December 10 2012

Italian prime minister’s promise to step aside brings fresh political uncertainty to the eurozone. Italy’s Parliament could be dissolved before Christmas. Bond yields jump. Italian stock market down 2.3%. Ireland continues to look to EU for financial aid…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Mario Monti’s resignation pledge spooks markets” was written by Graeme Wearden, for guardian.co.uk on Monday 10th December 2012 13.42 UTC

1.42pm:

Ireland still looking for bailout help

Over in Dublin, the head of Ireland’s Central Bank remains optimistic that Europe will give Ireland a much-needed hand, and cut the cost of propping up its debt ridden banks.

Henry McDonald, our Ireland correspondent, reports:

Patrick Honohan said he hoped a deal could be done ahead of the next repayment on promissory notes used to recapitalise the now nationalised Anglo Irish Bank.

“The planned repayment of the European Central Bank’s aid comes at the wrong time. The government is trying to win back trust on the debt market, and current repayment plan is complicating this,” Honohan told the Frankfurter Allgemeine Zeitung in an interview published on Saturday.

“Of course the money will be paid, but it should happen over a longer time frame. That would make much more sense given the wider aid programme for Ireland. We need more time,” he added.

The Taoiseach, Enda Kenny, has staked his reputation on obtaining a deal that would lessen the burden of Ireland’s huge bank debts. Opposition politicians continue to claim that, contrary to Kenny’s insistence that the EU will offer Ireland assistance, no such deal is in the offing.

If you’re new to the long-running issue of Ireland’s promissory notes, economist Karl Whelan’s blog has extensive coverage of how Dublin ended up paying such a high price for rescuing its banks from insolvency.

1.06pm:

Herman Van Rompuy ended his speech with a nod to America and president John F. Kennedy’s famous visit to Berlin in 1963.

Van Rompuy declared:

Ich bin ein Europaer.

Apparently it went down rather well with the German contingent:

1.00pm:

EU receives Peace Prize

The European Union has just taken hold of the Nobel Peace Prize, at a ceremony in Oslo.

European Council president Herman Van Rompuy is now giving a speech, saying the EU has delivered decades of peace after the ravages of the second world war.

Van Rompuy explained that his own father had narrowly escaped death in 1940, and that “boring politics” was a small price to pay to avoid a return to conflict.

His team are tweeting other key points:

Our Europe editor, Ian Traynor, is at the scene, and comments:

12.49pm:

We should remember that Silvio Berlusconi is not the front-runner to replace Mario Monti.

Instead, the centre-left Democratic Party is leading in the polls. It’s new leader, Pier Luigi Bersani, has already pledged to continue Monti’s work on economic reform and not dismantle the measures introduced in 2012.

In this interview with the Wall Street Journal, Bersani said:

European policy cannot be focused exclusively on austerity… all of this has raised a real social problem in Italy and Europe…I am quite sure that next year, the situation in Europe will foster a discussion and a revisiting of economic and fiscal policies. Not to overhaul them, but to inject them with some corrections aimed at greater flexibility.

This will be Italy’s position…but we won’t necessarily be the first ones to raise our hands.

The WSJ also reports that Bersani, in his youth, led a strike of altar boys to protest his local church’s use of donation money. Quite the antidote to Silvio….

12.36pm:

Germany isn’t immune to the slowdown in Europe’s car industry – Opel has decided to stop car production at its plant in Bochum in 2016 after the manufacturing of its Zafira model ends.

My colleague Nadine Schimroszik explains:

The closure had been long expected and could improve the prospects for Vauxhall’s plant in Ellesmere Port.

In June, the General Motors’ division announced that no successor to the current Zafira is planned for Bochum in view of the shrinking European car market and overcapacity in the automotive industry. About 3,000 people work at the Bochum plant. Opel announced that it plans to offer jobs at the plant beyond 2016 and that this could be expanded.

GM, which owns the Opel and Vauxhall brands, wants to reduce capacity in Europe that has been saddled with too many factories in the wake of the credit crunch. Other car producers face the same problems. In October, Ford had decided to close its plants in Southampton and Dagenham.

12.28pm:

Berlusconi’s political strategy explained

Mario Monti’s political future may be uncertain, but Silvio Berlusconi’s tactics are becoming rapidly clearer – as John Hooper explains:

Berlusconi will renew his alliance with the Northern League and, at the same time, try to split Italy’s biggest centre-left movement, the Democratic Party (PD).

Nabbed by reporters as he emerged from sharing a pizza with members of his family in Milan on Sunday night, Berlusconi took the link-up with the League as a done deal: “I’ve already talked to [the League’s founder, Umberto] Bossi and [its current leader, Roberto] Maroni,” he said.

In characteristically swaggering fashion, the 76-year-old Berlusconi boasted that he needed no more than a month to beat the leaders of the PD and the Christian Democrat Union of the Centre because “I am younger politically”. And he stretched out a hand to Matteo Renzi, the loser in the primary elections held by the PD last month.

If the Blairite Renzi wanted to switch sides, said Berlusconi, “he should know I always have the door open for liberals”.

Renzi, though, has rebuffed the offer, without flying off the handle. John adds:

Renzi replied this morning: “Do shut it.” He was referring to the
door. Presumably.

12.11pm:

Gloomy news from the Netherlands, where the central bank has just slashed its economic forecasts.

Reuters reports that the Dutch central bank now expects the country’s GDP to contract by 0.6% during 2013 – not grow by 0.6% as previously forecast.

It also warned that the Dutch deficit will be 3.5% of GDP next year, which would mean missing Europe’s target of 3%.

The new government is already implementing billions of euros of spending cuts and tax rises to try and hit that deficit target. PM Mark Rutte must now decide whether to get even tougher (and risk an even deeper recession), or let the deficit target slide…..

11.58am:

Italy: what happens next?

Here, via Open Europe, is a timeline of how the political process in Italy could play out:

  • The budget law is due to be submitted to the plenary of the Italian Senate for approval on 18 December – although the calendar of works may be tweaked to speed up the process. Once Italian senators have given their green light, the bill will go back once again to the lower chamber for the formal final approval.
  • Therefore, it is fair to assume that Monti could resign and the Italian parliament could be dissolved before Christmas – or immediately after, at the latest.
  • Italian law establishes that the elections have to take place at least 45 days and no later than 70 days after parliament is dissolved. Hence, we are looking at either 17 or 24 February as possible dates – with the latter already mentioned by Berlusconi to reporters yesterday night.

That’s from this article, which predicts an election campaign dominated by the future of the eurozone crisis and austerity.

11.37am:

Bunga Bunga trial devs…

There has been drama in court in Milan this morning where the star witness in Silvio Berlusconi’s trial on vice charges failed to appear to testify.

John Hooper reports:

Karima el-Mahroug (aka “Ruby the heartstealer”) is alleged by the prosecution to have been paid for sex by Berlusconi when she was still only 17 years old.

Berlusconi’s lawyer, Niccolo Ghedini, told the court that el-Mahroug was abroad and that he was unable to reach her. The prosecutor, Ilda Boccassini, then openly accused Berlusconi of dragging out the trial for electoral reasons, prompting Ghedini to accuse her of slander.

Boccassini then asked the judges to drop el-Mahroug, who has always denied having sex with the former prime minister, from the witness list. The request is being considered as I write.

These sorts of shennanigans ought to work against Berlusconi. But the reverse is probably true: they give him that vital oxygen called publicity.

Meanwhile, Italian bonds continue to weaken – the yield on its 10-year bonds has now jumped to 4.87% this morning, up 0.35 percentage points.

11.29am:

Van Rompuy: Monti has been great PM

Herman Van Rompuy, president of the European Council, paid tribute to Monti this morning – and argued that his successor must continue the same economic reforms.

Speaking in Oslo ahead of the Nobel peace prize award, Van Rompuy said Monti had been a “great” prime minister, adding:

He restored confidence in Italy and Italy is a key player in the euro zone, so he was extremely helpful in keeping stability in the euro zone.

Mario Monti was a great prime minister of Italy and I hope that the policies that he put in place will continue after the elections. There is no alternative for sound public finances and a competitive economy. They are the only ways to fight recession and unemployment

There is no alternative for what Mr Monti is doing.

Van Rompuy has also tweeted a picture of the EU group in Oslo:

11.11am:

Monti’s resignation: Early reaction

Here’s some early reaction to the latest developments in Italy.

Gary Jenkins of Swordfish Research

I guess it wouldn’t be a proper crisis without a bit of Italian political turmoil…

The Italian political situation does neatly sum up one of the major problems that the Eurozone faces and it is particularly pertinent that it should all blow up just as European leaders are preparing to meet to discuss the roadmap for the euro area, specifically the powers to intervene in national budgets and the banking union. Mr Draghi put it very nicely at the recent ECB press conference when he said that one of the problems within Europe was that there had been a lack of trust between politicians of different Eurozone countries as some had strayed too far and too often from the fiscal discipline required by the economic and monetary union. He suggested that this trust was now largely repaired and thus it would be easier in the future to obtain agreement regarding the possibility of a closer union. That was of course before Mr Berlusconi announced his re-entry into front line politics…

Kit Juckes of Société Générale

The biggest threat to sentiment came from the announcement by Italy’s prime minister, Mario Monti that he will stand down once the 2013 Budget has been passed. This came in response to the loss of support from Silvio Berlusconi’s PdL party, and the prospect of a return by Mr Berlusconi to front-line politics. In part Mr Monti’s decision may be intended to avoid a longer period when the PdL’s decision not to support the government blocks policy and allow Mr. Berlusconi to rebuild support (the PdL’s poll standing is under 20% currently).

10.55am:

Bloomberg is reporting that Mario Monti will hold talks with German chancellor, Angela Merkel, later today.

The pair are in Oslo for the award of the Nobel Peace Prize to the European Union. Most EU leaders will be there, but not David Cameron – he’ll be giving a speech setting out his plan for a new relationship between Britain and the rest of Europe.

10.27am:

The disarray that could be caused by the premature fall of the Monti government is only beginning to emerge, our southern Europe editor John Hooper flags up:

La Repubblica this morning points to Decree 188, which is due in parliament on Wednesday but may now have to be scrapped. This would reduce the number of provinces in Italy from 86 to 51.

Since legislation has already gone through stripping the provinces of certain powers in anticipation of their extinction, the result – according to officials – would be “institutional chaos”.

Overnight in some parts of the country, no one would responsible for schools, roads and garbage collection.

10.23am:

The sell-off on Italy’s stock market has accelerated through the first two hours of trading.

The FTSE MIB is now down over 3.3%, having shed 519 points to 15179. The contagion has now reached Spain, where the IBEX is down 1.8%.

In London, the FTSE 100 is now down 18 points.

David Madden, market analyst at IG, commented:

Mr Monti, who has been in power for the last thirteen months, has not only pushed through the country’s austerity programme, but his pro-EU stance has helped bring stability to Italy’s borrowing cost. The voice of anti-austerity in Italy, Silvio Berlusconi, is tipped to make to return to politics. Traders are afraid he might re-gain popularity with his anti-Brussels rhetoric.

9.41am:

Italian cardinal backs Monti

A senior member of the Italian clergy has weighed in to the crisis this morning.

Cardinal Angelo Bagnasco (the elected leader of the Italian bishops) expressed strong support for Mario Monti, and gave Berlusconi a firm thumbs-down.

Our southern Europe editor, John Hooper, reports:

Arguably the most important development this morning in a country where the Roman Catholic church still wields considerable influence is an interview in Corriere della Sera with the head of the bishops’ conference, Cardinal Angelo Bagnasco, in which he gives a scarcely veiled endorsement to Mario Monti and an equally patent condemnation of Silvio Berlusconi.

As Monti ruminated on whether to run in the general election now expected in February, Cardinal Bagnasco said: “It would be a mistake in future not to take advantage of someone who has contributed in a rigorous and competent way to the credibility of our country”.

Using vigorous language for a cleric, he declared that the sacrifices the Monti government had asked of Italians, and which had often fallen on the most fragile elements in society, “cannot be left to go to the dogs”.

He never mentioned Berlusconi by name but, in an unmistakeable reference, said: “What leaves one dumbfounded is the irresponsibility of those who think of their own interests when the house is burning down”.

Strong stuff. But, as John adds….

Who would ever believe that the church had supported both of Berlusconi’s last governments because of their stance on issues such as in-vitro fertilisation and gay marriage?

9.30am:

New Italian industrial production data has been released, and it’s much worse than expected.

Italy’s industrial output fell by 1.1% in October compared with the previous month (analysts expected a drop of just 0.2%).

Italy is already in recession, with GDP falling 0.2% in the last quarter.

9.11am:

Analysts at M&G are concerned by the scale of this morning’s sell-off in Italian government debt:

9.01am:

Key event

Back to Italy, and this graph shows how the yield (cost of borrowing) on its 10-year bonds fell sharply at the start of 2012, in the early months of Mario Monti’s government.

And after a wobble in the summer, they had been easing steadily in recent weeks before Silvio Berlusconi pushed Italy into a new crisis (as Sony Kapoor of the Re-Define thinktank tweets):

8.45am:

Greece extends debt buyback deadline

There are also developments in Greece this morning. The government has announced that its offer to buy back its debt will be extended until noon GMT tomorrow.

The original deadline was 5pm last Friday. And despite saying that the offer (in which Athens pays up to 40% of the face value of its debt) had gone well, it is now giving “handouts” another opportunity to take part.

8.28am:

Another sign of jitters over Italy – the cost of insuring its debt against default has risen this morning. Italian credit default swaps are up 15 basis points at 268bp.

8.23am:

Trading in three Italian banks has just been temporarily halted after their shares dropped by around 5%, triggering automatic suspensions.

From Milan, @lemasabachthani reports:

8.12am:

Italian stock market slides

The Italian stock market is a sea of red this morning.

The main index, the FTSE MIB, has tumbled by 2.3% at the start of trading, shedding 356 points to 15343.

With Italian sovereign debt also being pummeled (see 7.56am), it’s an alarming start to the day.

8.09am:

Monti: I’m very concerned

Mario Monti has told Italian newspaper La Repubblica that he is very worried about the situation in Italy.

In an interview published this morning, Monti said:

If I had to …describe my feelings today, I would say that I am very concerned.

Asked about his own plans for the future, Monti replied “I don’t know”.

Speculation has been swirling that Monti – who was parachuted in as technocratic (unelected) PM just over a year ago – could play a part in the looming general election.

Until now the former EU commissioner has said he would not run for office.

7.56am:

Mario Monti’s resignation pledge unsettles markets

Good morning, and welcome to our rolling coverage of the eurozone financial crisis.

Mario Monti‘s pledge to resign as Italy’s prime minister is sending shivers through the financial markets already today.

Italian sovereign debt is being sold off in early trading, pushing up the yield (the measure of borrowing costs) sharply. The yield on Italian 10-year bonds has jumped to 4.79% already, from 4.54% on Friday night.

That’s a significant move (although still a long way from the “7% danger zone” where a country’s borrowing costs become unaffordable).

Spanish bonds are also falling in value as the political uncertainty in Italy reverberates across the eurozone periphery.

The trigger for the sell-off is Monti’s decision to resign following the loss of support from Silvio Berlusconi’s Freedom People party.

Monti declared over the weekend that he will tender his resignation as soon as the 2013 Italian budget has been approved by parliament.

As my colleague Tom Kington wrote from Rome:

In a pointed reference to Berlusconi’s previous government, Monti warned on Saturday that Italy needed to avoid becoming, once again, “the detonator that could blow up the eurozone”. When the Freedom People party withdrew parliamentary support from Monti on Thursday, the difference between German and Italian benchmark bonds rose by 30 points.

Berlusconi will now launch an aggressive election campaign as he seeks to build his party’s popularity back up from 15 per cent, which sees it far behind the centre-left Democratic party and in third place behind the Five Star movement led by comic Beppe Grillo.

I’ll be tracking reaction and latest developments in Italy through the day, along with other key events across the eurozone and the wider economy.

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