What's next for Italy

Italy is facing big problems due to its enormous public debt and the unaccountability of its government.

The italian government denied the economic crisis since 2008 and did not take any serious action to face it.
Now the financial market needs actions from the italian government and wants the reduction of the public debt actually at the 118,4% of the GDP.

Yesterday the IMF offered a credit line of 44bn $ but it seems that the italian government has refused it.

Let's analyze the schedule of the public debt issue up to October 2012, as reported by the Dipartimento del Tesoro. (see table below)

Up to the end of 2011 Italy does not need to refinance a big amount of debt, but from February 2012 to April 2012 it has to refinance about 134 bn Euro .  

Italy could not refinance 134bn Euro of debt at the current market interests rate.
In my opinion the IMF help is unavoidable.

Collapsing Italy will collapse the Euro.

About the ECB rates cut

On 3rd November 2011 the board of directors cuts the interest rate for the main refinancing operations, from 1,50% to 1,25%.  

This is the first monetary policy decision taken since the change of the president.

Clearly the ECB cuts the rate to help the distressed country, as Italy, to issue its debt at a lower rate, but the market did not react as expected and the price of the italian debt continues to drop day by day (then the rates  rise).

The economy does not need a 250bp rate cut to recover. A 1,25% rate level is just a very low level and an economy that needs a lower level is an economy without hopes to recovery. The Japanese lesson continues to be an unlearned. The same for the american one where the FED holds the FED funds rate to 0%-0,25% since 16 Dec.2008 without improvement for the REAL economy and the jobless rate.

The cut is useless in the short term and it could be dangerous in the long term due to the inflation rate (October 2011 = 3,0%).
The ECB justified the cut because estimates a lower CPI in the next months. Don't forget that the ECB and the FED missed all the estimate since 2007.
These central banks are no longer accountable because they are at the service of the big financial firms.

The European CPI is well above the 2% warning level, then the ECB is acting against the treaty provisions.

Fresh money from the ECB

Tomorrow is an important date for the ECB. Two operations will came to maturity:.

The first one is the MRO, reference 20100117, amount 179,69410 bn Euro.
The second one is a LTRO, reference 20100118, amount 63,61772 bn Euro.
The ECB informs us, through its website, that the MRO will be renewed for the amount of 197,2832 bn Euro, and the LTRO  will be renewed for the amount of 68,06642 bn Euro.

The liquidity in the monetary system, due to the MROs, is at its high since 21st July 2010.
The liquidity in the monetary system, due to the LTROs, is at its high since 10th November 2010.

It seems that the banks need money in the short term. They won't to run out of cash during the Xmas holidays and the end of the year.

Since tomorrow, the banks have 22,037 bn Euro of EASY MONEY to count on, for their affairs.

Key dates for Italian debt

The month of December 2010 will be very important for the italian politics and finance.
Probably, on Decembre 14th 2010, one or both the branches of the Parliament will deny the trust vote to the Government and in the following days there will be a new technical Government.

I expect that the italian public debt will come under attack even if this political crisis does not changes the italian finances. The attacks is not because the maket likes this Government.


The current Government, as certified by Eurostat, has taken ZERO actions to reduce the debt, grown from 1.763,559 ml Euro (Dec/2009) to 1.844,817 ml Euro (Sep/2010).
The key figures of the italian balance will be the same as today also with a new government.
THE MARKET HATES UNCERTAINTY, AND PARTICULARLY IN THIS DAYS LIKES TO AMLPLIFY THE INTERNAL COUNTRY PROBLEMS.

In the last 15 days of December 2010 there are not big placement of italian debt.
The key dates are the 13th and the 23rd December 2010 when will be placed two BOT.
I expect that the new emissions will replace the three BOT that will came to maturity on 15th and 31st December for a total amount of 17.175 ml Euro.

Also the month of January 2011 will not be a key month for the italian debt.
The "Dipartimento del tesoro" reports that in January 2011 will come to maturity BOT for an amount of 17.402 ml Euro. No other bonds will come to maturity in January 2011.

February 2011 will be the first  critical month.
The "Dipartimento del tesoro" reports that bonds for a nominal value of 38.156 ml Euro will come to maturity and March will be event worse with 47.788 ml Euro.

In September 2011 will come to maturity more than 60 bn Euro of Italian Treasury Bond.

I think that until the end of January 2011 there will be no major problem for Italy, maybe there will be minor problem due to speculation but since February 2011 Italy could face major a critical situation.

As reported by "Banca d'Italia", the 44% of the italian debt is owed "out of Italy" and the 56% is owed by italian financial istitution.
Italian people has the HIGHEST PRIVATE SAVINGS RATE IN THE WORLD that in 2007 was evaluated about 750 bn Euro, about the 50% of the current public debt. The private savings does not include stocks, real estates, etc...

The italian public debt

Today, November 29th 2010 was not a great day for the stock and the bonds market in EU.

In particular, the Italian government bonds (BOT, BTp, CCT, CTZ) has dropped a lot but the reason is not clear.
Today Italy has successfully completed the placement of two major tranches of its debt.
The rates were in line with the market ones and all the debt was allocated.

Maybe the speculation is trying to attack Italy ? Who knows...

Let me know that Italy is not Ireland, neither Greece or Portugal.

Italy has an HUGE debt.
It's Debt/GDP at the end of 2009 was at 116% and probably at the end of the current year will be worst.
If Italy comes under the same kind of attacks that hit Greece and Ireland, the EU will face the mother of all the crisis. There will be no EU fund ready to bailout Italy and this could sign the end of the Euro.

Luckly the italian government has no more long term debt to finance until the end of the 2010, and in 2011 will have to refinance a total debt lower that the one re-financed during 2010.

High rates for Ireland bailout ?

The EU, ECB and the IMF have decided to bailout Ireland.

The total amount of the bailout is 85bn Euro.  
50bn Euro are for the public deficit, 35bn are for the banks, but what is the bailout price for Ireland ?

The EU will lend money at 6%.
The IMF will lend money at 3,4%


The rates look very high for a bailout plan.
If we want to help someone in trouble with its debts, we should lend him money at a low rates, isn't it ?
Probably Irish Government will find rates doubled to finance its debt on the market but this is not a good reason to lend them money at 6% when the ECB rates on the main refinancing operations is at 1%.

Maybe have we forgotten that over two years ago, Minister for Finance Brian Lenihan guaranteed all of the deposits and other liabilities of all of the Irish banks, and the the problem we are facing nowadays are sons of that intervention ?

Maybe we forgot that the banks, all the EU banks, since the Lehman Brother collapse, are refinancing themselves directly at ECB through the LTROs and the MROs...for unlimited amount and at 1% fixed rate.

Can somebody explain me why the banks should pay 1% for liquidity and a EU member State should pay 6%, cut the public employees wages, cut the welfare state and so on ?

This EU is just a bank and a money matter. Money comes firts than people.
It's time to change.

The longer term refinancing operations of the ECB

One of the main focuses of this blog is the tracking of the ECB's LTROs.

On November 25th 2010, one LTRO becomes to maturity.

The LTRO that comes to maturity has the following characteristics:
Start date: August 26th 2010
Duration: 91 days
Amount allotted: 19083,85 million Euros.



It will be replaced by the following one:
Start date: November 25th 2010
Duration: 91 days
Amount allotted: 38210,74 million Euros.

 The ECB liquidity in circulation due to LTROs is 345249,55 million Euros.

Remember that on May 27th 2010 the ECB liquidity in circulation due to LTRO operation was 701793,30 million Euros.

Maybe something is going better, for the liquidity market, since May 2010 re the banks does not need so much liquidity because the real economy does not need it. Who knows...

The PIIGS problems does not allow to the ECB to proceed quickly to tighten its monetary policy.

The ECB can't raise the interest rate and shall be very cautios to provide to the banks all the liquidity they needs, through the MROs and the LTROs...obviously at the fixed rate of 1%.

One of the major signals we have to waiting fore, to be sure that the crisis is really over, is the return to the auction system for the assignement of the funds through the MROs and the LTROs.