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Post-Rescue Cyprus Depression

So the rescue of Cypriot troubled banks has been finally approved after 1 week of absolute lunacy in Cyprus, for those not aware yet a quick recap on the key points approved yesterday night:

Key points of the deal:

Laiki bank will be fully resolved – it will be split into a good bank and bad bank. The good bank will merge with the Bank of Cyprus (which will also take on Laiki’s circa €8bn Emergency Liquidity Assistance – a last-resort funding system outside the usual ECB operations). The bad bank will be wound down over time with all uninsured depositors (over €100,000) taking significant losses (no percentage yet but some could lose all their money above the threshold).

The Bank of Cyprus will be recapitalised using a debt to equity swap and the transfer of assets from Laiki. Uninsured depositors will take large hits in this process – again no percentage but reports suggest up to 40%.

These actions will be taken using the new bank restructuring plan passed in the Cypriot Parliament on Friday. Crucially, no further vote will be needed in the Cypriot parliament since there is no direct deposit levy.

The banks will not receive any of the €10bn bailout money, the entire recapitalisation will be done using the tools outlined above.

Significant capital controls are likely to be in place when banks reopen, creating a risk of Cypriot euros being “localised”.

Further tax increases may be included in the detailed plan to be drawn up between the two sides.

  and as a consequence an entire country will be sliding very fast in a Great Depression:

From SocGen:

Depression for Cyprus: Our Cypriot GDP forecast entails a drop of just over 20% in real GDP by 2017. This forecast had already factored in much what was agreed, but did not account for the additional uncertainty shock generated by the past week’s appalling political mess. Risks are clearly on the downside and Cyprus will in all likelihood require additional financial assistance further down the road. Accounting for less than 0.3% of euro area GDP, any downward revision to Cyprus will be barely visible on the euro area aggregate.

Cyprus’ position as a financial centre is over. There are few other alternatives for growth. One option that remains is tourism, but with a significantly overvalued currency it is not clear to what extent Cyprus can take advantage of this.
The capital controls will severely hamper liquidity in the economy, while it will be very difficult for the small island to trade with the rest of the world (it is far from self-sufficient, importing almost everything). The collapse in GDP could be anywhere between 5% and 10% this year, depending on how long capital controls are imposed and the resulting collapse in tax revenue could make the government’s position worse. There is a strong chance Cyprus could become a zombie economy – reliant on eurozone and ECB funding to function, possibly requiring further bailouts.

Capital controls are severe and could de facto lead to Cyprus being seen as out of the euro. Ultimately, money is no longer fungible between Cyprus and the rest of the Eurozone and, at this point in time, it’s hard to argue that a Euro in Cyprus is worth the same as a Euro elsewhere. The real problem though may not be imposing the controls but removing them – Iceland still has capital controls in place, five years after it installed them (despite having the advantage of a devalued currency).

The €10bn bailout will push Cypriot debt to GDP to 140% - if Cypriot GDP falls by just 5% this year, that rises to 148%.

In the meanwhile the bailout deal is already rising anti-Euro sentiments all over the country,  one of the most influential voices speaking against the Euro and the EU is the Orthodox Church Leader Archbishop Chrysostomos II who commented on TV that "with the brains in Brussels... the Euro can't last," certainly the fact that the Orthodox Church of Cyprus lost over 100 million euro holdings in the Bank of Cyprus must have contributed to his anger toward the EU and the Cyprus politicians: "those that brought the place into this mess, should sit on the stool. " (blaming the outgoing government, Ministers of Finance, the Central Bank, and the Executive Directors of Banks).
May his prayer be accepted! When the full scale of social devastation inflicted on Cyprus will be apparent a chopping block would be more suitable than a stool!

Daily Photo: Ottawa Parliament

Italy Surrendered!

Quite a show, 1 week of bear markets and attack of speculators to the Italian bonds have been enough for Italy to surrender, give up sovereignty and sell the country to the best bidder.
After all that was to be expected when a Prime Minister with the credibility and authority of a pimp is running the 7th world economy like a feudal manor.
So what is the deal? ECB will start buying Italian bonds in exchange for a full emergency austerity package (diplomatically called structural reforms) which in a first draft should include the following:

Reach a positive balance in 2013
Include in the Italian Constitution the compulsory provision for a balanced budget
reform of the labour market (aka fire everyone who is not strongly connected to a politician and condemn an entire generation to underemployment at best)
privatize EVERYTHING! (aka Fire sale of EVERYTHING THEY CAN SELL)

The only positive note is that finally Berlusconi stopped telling jokes, he started finally his speech with a serious note and this should give us an idea how serious the situation is even considering that only yesterday he was spitting jokes on the markets and dismissing the importance of the events.
It seems now the markets have the devoted attention of the Prime Minister and if the discussion only yesterday was in regards to MPs pilgrimages to Holy Land and extended holidays after a prompt telling off from both EU and USA our lap dogs have finally turned serious and are even staying in Rome during the summer to work on the prompt execution of their new masters' orders.
Of course it is very easy to convince a Prime Minister who is charged with countless crimes ranging from bribery to child prostitution and whose first goal is to stay in power to skip jail time.
Italy and Spain have officially entered the death spiral. They will start tax to death to enforce the ECB diktats and in 1-2 years will face the same situation of Greece with eroded tax base while loss of productivity will plunge them in a deeper depression and social upheaval.
The scariest part is that Italy is already now facing a serious social emergency; in order to reach a balanced budget the amount of cuts required will unleash a destruction of the country's social cohesion. We are facing a possible social explosion  when the fabric of public jobs-for-life will disintegrate and a lot more young people will be pushed in the hopelessness territory.

Italy ready to explode amid government ineptitude

For the good of Italy we can only hope that someone is able to put a muzzle to Berlusconi and force him to shut up!
Yesterday in a move that was supposed to calm markets Berlusconi went to the Parliament illustrating his program to restore growth and stability.
In a country where he controls 90% of the media is easy to brainwash the population with his rethoric on how the situation is fine and there are no risks.
Although with mean foreign investors it is a different story and his stupid comments have not helped at all.
If Berlusconi is hell-bent on destroying the country he is certainly doing a great job with his usual stupid jokes and comments such as:
"Markets are lying on the truth and I would ask them to invest in my firms".
"Since you have money then why not invest them in my company[Mediaset]"
"I don't believe the crisis will spread further and I am not scared if the spread will stay like now"
"Markets are like broken clocks"
He also dismissed an urgent call from Trichet to start immediate reforms to boost growth and dispel market fears.
In the meanwhile after a "Technical Fault" which blocked Milan, Paris, Lisbon and Amsterdam stock exchanges, the day ended with Milan Stock Exchange down more than 5%.
ECB had to intervene and publicly purchase Italian bonds to avoid today's auction from failing and start a cascading disaster although the ECB released a note at later stage where it made clear that is not going to purchase more in the future.
Spain had to cancel an auction on the 18th of August and Wall Street is in free fall with more than 500 points down.
Another minor news which could be exploding in the following days and have a major impact on how to solve this mess is the new IMF Chief Lagarde which just as her predecessor has been involved not in a kinky scandal as Strauss-Kahn but in an abuse of power charge. It appears according to French Judges she facilitated a famous French businessman.
The scariest part is that amid all this turmoil the country at the center of the crisis Italy is practically shutting down with no one left in Rome to take urgent decisions and tomorrow could be carnage on the stock markets.
Italian Parliament went on holidays today regardless, although in order to calm the indignation caused by their long holidays and mass exodus to to Holy Land, they simply managed to shorten their holidays of 1 week so instead of coming back to "work" on the 12th of September will reappear on the 6th of September, of course international markets will no go on holidays and will keep pounding the Italian economy while the government is relaxing on the beach.

Italy crisis and the Pilgrims to the Holy land!

Quite a day for the Euro and Italy. I will not repeat all the data sufficiently covered at this time by media all over the world.
Enough to say that Milan Stock Exchange has tumbled 2.53% today going down almost 15% since the start of this year while Italian debt reached a post-EMU high of 6.22pc before retreating a little bit at the end.
Anthony Peters from Swissinvest says large clients have been telling asset managers to eliminate Southern European risk. "They have kissed peripheral Europe good-bye," he said.
In the meanwhile, Italy's president Giorgio Napolitano held a second meeting in days with central bank chief Mario Draghi, the future head of the ECB. There has been speculation in the Italian press that the well-respected Mr Draghi might be called to lead an emergency government to restore market confidence.

Finance minister Giulio Tremonti invoked the country's financial crisis committee on Tuesday as the Milan bourse fell to a three-year low, once again led by bank stocks.
Fiat fell 6pc after an 11pc drop in Italian car registrations in July.
Banks were massacred with total yearly losses for some banks amounting now to 45% in details: Unicredit -5,7%, Ubi banca -5,5%, Intesa Sanpaolo -5,2%, Popolare di Milano -5,04%, Mediobanca -4,59% , Banco popolare -4,3%.

Spain Prime Minister faced with similar losses cancelled his holidays to monitor the deteriorating situation.
You would expect amid all this turmoil that Italian politicians would stay and control the situation as well, right!
Well wrong, they are ready to pack and leave for holidays tomorrow until the 12th of September.
They will assist Prime Minister Berlusconi referring to the Parliament about the recent turmoil on the markets and then insanely will fly away to their holiday destinations.
Berlusconi dealt another blow to the reputation of his government today declaring he wants to be in charge of the Ministry of Finance ad interim practically pushing Tremonti in a corner and putting himself in charge of the Italian economic policies during this major crisis.
The first thought coming to the mind of every investor listening to this news must have been " We are screwed" as for the Catholic Italians it must have been "God Save Us!"
Undoubtedly bad news which require some serious reflection and meditation that is why the motivation brought by the government for such an extended summer holiday is the following:

The President of the MPs for the governing PDL Party Fabrizio Cicchitto replied that his decision to allow for such a long summer closing is due to the September Pilgrimage to the Holy Land where annually over 170 MPs are flocking to meditate and pray.
I join the chorus of astonished Italian citizens praying for a divine intervention we are clearly running out of options here!

Money for Nothing: How to earn 14000 euro per month and do nothing

Auto Blu parked on a sidewalk in Rome

A recent special report from L'Espresso (available in Italian only) analysed the now legendary Caste of Montecitorio, The Italian MPs have the distinguished honour of being among the best paid politicians in the world and have a productivity close to zero.
Every normal country in a period of austerity is witnessing politicians scrambling to give a good example cutting their salaries and benefits, after all electors would not digest massive cuts and tax increases if those in charge of the public welfare are not subject to them as well.
In Italy on the contrary not only the ultra-pampered political class has been unscathed by the recent wave of austerity but does not even bother to hide their privileges and rampant greed to the eyes of the nation.
The special report actually quote an MP who decided to talk of this publicly, maybe in a very uncommon act of guilt and shame.
For those outside of Italy who complain about political privileges, well you want to read the following and rejoice:
The Italian Parliament is normally working from Tuesday to Thursday although with the latest Government the working week has been reduced to 2 days, never in the last 2 years the Parliament has convened on Friday.
The base monthly salary of an Italian MP is 5.486,58 euro net to which you have to add a bonus of 3.503,11 euro; this bonus is simply given to attend Parliament's sessions and should be reduced of 206 euro for every day of absence although if you are absent only once in a series of 3 sessions it does not matter, no deduction is taken. No wonder there are record number of absences among Italian MPs also given the fact that Italian MPs can keep their previous profession and salary while serving in the Parliament.
On top of this there is a further 3.690 euro per month to cover expenses in the local district of the MPs and a further 1500 euro per month to cover transport expenses, travel and mobile expenses.
Total: 14000 euro per month net for a newly elected MPs, veterans can add further bonuses.
Furthermore they receive 3690 euro net per month to pay assistants, many of the MPs do not hire one but still they pocket this amount since there are no controls and the amount is paid regardless.
Others hire assistants without contracts and pay them in black or in other cases 2 or 3 MPs hire one assistant who work for all of them and then split the salary to pocket the rest.
Even more, they receive 3098 euro per year to cover telephone bills and 1500 euro to purchase laptops, all without need of receipts and obtained regardless of being used or not. If you spend more than 3098 euro on calls, no problem the amount will be covered by the Parliament just the same.
Do they want to buy a car, they get an exclusive discount only for MPs which can go according to the car brand from 10 to 25%. All MPs are exempt from paying toll-highways, trains, flights (but it must be first class), ships and buses regardless if for public or personal reasons, it is enough to show you MP badge.
Of course from the airport to your villa or Parliament you cannot pay a taxi so a further allowance between 1.007 to 1.331 euro per month is provided to cover taxi expenses. The only expense not covered is flight travels abroad but since they can accumulate air miles with their free Alitalia travels, even if only to have a cappuccino in a different city, they can swap those miles for free international tickets.
If you decide to take your car and you get a ticket for whatever reason, no problem you can simply ask a special office of the Parliament to contact local authorities and invoking official reasons ask to destroy the ticket.
Of course it is rare for many of them to use private cars since the legendary "Blue Cars" are readily available.
Blue Cars is the nickname for official cars (almost all of them are dark blue), there are 86000 cars in service (as a comparison in United States there are only 72000 government cars with a government and population 6 times in size) and available to any medium-high governmental officers, including  top MPs.
They cost to the state 3 billion euro per year.
There are of course Blu Flights as well, government airplanes used by MPs in some cases even for private reasons, after all Prime Minister Berlusconi used government flights to ship entreneurs, jokers and musicians to his villa in  Sardinia as witnessed by judges investigating one of his many sex scandals.
As an MP if you want to relax and watch a show or a football match, you are entitled to free entry to almost any sport event in Italy, it is sufficient to show your special card.
The Parliament restaurant is a top class restaurant where meal are served with a 5 star service and quality, below a copy of the menu and relative prices in euro: a grill steak between 2 and 5 euro a main pasta meal at 1.60 euro, this gourmet restaurant is much cheaper than the dirtiest kebab place.



Do you need a mortgage to buy a villa there is a special bank in the Parliament that provide all MPs with a consistent lower interest rate for mortgages and lending, just a mere 2 per cent of interest rates.
If you feel a little bit stressed by the political intrigues and you need a Shiatsu massage or a thermal spa, no worries you get even that free and if you need prescription lenses, any spa treatment or therapies they are free for both MPs and families.
Of course life expectancy with such a stressful job is very low and MP have the right to retire with a pension on average of 6000 euro per month net after only 5 years of service in the Parliament.