September 14th, 2011
Econintersect: Italy moved closer to staying out of the penalty box that has trapped Greece. According to Yahoo News (Reuters article by James Mackenzie) Italy’s lower house of parliament will likely pass the center-right government's austerity plan on Wednesday (Sept. 14). Italy is moving toward a package that includes 54 billion euro ($73.80 billion) mix of tax hikes and spending cuts aimed at balancing the budget by 2013. The ECB (European Central Bank) has been pressuring Italy to take action. Italy is the EU’s third largest economy and the monetary union probably could not survive a default by Rome. Italy’s debt to GDP ratio (120%) is second in size only to Greece. Follow up:
Follow up:PIMCO CEO Mohamed A. El-Erian said Tuesday that organizations such as the IMF need to take action to support European banks at risk of going under in the region’s sovereign debt crisis. From Bloomberg:
“We’re getting close to a full-blown banking crisis in Europe,” El-Erian, Pimco’s chief executive officer and co-chief investment officer, said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “We are in a synchronized global slowdown. There’s very little confidence in economic policy making both in Europe and the U.S.”
Reuters reported Tuesday on a long list of news items related to the crisis. The list included (with updates by GEI News):
- German Chancellor Angela Merkel and French President Nicolas Sarkozy plans to make a joint statement may have been cancelled as no statement was made public as of midnight going into Wednesday.
- Merkel said Europe was doing everything in its power to prevent Greece from defaulting on its debt and cautioned that an exit from the euro zone would unleash "domino effects" and should be avoided at all costs.
- Austrian Economy Minister Reinhold Mitterlehner said all possible scenarios that could solve Greece's debt woes must be considered.
- U.S. President Barack Obama demanded decisive action from euro zone leaders, saying Greece is the immediate concern but the biggest fear is that Spain and Italy succumb.
- Italian bonds had a difficult auction Tuesday with the yield rising to a new record 5.6% yield for the 5-year bond.
- European bank stocks declined sharply again, with Reuters specifically mentioning BNP Paribas and Societe Generale, France's two largest publicly traded banks.
- Italian officials met Chinese counterparts last week. Reports say they asked Beijing to buy Italy's bonds. Analysts are skeptical. Similar talk has swirled before with reference to the bonds of Greece, Portugal and Spain with little end result.
GEI News reported yesterday on the Italy-China negotiations.
Estimates of the banking exposures to troubled sovereign debt for major countries were published Tuesday by former IMF economist Dr. Elliott Morss, writing at GEI Opinion.
GEI Associate Ghamal de la Guardia contributed to this article.