Italy’s second largest Bank, Mediobanca, has warned the nation could need a rescue deal in the next six months. The economic crisis within Italy is deepening, and even large companies are feeling the effects of the credit crunch in the country.
Italy’s €2.1 trillion debt is the third largest sovereign debt in the world after the US and Japan.
Any stress in the markets could threaten to reignite the eurozone crisis once more.
Read More: The Telegraph
The small European island nation of Cyprus faces bankruptcy if they do not receive a €10 billion bailout from Brussels. However, part of the bailout deal under discussion will see a one off levy on all bank savings. The deal will see small saving up to €100,000 taxed at 6%, and deposits over €100,000 taxed at nearly 10%.
The proposals have angered Cypriots who feel betrayed by Brussels and their government. Many see the levy as a way for the eurozone to access the vast deposits in Cyprus made by wealthy Russians. As well as the proposed bank account tax Cyprus also faces the same strict spending cuts and tax hikes Greece has experienced as part of their bail-out deal.
The Cypriot government was due to vote on the bail-out package today, but the vote has been postponed until tomorrow, over fears the government would lose the vote.
The uncertainty caused by the bailout deal has seen markets slide across Europe and America and many have argued that a tax on savings will see investors pulling their money from Europe in general.
Banks in Cyprus will remain closed until Wednesday, over fears of a run on the banks, as people have been withdrawing as much as they can from ATM’S over the last 24 hours.
The Italian elections have left Italy with a result which may render the country ungovernable, and could reignite the eurozone debt crisis. The lower house was won by Pier Luigi Bersani’s centre-left bloc; but the upper house, the Senate, was taken by the centre-right, conservative block, led by Silvio Berlusconi. Protest party, Five Star, led by a popular Italian comedian, Beppe Grillo, came third.
Mr Bersani’s centre-left bloc had won 29.57% of the vote for the lower house (Chamber of Deputies) to 29.15% for Mr Berlusconi’s bloc.
Mr Grillo’s Five Star Movement had 25.54% and the centre left led by Mario Monti 10.57%.
Control of both upper and lower houses is required to govern.
Grillio campaigned to return to the Lira and Berlusconi campaigned against EU imposed austerity, calling for tax cuts to stimulate Italy’s ailing economy.
Bersani has pledged to stay the course of the EU crisis, wanting to work with Europe. However, he will find it hard to form a workable coalition.
As the results came in bond markets across Europe began to fall. Italy is the third biggest economy in the eurozone and has the power to bring the euro down.
Even if Bersani can form a government he cannot ignore the anti-austerity, anti-eurozone message from the election. Even within his own party there are deep divisions over Europe, and his party will want
The European Union has agreed the terms of a deal which will see centralized supervision of the eurozone banks.
The deal is expected to come into effect in March 2014, and will see the European Central Bank (ECB) acting as supervisor-in-chief of the eurozone banks. The deal will affect financial institutions with assets greater than 30bn euros ($39bn; £24bn) or with 20% of national GDP.
Around 80% of Europe’s banking transactions are conducted through the City of London, though UK banks will not be included in the deal. UK Chancellor George Osborne has stressed that he has worked hard to ensure the deal will protect the City.
The deal is a crucial step towards a full banking union. This is believed by many to be necessary and inevitable, in order to solve the eurozone crisis.
The deal has been reached ahead of the next EU summit, which is about to begin.
The rating’s agency Moody’s has stripped France of it’s AAA credit rating. The agency cited France’s continued exposure to the eurozone debt crisis, but also said the inflexible labour market and low levels of innovation were seriously hindering France’s growth prospects.
In a statement Moody’s said: “Further shocks to sovereign and bank credit markets would further undermine financial and economic stability in France as well as in other euro area countries.
“The impact of such shocks would be expected to be felt disproportionately by more highly indebted governments such as France.”
The move is a serious blow to the socialist governments economic policies. Francois Hollande’s government is trying to push through labour reforms, though some believe they do not go far enough.
This week leaders from across Europe have been meeting to discuss the continued crisis across the eurozone. The talks have centred around increasing integration of the eurozone banking sector. The talks have been hailed as a success by French President Francois Hollande, and other European leaders, after agreement was reached as to increasing integration of the banking system. The Single Supervisory Mechanism (SSM) will be put it place by January 1st 2013, and will make it possible for the new European Stability Mechanism to be used recapitalise European banks, without increasing sovereign debt. The SSM is thought to be the first step towards a full banking union across the eurozone.
This is particularly important for Spain, who’s banks are still a major cause for concern, and many hope they will be able to hold out until the SSM is in place.
Germany has voiced concerns over the speed of banking integration, warning that the road map for the setting up of the SSM may not be long enough, due to the complex legal issues that have to be worked through.
The UK is also uneasy about the prospect of a full banking union within the eurozone. Although Britain are not part of the euro, the City of London by far has the largest banking sector in Europe, and it is feared that in any future decisions about financial regulation the UK will be outvoted.
However, the Summit was overshadowed by the continuing chaos in Greece, with fresh anti-austerity protests, in which a man died. Greece could run out of money by the end of November. The EU are awaiting a key report from the “troika” of international lenders – the ECB, European Commission and International Monetary Fund. The findings of the report will be key in deciding whether or not to give Greece any more money.
Angela Merkel recoils from Greek showdown on Spain contagion fears – Telegraph.
The German Chancellor Angela Merkel has been visiting Athens today, for the first time in three years. She comes at a time when Greece is looking for the next €31.5bn tranche of aid. Without the aid Greece will run out of money by the end of November. Recent figures show Greece has been in recession for 5 years, it’s economy has shrunk by 22%, and youth unemployment is currently at 55%.
Mrs Merkel was met with angry protestors and required 6,000 police officers to protect her. Greeks, and the Greek media, greeted her with Nazi insults.
Both the EU and IMF have been insistent that Greece steps up austerity measures in order to receive the money. However, Mrs Merkel came to Athens with a softer tone than Athens has previously heard.
There has been mounting pressure on Germany not to allow Greece to default, thus forcing her out of the eurozone. If Greece were to exit, then Spain would likely follow, and the euro would break up. Also tougher austerity measures could result in the collapse of the pro-Europe ruling coalition. If the Greek government collapses it would likely be replaced by either a far-right or far-left alternative. That could destabilise the entire region, affecting the Balkan region and Turkey, something no one wants to see.
It is likely Greece will receive the next instalment of money, however the €31.5bn will only keep Greece afloat a few more months. And as time passes both Spain and Portugal are edging closer to requiring more bailouts.
George Soros: Germany should back growth or leave euro – Telegraph.
As the debt crisis continues in Europe, many of the same arguments are being made within the eurozone countries as to the best way forward. Italy and Spain are both edging closer to needing a bailout; and it will not be long before Greece will be requiring another bailout package.
However, the arguments between growth and austerity continue. Germany are reluctant to continue to pay the bills, without the proper checks in place. But will Spain and Italy be prepared to sign away political autonomy?
Now George Soros has said “Germany must back growth or leave the euro”. To back growth means Germany continues to bailout and lend more money – increasing indebtedness. Germany has made it clear it desires growth, but not by creating more debt.
However, if Germany were to leave the euro it would enable the Euro to devalue and ease the economic pain in the struggling nations.
Finland prepares for break-up of eurozone – Telegraph.
Finland are actively drawing up plans for the break up of the Eurozone. Finland’s parliament are reluctant to commit to endless bail-outs, or see a fiscal union thrust upon them.
In accordance with the Finnish laws, any bailouts Finland is part of have to be passed by their national parliament. Therefore, what the Finnish decide has consequences for the whole of Europe.
Spanish bail-out impossible’, experts warn – Telegraph.
As the economic situation in Spain worsens by the day, many think it is only a matter of time before Spain will need a full bail-out.
However, economists looking at Spain’s borrowing needs, their crippled banking sector, and their ailing economy now believe the required bail-out would be more than the eurozone could manage.
Head of economic research at Open Europe, believe Spain will require around €650bn.
The situation may force Germany into finally deciding whether to work towards the break up of the eurozone, or the pooling of all the eurozone sovereign debt. The pooling of the debt would lead to a full economic union, and inevitably to much stronger political ties. With Greece likely to require yet another bailout before the end of the year, and the fall out from the current situation nudging Italy ever closer to the economic death spiral, it is only a matter of time before Germany will have to make some very difficult choices. The question is will the people of Europe accept the outcome, whatever that may be?
EU leaders seek to avert euro collapse at key summit – EUROZONE – FRANCE 24.
As the European Union summit begins, the ongoing crisis will dominate talks. Ahead of the summit Angela Merkel has already ruled out the introduction of Eurobonds, saying that the appropriate measures are not in place for such a move.
Europe appears more divided than ever, with Spain and Italy calling for EU help to bring down their high borrowing costs; and Angela Merkel dismissing their calls for assistance.
The German’s are worried at French calls for debt polling, instead of focusing of debt reduction. Angela Merkel said, “I fear that at the summit we will talk too much about all these ideas for joint liability and too little about improved controls and structural measures,”
With the Spanish banks now in line for a bail-out of €100 billion you would think the markets would be delighted. That faith and confidence would return, that Spain’s salvation from economic oblivion has been averted… hip hip hooray!
Not so fast… the markets have not reacted with joy and happiness. The markets may know more about the present deal than the politicians would like them to.
The fact is Spain’s economic woes require much more than €100 billion. If Nigel Farage of the UK Independence Party (UKIP), and Member of the European Parliament, is to be believed, Spain requires € 400 billion. Watch the part of Farage’s speech to the European Parliament, he explains the problem of the Spanish bailout perfectly.
What is more, the bailout may have averted the bankruptcy of Spain’s banking sector in the short term, but it still has not solved the fundamental problems of the Eurozone. Sadly for the countries of the Eurozone, the only way out of their problems is for a polling of sovereign debt and far greater economic and political ties. This would mean a common economic policy, and loss of national sovereignty.
As George Soros warned last week the solution to the problems will very probably see Europe looking like a German Empire, Mr Soros said in his speech in Italy, “It would be a German empire with the periphery as the hinterland,” Well if Germany is to shoulder the debt of it’s neighbours, she will want to call the shots, and determine the economic path of the Eurozone.
The sad irony is that the EU was established in the wake of the second world war , for the precise reason of stopping German might from taking control of Europe- something which tore Europe apart twice in the 20th century. An important lesson from history that Brussels would do well to remember: attempts in Europe’s history to unite the continent under one rule of government has caused wars throughout the centuries: from Hitler to Napolian Bonaparte.
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Markets continue to tumble across the globe, as the Euro crisis deepens. Since the election in Greece, no new coalition government has been formed, so no agreement reached on the austerity cuts to satisfy agreements with euro partners. The German Chancellor has now told Greece, if they do not stick to their bailout agreements, they will be expelled from the Euro.
In Greece 70% voted for parties against the EU-IMF imposed austerity, but 69% of Greeks want to remain in the Euro. A leaked report has shown that Germany are drawing up plans for a Greek exit from the Euro.
But this has significant dangers: