Unbelievably, we are quickly moving into end game time for Italy—best report on the situation comes from The Telegraph’s Ambrose Evans-Pritchard (excerpts below).
Europe's rescue fiasco leaves Italy defenceless - Telegraph: As of late Friday, the yield spread on Italian 10-year bonds over German Bunds was a post-EMU record of 458 basis points. This is dangerously close to the point where cascade-selling begins and matters spiral out of control. . . .The ECB’s hands are tied. A German veto and EU treaty constraints stop it intervening with overwhelming force as a genuine lender of last resort. . . .This lack of a back-stop guarantor is an unforgivable failing in the institutional structure of monetary union. As Berkeley professor Brad DeLong argues in a new paper, such “utter disregard for financial stability – much less for the welfare of the workers and businesses that make up the economy – is a radical departure from the central-banking tradition.” . . . The market has already cast its verdict . . . The(EFSF) fund suffered a failed auction last week, cutting the issue from €5bn to €3bn on lack of demand. . . . Gary Jenkins from Evolution Securities said the “frightening” development is that the EFSF is itself being shut out of the capital markets. . . . Italy’s travails have little to do with the parallel drama in Greece. This is not contagion . . . its economy is plunging back into deep recession, the predicable outcome of the EU’s 1930s fiscal and monetary contraction policies. . . . A report by Italian consultants REF Ricerche warns that Italy will remain trapped in recession through 2012 and 2013. The slump itself is causing fiscal slippage, not lack of budget rigour. “What is sapping the credibility of Italy’s public accounts over the medium term is lack of growth prospects,” it said. Indeed, yet Angela Merkel and Nicolas Sarkozy continue to order Italy to undertake further fiscal belt-tightening into the accelerating downturn, even though it is one of the few countries in the OECD club with a primary budget surplus and even though its combined public and private debt is just 250pc of GDP – well below that of Holland, France, the UK, the US, or Japan. The EU policy dictates have become unhinged. . . .This is the elemental point. Italy is in the wrong currency. It should not be in Germany’s monetary union at all. . . .Tweet Follow @johnmpoole
