Tag Archives: EU

NIRP’s Revenge: Italian Bonds Plunge, Worst Day in Decades, by Wolf Richter

Posted on May 29, 2018 | Leave a comment

Some market reactions to the Italian economic and political crisis, from Wolf Richter at wolfstreet.com:

Markets wail and gnash their teeth as “normalization” of Italian yields sets in.

On Tuesday, Italian bonds had their worst day in Eurozone existence, even worse than any day during the worst periods of the 2011 debt crisis. And this comes after they’d already gotten crushed on Monday, and after they’d gotten crushed last week. And this happened even as the ECB is carrying on its QE program, including the purchase of Italian government bonds; and even as it pursues its negative-interest-rate policy (NIRP). As bond prices plunge, yields spike by definition, and the spike in the two-year yield was spectacular, going from 0.3% on Monday morning to 2.73% on Tuesday end of day:

But note that until May 26, the two-year yield was still negative as part of the ECB’s interest rate repression. On that fateful day, the two-year yield finally crossed the red line into positive territory.

To this day, it remains inexplicable why the ECB decided that Italian yields with maturities of two years or less should be negative – that investors, or rather pension beneficiaries, etc., who own these misbegotten bonds, would need to pay the Italian government, one of the most indebted in the world, for the privilege of lending it money. But that scheme came totally unhinged just now.

The 10-year Italian government bond yield preformed a similar if not quite as spectacular a feat. Over Monday and Tuesday, it went from 2.37% to 3.18%:

But here’s the thing: Italian bonds – no matter what maturity – should never ever have traded with a negative yield. Their yields should always have been higher than US yields, given that the Italian government is in even worse financial shape than the US government. Italy’s debt-to-GDP ratio is 131%, and more importantly, it doesn’t even control its own currency and cannot on its own slough off a debt crisis by converting it into a classic currency crisis, which is how Argentina is dealing with its government spending. The central bank of Argentina recently jacked up its 30-day policy rate to 40% to keep the peso from collapsing further.

To continue reading: NIRP’s Revenge: Italian Bonds Plunge, Worst Day in Decades

Leave a comment

Posted in Business, Currencies, Debt, Economy, Financial markets, Governments

Tagged , , ,

Hotel Europa, by Raúl Ilargi Meijer

Posted on May 29, 2018 | Leave a comment

“You can check out any time you like, but you can never leave.” The EU bears a striking resemblance to the Eagles legendary hotel. From Raúl Ilargi Meijer at theautomaticearth.com:

On Friday, in This is the End of the Euro, I said: The euro has become a cage, a prison for the poorer brethren. The finance minister proposed by 5-Star/Lega and refused by Italian president Mattarella, Paolo Savona, has called the euro a German cage.

There are now stories spreading that the coalition, Savona first of all, were secretly planning an exit from the euro. A series of slides Savona prepared in 2015 on how to exit the euro is used as evidence of that secret plan. But the slides are not secret. Yes, he has said that it’s good to have a plan to leave ‘if necessary’. But that’s not the same as secretly planning such a move.

Every country should have such a plan, and you would hope they do. A government that doesn’t is being very irresponsible. But it’s true, this is how both the EU and the euro have been designed: not just as a prison, but as a prison without any doors or windows. No way to get out. And that will prove to be its fatal flaw.

It has more such flaws, for sure. The inequality of its members, which allows for the richer to feed on the poorer, is a big one. The US founders were smart enough to provide for transfer payments from rich to poorer, the EU founders couldn’t be bothered with that lesson. They must have studied it, though, and rejected it.

Credit were credit’s due: Yanis Varoufakis said it best when he compared the EU to the Eagles’ Hotel California. A few lines:

Mirrors on the ceiling
The pink champagne on ice
And she said “We are all just prisoners here, of our own device”
And in the master’s chambers
They gathered for the feast
They stab it with their steely knives
But they just can’t kill the beast

Last thing I remember
I was running for the door
I had to find the passage back to the place I was before
“Relax,” said the night man
“We are programmed to receive
You can check-out any time you like
But you can never leave!”

The EU was set up as some kind of eternal prison, a concept most familiar to us in the way Christian churches depict Hell, or the ancient Greek mythological story of Prometheus, who, as punishment for providing man with fire, was condemned by Zeus to being tied to a rock, with an eagle feeding on his liver every day, for eternity.

To continue reading: Hotel Europa

Leave a comment

Posted in Business, Currencies, Debt, Economy, Governments, Politics

Tagged , , ,

Italy’s Pro-EU President Flouts Voters, by Soeren Kern

Posted on May 29, 2018 | Leave a comment

Political and financial chaos reign in Italy. From Soeren Kern at thegatestoneinstitute.org:

  • The political situation reflects the stranglehold on power wielded by the pro-EU establishment, which is evidently determined to preserve economic austerity at the expense of democracy.
  • “We need to prepare a plan B to get out of the euro if necessary… the other alternative is to end up like Greece.” — Paolo Savona, a former industry minister who has called Italy’s entry into the euro a “historic mistake.”
  • “In Italy, there is a problem of democracy. In this country, you can be a convicted criminal, convicted for tax fraud, under investigation for corruption and be a minister… but if you criticize Europe, you cannot be the Minister of the Economy in Italy.” — M5S leader Luigi Di Maio.

Italy’s new populist government-in-waiting resigned on May 28 after its choice of a eurosceptic finance minister was rejected by the country’s pro-EU president — who instead asked an unelected technocrat to form a pro-EU government.

The political wrangling ends a bid by Italy’s two anti-establishment parties — the left-leaning Five Star Movement (M5S) and the center-right League (Lega) — to form a populist coalition government, which would have been the first of its kind in Europe.

The political situation reflects the stranglehold on power wielded by the pro-EU establishment, which is evidently determined to preserve economic austerity at the expense of democracy.

Italian president Sergio Mattarella refused to accept the nomination for finance minister of Paolo Savona, an 81-year-old former industry minister who has called Italy’s entry into the euro a “historic mistake.”

In his latest book, “Like a Nightmare and a Dream” (Come un incubo e come un sogno), Savona called the euro a “German cage” and warned that “we need to prepare a plan B to get out of the euro if necessary… the other alternative is to end up like Greece.”

Mattarella, who was installed by a previous pro-EU government, said that the “uncertainty over our position in the euro has alarmed Italian and foreign investors who purchased our government bonds and invested in our companies.” He added that “membership of the euro is a fundamental choice for the future of our country and our young people.”

To continue reading: Italy’s Pro-EU President Flouts Voters

Leave a comment

Posted in Collapse, Currencies, Debt, Economics, Economy, Governments, Politics

Tagged , , ,

Which Banks Are Most Exposed to Italy’s Sovereign Debt? (Other than the Horribly Exposed Italian Banks), by Don Quijones

Posted on May 27, 2018 | Leave a comment

Italy is moving up fast on the outside in the race to see which dicey situation sets off the next global financial crisis. From Don Quijones at wolfstreet.com:

“Doom loop” begins to exact its pound of flesh.

Risk. Exposure. Contagion. These are three words we’re likely to hear more and more in relation to Europe, as the Eurozone’s debt crisis returns.

On Friday, Italy’s 10-year risk premium — the spread between Italian ten-year bond yields and their German counterparts — surged almost 20 basis points to 212 basis points. This was the highest level since May 2017, when a number of Italy’s banks, including third biggest bank Monte dei Pacshi di Siena (MPS), were on the brink of collapse and were either “resolved” or bailed out. Now, they’re all beginning to wobble again.

Shares of bailed-out and now majority-state-owned MPS, whose management the new government says it would like to change, are down 20% in the last two weeks’ trading. The shares of Unicredit and Intesa, Italy’s two biggest banks, have respectively shed 10% and 18% during the same period.

One of the big questions investors are asking themselves is which banks are most exposed to Italian debt.

A recent study by the Bank for International Settlementsshows Italian government debt represents nearly 20% of Italian banks’ assets — one of the highest levels in the world. In total there are ten banks with Italian sovereign-debt holdings that represent over 100% of their tier-1 capital (which is used to measure bank solvency), according to research by Eric Dor, the director of Economic Studies at IESEG School of Management.

The list includes Italy’s two largest lenders, Unicredit and Intesa Sanpaolo, whose exposure to Italian government bonds represent the equivalent of 145% of their tier-1 capital. Also listed are Italy’s third largest bank, Banco BPM (327%), Monte dei Paschi di Siena (206%), BPER Banca (176%) and Banca Carige (151%).

In other words, despite years of the ECB’s multi-trillion euro QE program, which is scheduled to come to an end soon, the so-called “Doom Loop” is still very much alive and kicking in Italy. The doom loop is when weakening government bonds threaten to topple the banks that own the bonds, and in turn, the banks start offloading them, which causes these bonds to fall further, thus pushing the government to the brink. The doom loop is a particular problem in the Eurozone since a member state doesn’t control its own currency, and cannot print itself out of trouble, which leaves it exposed to credit risk.

To continue reading: Which Banks Are Most Exposed to Italy’s Sovereign Debt? (Other than the Horribly Exposed Italian Banks)

Leave a comment

Posted in Banking, Collapse, Debt, Economy, Governments

Tagged , , ,

This is the End of the Euro, by Raúl Ilargi Meijer

Posted on May 25, 2018 | Leave a comment

The real mystery is how they’ve been able to keep the euro going as long as they have. From Raúl Ilargi Meijer at theautomaticearth.com:

The Spanish government is about to fall after the Ciudadanos party decided to join PSOE (socialist) and Podemos in a non-confidence vote against PM Rajoy. Hmm, what would that mean for the Catalan politicians Rajoy is persecuting? The Spanish political crisis is inextricably linked to the Italian one, not even because they are so much alike, but because both combine to create huge financial uncertainty in the eurozone.

Sometimes it takes a little uproar to reveal the reality behind the curtain. Both countries, Italy perhaps some more than Spain, would long since have seen collapse if not for the ECB. In essence, Mario Draghi is buying up trillions in sovereign bonds to disguise the fact that the present construction of the euro makes it inevitable that the poorer south of Europe will lose against the north.

Club Med needs a mechanism to devalue their currencies from time to time to keep up. Signing up for the euro meant they lost that mechanism, and the currency itself doesn’t provide an alternative. The euro has become a cage, a prison for the poorer brethren, but if you look a bit further, it’s also a prison for Germany, which will be forced to either bail out Italy or crush it the way Greece was crushed.

Italy and Spain are much larger economies than Greece is, and therefore much larger problems. Problems that are about to become infinitely more painful then they would have been had the countries been able to devalue their currencies. If you want to define the main fault of the euro, it is that: it creates problems that would not have existed if the common currency itself didn’t. This was inevitable from the get-go. The fatal flaw was baked into the cake.

And if you think about it, today the need for a common currency has largely vanished anyway already. Anno 2018, people wouldn’t have to go to banks to exchange their deutschmarks or guilders or francs, they would either pay in plastic or get some local currency out of an ATM. All this could be done at automatically adjusting exchange rates without the use of all sorts of middlemen that existed when the euro was introduced.

To continue reading: This is the End of the Euro

Leave a comment

Posted in Currencies, Debt, Economy, Governments

Tagged , ,

A Time to Remember, by Justin Raimondo

Posted on May 24, 2018 | Leave a comment

Justin Raimondo revisits some stories that were once dismissed as fringe. From Raimondo at antiwar.com:

We’re headed into the Memorial Day weekend, and what better time to remember those stories that held your attention, briefly, weeks or even months and years ago ? Well, here’s some follow-up:

Perfidious Albion, Revisited – Remember when Judge Andrew Napolitano, the Fox News commentator, was suspended from Fox because he highlighted the British connection to the plot to oust Donald Trump? In light of the Christopher Steele dossier, and the even more recent revelation of the Stefan Halper/Sir Richard Dearlove spying mission, it looks like the Judge was right.

Napolitano contended on air that the Obama White House used the Brits to get transcripts of conversations between Trump officials and their contacts so that “no American fingerprints” would be left on the dirty deeds. Yet it looks like they did go through our own FISA court to get a judge to sign on to the surveillance: however, there are many questions about what evidence they used to convince that judge.

The “dirty dossier” was one piece of the puzzle, the information funneled to the FBI by their spie(s) in the campaign was another, and I believe that information provided by foreign intelligence services, including the Brits, was the third addition to this brew.

The President’s critics, as well as his friends, say he could clear all this up by simply declassifying the relevant documents, but this is easier said than done: those documents doubtless implicate our foreign “allies” as the source of the “collusion” charges leveled at Trump. The Democrats didn’t think this up all on their own: the whole Russia-gate hoax originated, I believe, overseas, and was then eagerly adopted by the Clintonites. Rather than cause an international incident – and a serious one, to be sure – all concerned are doing their best to downplay this aspect of the unfolding drama, yet the truth is bound to come out eventually.

Hitlerian Ukraine – Remember Ukraine? That’s the country Vladimir Putin was going to invade any day now – except it never happened. Oh well, the “imminent” Russian invasion was years ago, so why bring it up now? Because Nazis are overrunning the place, that’s why.

The Forward reports:

“A wave of anti-Semitism has swept over Ukraine. In the past three weeks alone, a far-right leader publicly called for cleansing Ukraine of zhidi (a slur equivalent to ‘kike’); a Holocaust memorial in Ternopil was bombed; hundreds marched through Lviv, in honor of an SS unit, complete with Nazi salutes; ‘Death to Zhidi’ graffiti was scrawled in two cities; a revered rabbi’s tomb was vandalized; a Romani camp in Kiev was attacked and burned by far-right nationalists, and hundreds rocked out at a neo-Nazi concert clad in swastikas and throwing up Nazi salutes.”

To continue reading: A Time to Remember

Leave a comment

Posted in Crime, Governments, Investigations, Media

Tagged , , , ,

Hilarity in NIRP Zone: Italian 2-Year Yield Still Near 0%, as New Government Proposes Haircut for Creditors and Alternate Currency, Markets on “Knife Edge”, by Wolf Richter

Posted on May 21, 2018 | 1 comment

The two parties that have formed a coalition government in Italy have a program that could well blow up Italian debt, and take the ECB and EU with it. From Wolf Richter at wolfstreet.com:

The ECB’s Negative Interest Rate Policy has been the funniest monetary joke ever.

The distortions in the European bond markets are actually quite hilarious, when you think about them, and it’s hard to keep a straight face.

“Italian assets were pummeled again on mounting concern over the populist coalition’s fiscal plans, with the moves rippling across European debt markets,” Bloomberg wrote this morning, also trying hard to keep a straight face. As Italian bonds took a hit, “bond yields climbed to the highest levels in almost three years, while the premium to cover a default in the nation’s debt was the stiffest since October,” it said. “Investors fret the anti-establishment parties’ proposal to issue short-term credit notes – so-called ‘mini-BOTs’ – will lead to increased borrowing in what is already one of Europe’s most indebted economies.”

This comes on top of a proposal by the new coalition last week that the ECB should forgive and forget €250 billion in Italian bonds that it had foolishly bought.

The proposals by a government for a debt write-off, and the issuance of short-term credit notes as a sort of alternate currency are hallmarks of a looming default and should cause Italian yields to spike into the stratosphere, or at least into the double digits.

And so Italian government bonds fell, and the yield spiked today, adding to the prior four days of spiking. But wait…

Five trading days ago, the Italian two-year yield was still negative -0.12%. In other words, investors were still payingthe Italian government – whose new players are contemplating a form of default – for the privilege of lending it money. And now, the two-year yield has spiked to a positive but still minuscule 0.247% at the moment. By comparison, the US Treasury two-year yield is 2.57% over 10 times higher!

Here is the hilarious chart of the spiking Italian yield from the negative into the positive:

To continue reading: Hilarity in NIRP Zone: Italian 2-Year Yield Still Near 0%, as New Government Proposes Haircut for Creditors and Alternate Currency, Markets on “Knife Edge”

1 Comment

Posted in Business, Currencies, Debt, Economy, Financial markets, Governments

Tagged , , , ,

Italy is Forming the Epicenter of the EU’s Fateful Shift, by Tom Luongo

Posted on May 21, 2018 | Leave a comment

Unlike Greece, the EU is not going to strongarm Italy and sweep it’s financial problems under the rug. Italy is too big. From Tom Luongo at tomluongo@me.com:

Clarity is here in Italian coalition talks.  And the markets hate what they see.  So does Brussels.

Five-year Italian debt blew out over 1%, CDS spreads have moved over 20 basis points in a week. The markets are trying to scare these outsiders now in charge in Italy to soften their stances on reform and maintain a status quo which is destroying a great country and culture.

The League and Five Star Movement leaked demands for $250 billion in debt relief from the ECB.  There was also a demand for developing a mechanism for countries to leave the euro, according to a, now discredited, report from Reuters.

The final proposal doesn’t have any of this inflammatory language, but don’t think the leak wasn’t part of their negotiating strategy or part of where they are ultimately going to push things.

Because the rest of the proposal is already hostile enough to Brussels (see below).  And with ECB President Mario Draghi now signaling the need to consolidate European sovereign debt under its umbrella, it isn’t necessary at the moment.

Here’s Martin Armstrong’s take:

So everyone else understands what this is about, the ECB President Mario Draghi has come out and proposed interlocking the euro countries to create a “stronger” and “new vehicle” as a “crisis instrument” to save Europe. He is arguing that this should prevent countries from drifting apart in the event of severe economic shocks. Draghi has said it provides “an extra layer of stabilization” which is a code phrase for the coming bond crash. [emphasis mine]

That tells me that Draghi understands how bad things truly are and that Italian leadership knows they have the upper hand in debt negotiations.

They are prepared to push Brussels hard to get what they want.  And well they should.  League leader Matteo Salvini understands how ruinous the euro as administered by Germany has been for Italy and most of Europe.

So, to him, if the price for Italy to stay in the EU is to force the northern countries to accept debt consolidation and write-down then so be it.

If they won’t agree to that, then Italy’s new leadership is prepared to back to the people and say, “We tried.  Screw them. Let’s walk.”

All of this says to me they sand-bagged the press and the political establishment to get to this point.

To continue reading: Italy is Forming the Epicenter of the EU’s Fateful Shift

Leave a comment

Posted in Banking, Currencies, Debt, Government

Tagged ,

Windbag Jean-Claude Juncker’s Pathetic Bluff Regarding Iran Sanctions, by Mike “Mish” Shedlock

Posted on May 19, 2018 | Leave a comment

Is Jean-Claude Junker’s threat to invoke a “blocking” statute to keep European companies from complying with US sanctions with Iran may be just hot air. From Mike “Mish” Shedlock at themaven.com:

EC president Jean-Claude Juncker says the EU will activate a ‘blocking statute’ to avoid Iran sanctions.

“As the European Commission we have the duty to protect European companies. We now need to act and this is why we are launching the process of to activate the ‘blocking statute’ from 1996. We will do that tomorrow morning at 1030,” European Commission President Jean-Claude Juncker said.

“We also decided to allow the European Investment Bank to facilitate European companies’ investment in Iran. The Commission itself will maintain its cooperation will Iran,” Juncker told a news conference after a meeting of EU leaders.

Solidarity Busted Already

French President Emmanuel Macron ruled out on Thursday any trade war with the United States over its withdrawal from the Iranian nuclear deal as a wave of European companies quit business with Tehran, fearing the global reach of U.S. sanctions.

Macron acknowledged the predicament of firms wanting to trade with Iran or invest there, especially multinationals with close business ties to the United States. But he made clear bigger matters were at stake.

“We won’t start a strategic trade war against the U.S. about Iran,” he said on arriving for a second day of a European Union summit in Bulgaria. “We’re not going to take counter-sanctions against U.S. companies, it wouldn’t make sense.”

“All European Union member states are still backing this agreement, despite the fact the United States has decided not to, and we will continue talks with the United States,” German Chancellor Angela Merkel told reporters at the EU summit.

Leave a comment

Posted in Foreign Policy, Geopolitics, Governments

Tagged , , ,

EU Launches Rebellion Against Trump’s Iran Sanctions, Bans European Companies From Complying, by Tyler Durden

Posted on May 18, 2018 | 1 comment

If this sticks, it would mark a rare show of spunk by the EU in its relations with the US. From Tyler Durden at zerohedge.com:

Following our discussion of Europe’s angry response to Trump’s unilateral Iran sanctions, in which European Union budget commissioner, Guenther Oettinger made it clear that Europe will not be viewed as a vassal state of the US, stating that “Trump despises weaklings. If we back down step by step, if we acquiesce, if we become a kind of junior partner of the US then we are lost”, moments ago Reuters reported that the European Commission is set to launch tomorrow the process of activating a law that bans European companies from complying with U.S. sanctions against Iran and does not recognise any court rulings that enforce American penalties.

“As the European Commission we have the duty to protect European companies. We now need to act and this is why we are launching the process of to activate the ‘blocking statute’ from 1996. We will do that tomorrow morning at 1030,” European Commission President Jean-Claude Juncker said.

Speaking at news conference after a meeting of EU leaders in Bulgaria, Juncker added that he “also decided to allow the European Investment Bank to facilitate European companies’ investment in Iran. The Commission itself will maintain its cooperation will Iran.”

Europe’s hardline position will infuriate Trump, as Brussels effectively nullifying US sanctions will prompt a violent outburst from Trump, who needs Europe on his side for US sanctions of Iran to have any chance of succeeding.

Perhaps sensing what is coming, French President Emmanuel Macron took a slightly softer tone, and said that the French defense of Iran nuclear accord is based on concerns about security and stability, not commerce, and that the deal should be supplemented and it is necessary to continue negotiations, including on missile program.

The French president said that “the European Union decided to preserve the nuclear deal and defend EU companies” adding that “our main interest in Iran is not in trade, but in ensuring stability in the region, at the same time, we will not become an ally of Iran against the US.”

To continue reading: EU Launches Rebellion Against Trump’s Iran Sanctions, Bans European Companies From Complying

1 Comment

Posted in Business, Foreign Policy, Geopolitics, Governments, Trade

Tagged , , , , ,