Cracks Are Starting To Appear In Europe: ‘Austerity’ Ignites Masses In Greece, Norway Faces Liquidity Shock in Record Redemption, The Sustainability of Italian Public Finances Is In jeopardy, And Europe’s Rescue Strategy Could Start To Unravel as Italy’s Voters Reject Conditions


The Italian economy would not find their way out of the recession, according to the pessimistic assessment by Lars Feld: “The sustainability of Italian public finances is in jeopardy. The euro crisis will therefore return shortly with a vengeance.”

Apparently, the Italians were not ready to move on the path of reform that has been taken by Mr. Mario Monti, Field said.
“You can not expect that Italy’s European partners or the ECB will stabilize the Italian economy, when its people are not ready for reform.”

And making sure Feld is not alone, he was joined by Anton Boerner, head of Germany’s BGA exporters’ association, who in turn said Italy must reform tax, labor, judicial system or risk “irreparable damage” of euro. Finally, Boerner says if Italy not willing to reform, “we have to think about how to deal with a modified eurozone.”

What exactly a “modified” eurozone means we don’t know. We will, however, surely find out soon enough.


 An analyst says the European Union members will not reach an agreement on the bloc’s next seven-year budget, paving the way for its breakup, Press TV reports.

The usually reserved waitress at our favorite Greek-owned Sunday breakfast place approached us in dismay. Her daughter and son-in-law were escaping Greece for the US. Even middle class professionals were finding themselves digging in the garbage for food to eat, she said. You cannot imagine just how bad it is in Greece, she told us, with tears in her usually stoic eyes.

What has happened in Greece is as Ryan McMacken quotes Mark Thornton in a recent LRC blog, about what passes in popular parlance as “austerity”: “The…idea of raising taxes on individuals to pay off international banksters…[which] is bad economics and is not real austerity.”…

Norway’s bond haven is about to become a lot smaller.

The government is preparing to repay a record 66.5 billion kroner ($11.8 billion) in 6.5 percent bonds maturing May 15, which is more than the top-rated nation has left to sell of its planned 70 billion kroner in issuance this year.

The redemption threatens to trigger an outflow of funds as foreign investors balk at the loss of liquidity, driving up existing debt prices and weakening the krone, according to analysts at Nordea Bank AB and Danske Bank A/S. Offshore investors own almost 60 percent of the maturing bonds, or about 38 billion kroner, Nordea estimates.

“The amount involved means that this flow could have a substantial market impact,” said Gaute Langeland, chief analyst at Nordea Markets in Oslo.
…

“…When we’re moving into a triple dip recession all around, when top of the agenda for most of the countries is austerity measures, budget cuts and trying to pay off the national debt, the likely of getting people to agree to a trillion stimulus for the European Union is highly unlikely,” said Simon Dixon, the CEO of Bank to the Future.com.

The big rally in European risk assets like stocks took a breather late last week.

Citi strategist Robert Crossley is watching flows in sovereign bond markets, and he warns that problems are surfacing in Europe.

In a note to clients titled “Cracks starting to appear in Europe,” Crossley looks at demand for European sovereign debt – which just turned negative for the first time in three months.

Although the drop in demand has been led by a retreat from safe-haven investments in “core” sovereign debt – like that of Germany – the issue is where the money has been going.

Certain sovereign debt markets in the euro periphery – Spain, for one – have been the big winners. Demand for the periphery remains positive, notes Crossley, but that could change pretty quickly:
Although demand for peripherals has fallen, like the core, it remains positive. It is this cumulative yield-seeking positioning that concerns us in the current environment where the risk-on mood is turning and investors are reassessing the risk-reward of risk positions with the wash-out of carry trades in short-dated EUR swap forwards, a strengthening FX rate, and risks surrounding comments coming from the forthcoming ECB meeting.
Sure enough, there is one market in particular that has Citi particularly wary: Spanish sovereign debt.


Bank bailouts in the Eurozone, like bank bailouts elsewhere, have made owners of otherwise worthless bank debt whole through a circuitous process where, in the end, taxpayers transferred their money to investors. Even in Greece, investors were coddled. Even Proton Bank that had siphoned off $1 billion in a scheme of fraud, embezzlement, and money laundering was bailed out at taxpayer expense [European Bailout Fund For Greek Money Laundering And Fraud].

By contrast, private-sector holders of Greek government debt, such as hedge funds who’d bought this crap for cents on the euro, got ugly haircuts of over 70%. Public-sector holders, like the ECB, got off scot-free. It wasn’t fair. But fairness had nothing to do with it. These were bailouts! That’s how it was done. Until now.
SNS Reaal, fourth largest bank and insurance group in the Netherlands, cratering under a huge load of rotting real-estate loans, was bailed out on February 1, after already having been bailed out in 2008, and nationalized with a €10-billion package.

A collapse and bankruptcy “would have unacceptably large and undesirable consequences,”explained Dutch Finance Minister Jeroen Dijsselbloem, confirming that bank bailouts would be the norm in the Eurozone. Only question: to what extent would taxpayers be sacrificed? In the SNS bailout, all depositors were made whole. But stockholders were wiped out. And so were holders of junior debt!


The Italian election has produced a predictably shambolic outcome, threatening a decisive new phase in the eurozone debt crisis.


Italy’s electoral earthquake is “a catastrophe for the euro and the European Union”, according to Luxembourg’s foreign minister, Jean Asselborn.

According to various media outlets in Italy, it has been reported that they have called the emergency meeting in Rome to discuss the economic situations in Greece, Spain and Italy. Could one of these three debt laden countries be about to collapse?


The world order has changed in the course of the financial crisis and with it, enhanced the consolidation of a new arena of world politics in which superpowers somewhat urgently seem to hunt for new allies to rescue their well-being, says Gabriele Suder.

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Italian prosecutors ordered seizure of €40MM in funds from banks, trustees on suspicion of fraud in connection with Monte Paschi – RTRS
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BofA technician says Italian 10Y yield “appears likely to climb to 5.18%”
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European Capex Boom Hopes May Be Misplaced, S&P Says. Replace European with [ANY COUNTRY]
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EURUSD Plunges As Draghi Fears Deflation Risks
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GERMAN ECONOMY SHRANK 0.6% IN 4Q VS EST. 0.5% CONTRACTION
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FRENCH ECONOMY CONTRACTS 0.3% IN FOURTH QUARTER

Thousands of striking workers of Spanish flag-carrier Iberia protested noisily in Madrid Wednesday, furious at management’s plans to cut 3,800 jobs following its merger with British Airways.
German airline Lufthansa made almost 1 billion euros in profit last year but said Wednesday it would cut 700 jobs and scrap its 2012 shareholders dividend in a bid to slash costs.
Automotive News Europe reports new vehicle sales in the EU have hit a 23-year low after registrations plunged 8.5 percent last month.
Is the financial collapse of Italy going to be the final blow that breaks the back of Europe financially?  Most people don’t realize this, but Italy is actually the third largest debtor in the entire world after the United States and Japan.  Italy currently has a debt to GDP ratio of more than 120 percent, and Italy has a bigger national debt than anyone else in Europe does.  That is why it is such a big deal that Italian voters have just overwhelmingly rejected austerity.  The political parties led by anti-austerity candidates Silvio Berlusconi and Beppe Grillo did far better than anticipated.  When you combine their totals, they got more than 50 percent of the vote.  Italian voters have seen what austerity has done to Greece and Spain and they want no part of it.  Unfortunately for Italian voters, it has been the promise of austerity that has kept the Italian financial system stable in recent months.  Now that Italian voters have clearly rejected austerity, investors are fearing that austerity programs all over Europe may start falling apart.  This is creating quite a bit of panic in European financial markets right now.  On Tuesday, Italian stocks had their worst day in 10 months, Italian bond yields rose by the most that we have seen in 19 months, and the stocks of the two largest banks in Italy both fell by more than 8 percent.  Italy is already experiencing its fourth recession since 2001, and unemployment has been steadily rising.  If Italy is now “ungovernable”, as many are saying, then what does that mean for the future of Italy?  Will Italy be the spark that sets off financial armageddon in Europe?
Source: http://investmentwatchblog.com