisis breaking out in the south.

All the while, the euro’s plunge is becoming a headache by adding to inflationary pressures and Russia threatens to plunge the region into recession by cutting off gas supplies.

But economists fear Lagarde, a trained lawyer not economist, may come up short. Even ECB rate-setters warn the central bank could soon find itself in “dire straits”.

Bas Van Geffen, strategist at Rabobank, says the new tool to stop so-called “fragmentation” between southern and northern European bonds will be the “star of the show”, but warns there is a “significant risk that the measure disappoints”.

“Good luck explaining that the ECB is tightening policy if it is seen launching another tool through which it could be buying assets.”


https://www.telegraph.co.uk/business/2022/07/17/christine-lagarde-readies-new-weapon-save-eurozone-debt-crisis/

Cheers,

Itsallaguess

Germany seen as the EU head state, could at the extreme permit the continuation of printing to buy up all government, corporate, junk bonds, and then stocks and then houses/land. The more each state is bound into such debts the less possible is for it to escape such German controlled binding.

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Re: Italy - financial and political stability...

#515329

Postby GrahamPlatt » July 18th, 2022, 3:12 pm

A sort of German “belt and road”, just without the roads.

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Re: Italy - financial and political stability...

#515338

Postby Itsallaguess » July 18th, 2022, 3:27 pm

Snorvey wrote:
GrahamPlatt wrote:A sort of German “belt and road”, just without the roads.


Debt trap diplomacy by another name.


Belt and load....

Cheers,

Itsallaguess


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