Italy is facing a EU bailout within 6 months

While the Italian press is rife with big headlines on Berlusconi's clusterfuck and his conviction  to seven years in prison and a lifetime ban on holding public office; the italian economy is deteriorating faster and faster.
The Italian government is giving few signs of intelligent life and treasury investors are starting to lose patience.
All things considered is not surprising that Mediobanca, Italy’s second biggest bank, said its “index of solvency risk” for Italy was already flashing red as the worldwide bond rout continued into a second week, pushing up borrowing costs.

The report warned that Italy will “inevitably end up in an EU bail-out request” over the next six months, unless it can count on low borrowing costs and a broader recovery.

As Ambrose Evans Pritchard noted:

“Time is running out fast,” said Mediobanca’s top analyst, Antonio Guglielmi, in a confidential client note. “The Italian macro situation has not improved over the last quarter, rather the contrary. Some 160 large corporates in Italy are now in special crisis administration.”

Italy’s €2.1 trillion (£1.8 trillion) debt is the world’s third largest after the US and Japan. Any serious stress in its debt markets threatens to reignite the eurozone crisis. This may already have begun after the US Federal Reserve signalled last week that it will begin to drain dollar liquidity from the global system.

The ECB has already backed away from earlier plans to steer credit to small businesses in the Club Med bloc. The Italian banking association said it was bitterly disappointed by the latest break down in eurozone talks on a banking union, warning that it leaves Italy’s lenders at the mercy of a confidence crisis.

Andrew Roberts from RBS said the world has become “a dangerous place” as Fed tightening marks an inflexion point in global liquidity.

Borrowing costs of 5pc could prove crippling for Spain and Italy, both suffering from contraction of nominal GDP.

Mediobanca said the trigger for a blow-up in Italy could be a bail-out crisis for Slovenia or an ugly turn of events in Argentina, which has close links to Italian business. “Argentina in particular worries us, as a new default seems likely.”

Mr Guglielmi said Italy’s industrial output has slumped 25pc from its peak in the past decade, while disposable income has dropped 9pc and house sales have dropped to 1985 levels.

The 1992 crisis was defused by a large devaluation, allowing Italy to restore trade competitiveness at a stroke. Mediobanca said: “The euro straitjacket is clearly not providing a similar currency flexibility today. With the lira devaluation Italy managed to inflate debt away, which it cannot do today. It could take more than 10 years to revert to pre-crisis output levels.

How to move offshore your cash in six steps

No one know for sure how much of the planet's private wealth is parked in tax havens. One estimate is that there's $32 trillion deposited offshore; a more conservative calculation puts it a minimum of $8 trillion.
It is easy to understand why 2.5 million files covering 120,000 offshore entities was 'accidentally' leaked to the media.
Governments realize that they are running out of options fast and putting pressure on off-shore accounts is the second front of a coordinated effort to start converting private wealth to a public one.

ICIJ issued the following simple six-step process guide to off-shore stashing; from 'Choosing a haven' to creating a 'secret identity' and from opening the 'right' bank account to how to 'move' the money; this picturesque guide may be indispensable to many Europeans now that the EU is adamant on who will pay the next banking crisis.

For a full interactive tour visit:  http://www.icij.org/offshore/interactive-stash-your-cash 

Eu Wide Bank Confiscation Approaching

What happened in Cyprus is unfortunately going to be replicated all over Europe, the reason is simple at the end there is not enough money to bailout Spain and Italy, the system used so far in Portugal, Greece and Ireland is not sustainable, let us even suppose for one moment that Germany is willing to help Italy and Spain, it will not work, there is not enough money to sustain those rapidly decomposing economies and even if Germany would mortgage its future it would only kick the can down the road for few more years.

The crisis is systemic and the jump-ship set of mind is already in place all over Europe.
Italy and Spain are doomed, France is on the brink.
Cyprus has been correctly addressed as a guinea pig for future bail (out-in) but at the end all minds go to Italy with its large savings base and Spain with his colossal bank crisis.
This week Italy's largest bank CEO contemplated such a move and alarm bells should start ringing all over Europe:

From Bloomberg: Unicredit says global rule needed

Cutting large deposits in failing banks, along with other liabilities such as bonds, to offset losses is acceptable as long as small savers’ funds remain protected, Ghizzoni told reporters in Vienna late yesterday. The European Union has to introduce identical rules in all of its member states and ideally those rules would be coordinated globally, he said.

Unicredit knows the Cyprus effect is coming to Italy and Spain and it is asking a global coordination to ring fence the EU from massive capital flows.
What is scaring is that we have moved from a world where property and savings were guaranteed to a world where property is no longer safe and where starting from bankers to politicians a framework is being created to justify or legalize such confiscations as necessary.

From Reuters: EU to push for losses on big savers at failed banks.

The European Parliament will demand that big savers take losses if their banks run into trouble, a senior lawmaker told Reuters, adding momentum to a policy unveiled as part of a Cypriot bailout.

Now the likelihood is rising that tough treatment of big depositors will be written into a new EU law, making losses for large savers a permanent feature of future banking crises.

"You need to be able to do the bail-in as well with deposits," said Gunnar Hokmark, an influential member of the European Parliament, who is leading negotiations with EU countries to finalize a law for winding up problem banks.

"Deposits below 100,000 euros are protected ... deposits above 100,000 euros are not protected and shall be treated as part of the capital that can be bailed in," Hokmark told Reuters, adding that he was confident a majority of his peers in the parliament backed this line.

The law, which will also introduce means to impose losses on bondholders, is due to take effect at the start of 2015. Germany wants provisions for bailing in bondholders and others in the same year, though that may be delayed.

Hokmark urged savers to check their banks' health before taking the risk of depositing money.

"If you put your money in Royal Bank of Scotland ... or Deutsche Bank, depending on how that bank is working you are taking a risk," he said. "You need to be aware that you are taking a risk.

Looking ahead, the implication is that no one should place more than €100,000 in any bank (but then since every rule can be twisted according to the moment's necessity who know if 100.000 will still be the threshold in 1 year time).
So no one will invest in Europe especially in questionable Southern European banks.
Instead, expect capital flights to resume in different, more creative forms.
Pressure is going to rise on offshore banks as well to undermine their attractiveness and willingness to accept deposits from EU citizens, proof enough is this week leaks on offshore accounts.
A major campaign has started to coral money inside the EU in anticipation of the Great Confiscation and Great Depression approaching.
My only tip if you have money inside the EU is time to move out before the trap is in place.

Euro Template to Confiscate European Bank Accounts

As reported in my previous post, signals are there already that Cyprus will not be an isolated case and that similar confiscations will be applied to other nations in the Eurozone.
Of course having the luxury of the Eurogroup leader to agree with you and stating it publicly the day after is something unexpected.
Mr. Dijsselbloem, Leader of the Eurogroup and Dutch Finance Minister stated that Cyprus will become the new template for resolving Eurozone banking problems.
Markets did not appreciate the candour of Mr. Dijsselbloem (apparently it is pronounced Diesel-BOOM), his explosive remark did not take long to bring down the markets and put an end to the insane optimism following the Cyprus bailout deal.


Talking with Reuters, on the resolution model just put in place in Cyprus:

A rescue programme agreed for Cyprus on Monday represents a new template for resolving euro zone banking problems and other countries may have to restructure their banking sectors, the head of the region's finance ministers said.

"What we've done last night is what I call pushing back the risks," Dutch Finance Minister Jeroen Dijsselbloem, who heads the Eurogroup of euro zone finance ministers, told Reuters and the Financial Times hours after the Cyprus deal was struck.

"If there is a risk in a bank, our first question should be 'Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?'. If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders," he said.

After 12 hours of talks with the EU and IMF, Cyprus agreed to shut down its second largest bank, with insured deposits - those below 100,000 euros - moved to the Bank of Cyprus, the country's largest lender. Uninsured deposits, those accounts with more than 100,000 euros, face losses of 4.2 billion euros.

Uninsured depositors in the Bank of Cyprus will have their accounts frozen while the bank is restructured and recapitalised. Any capital that is needed to strengthen the bank will be drawn from accounts above 100,000 euros.

The agreement is what is known as a "bail-in", with shareholders and bondholders in banks forced to bear the costs of the restructuring first, followed by uninsured depositors. Under EU rules, deposits up to 100,000 euros are guaranteed.

Translation:

It is now officially dangerous to have a big bank account in Europe. In other words being an Uninsured Depositor.


After the not so amiable reaction of the financial markets Mr. Dijsselbloem (Diesel BOOM) has clarified his remarks on the Eurogroup's website:

Statement by the Eurogroup President on Cyprus

25/03/2013 - Statement

Cyprus is a specific case with exceptional challenges which required the bail-in measures we have agreed upon yesterday.

Macro-economic adjustment programmes are tailor-made to the situation of the country concerned and no models or templates are used.

I'm sure now all the Ininsured Depositors feel very reassured, Thank you sir!

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!

Cyprus bailout update

For those who thought that a forced levy on bank accounts was unthinkable in Europe, the recent bail out has been a call to reality on the seriousness of the European crisis.
Everyone is already wondering who will be next and if Cypriots are complaining of a 9.9% levy on bank deposits they can find consolation in knowing that the initial request was for a 40% levy as told by Ekathemerini.


Report from Ekathemerini,

This is the first time in the eurozone that a levy has been imposed not on the interest of bank accounts but on the capital itself. In addition to that there is a levy on interest, too, and an increase in the 10 percent corporate tax that has been one of the main driving forces behind Cyprus’s financial progress after the 1974 Turkish invasion, generating growth by attracting foreign direct investment.

Tax on interest will amount to between 20 and 25 percent.

...

Cyprus state broadcaster CyBC reported on Saturday that German Finance Minister actually entered the Eurogroup meeting on Friday proposing a 40 percent haircut on Cypriot bank accounts. Sarris stated on Saturday that this had also been the proposal of the International Monetary Fund.

Sarris stated in Brussels that in view of the threat from the European Central Bank for banks in Cyprus to shut down and chaos to ensue, the increase in interest taxation and the haircut to bank accounts became necessary. “A disorderly default, that was a genuine possibility, has been averted,” he said.

Worth reading as well the official statement of the Cypriot president:


Statement by the President of the Republic of Cyprus,

It is well known that the deep economic crisis and the state of emergency in which the country has found itself did not come about in the last fortnight since we have undertaken the administration of the country.

The state of emergency and critical nature of the times do not allow me, as they do not allow anyone, to embark on a blame game.

In the extraordinary meeting of the Eurogroup, we faced decisions that had already been taken and came across faits accomplis through which we were faced with the following dilemmas:

On Tuesday, March 19 we would either choose: the catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis, which would put a definitive end to the uncertainty and restart our economy.

A possible choice of the catastrophic scenario option would have the following consequences:

1. On Tuesday, March 19, immediately after the holiday weekend, one of the two banks in crisis would cease to operate, since the European Central Bank, following the decision already taken, would terminate the provision of liquidity. The second bank would suspend its work, and neither could avoid collapse. Such a phenomenon would instantly lead 8.000 families to unemployment.
2. The State would be obliged to compensate depositors in response to the obligation regarding guaranteed deposits. The capital required in such a case would amount to about 30 billion euros, which the State would be unable to pay.
3. A proportionate amount corresponding to the deposits of thousands of depositors for deposits over 100.000 Euro, would be led to a vicious cycle of asset liquidation, and these depositors would suffer losses of over 60%.
4. Such an uncontrolled situation would push the whole banking system into collapse with all the attendant consequences.
5. Thousands of small and medium enterprises, and other businesses would be driven to bankruptcy due to their inability to trade.

As a result of the above, the service sector would be led to a complete collapse with a possible exit from the euro. That, in addition to the national weakening of Cyprus, would lead to devaluation of the currency by at least 40%.

The second choice was the controlled management of the crisis, through the decisions taken and which can be summarized as follows:

1. Ensuring the liquidity of the banks and the rescue of the banking system through their recapitalization.
2. Rescuing 8.000 jobs in the banking sector and thousands of others which would be lost as a corollary of not maintaining the operations of banks.
3. Total rescuing of deposits, with just the exchange of a small percentage of savings with shares of the two banks. Currently, these shares do not have their full value, but with the economic recovery they will repay most it not all of the amount that will be cut.
4. This option results in a drastic reduction of public debt, makes it manageable and sustainable and relieves future generations from the burden of repayment.
5. It saves provident and pension funds and avoids taking other tough measures such as wage and pension cuts that were put on the negotiations table.
6. It avoids further recession and the risk of the vicious circle of a second memorandum.

We are not aiming to gloss over the situation. The solution chosen may be painful, but it was the only one that would allow us to continue our lives without adventures. It's a decision that leads to the historic and permanent rescue our economy.
In the next few hours we will all have to take responsibility. Tomorrow I will address the Cypriot people.

Bunga is Back!

Our Bunga buddy is back, warming up for the soon coming Italian circus of dancers, pimps, crooks and wise guys (i.e. Italian elections in May); here he is again blessing us with his wisdom:

• *BERLUSCONI SAYS EURO A `SCAM' WITHOUT CENTRAL BANK BACKING IT
• *BERLUSCONI SAYS GERMANY LEAVING EURO WOULDN'T BE A TRAGEDY
• *BERLUSCONI: BAILOUT CONDITIONS WOULD LEAD ECONOMY TO COLLAPSE
• *BERLUSCONI SAYS ITALY RISKS HEADING TOWARD 'ENDLESS CRISIS'

It appears he has a new plan (Allow Germany to leave) and start the printing press to inflate the country out in thin air while sedating the population with horny shows and lame soap operas.
Vote Bunga!

Portfolio: Preparing for Greece's Failure

Portfolio: Preparing for Greece's Failure


The financial news of the week again is about the eurozone and we are seeing lots of entities come up with lots of possible solutions about how to solve the eurozone problem. They all of course rest on what to do about Greece. The problem is, they are coming from the wrong angle. From STRATFOR’s point of view, Greece does not have a particularly bright future as a state before the eurozone crisis is taken into account.
Modern Greece has traditionally been supported by three pillars. First is shipping. As a culture that is mostly coastal it makes sense they would be very good at sailing; however, in the age of modern transport and super container ships, Greece simply can’t compete, and most of its ship building industry has long ago left for greener pastures in places such as Norway, China or Korea. The second pillar is tourism and this continues to be an option, but tourism by itself cannot support a modern state. The final option and the one that the Greeks have gotten the most mileage out of is leveraging Greece’s position. Typically to allow some external power a means of battling somebody in Greece’s neighborhood. When Greece achieved independence in the early 1800’s that external power was the United Kingdom who used Greece as a foil against the Turks. Later, the Americans played a similar role supporting Greece against the Soviets. In both cases massive volumes of capital came in to support Greece. However, in the post-Cold War era Turkey is a member of NATO, and while the Greeks might not get along with the Turks, nobody is looking to use Greece as a military foil against them. Greece no longer has a regional foe that it shares with anyone else. The closest might be the Turks again, but only if the Turks miscalculate their ongoing relationship with Israel or Cyprus and miscalculate very very badly.
Bottom-line, the various supports that have allow the Greek state to exist since the 1820’s simply aren’t there anymore and so the path forward goes like this: Greece is not salvageable. Greece simply can’t compete unless it is being given a constant, steady supply of capital from abroad that it doesn’t necessarily have to pay back. And even if that could be restarted, Greece can not emerge from its own debt load. It is simply too large. Greece has to be kicked out of the eurozone if the euro is to survive, but between here and there, first, a firebreak fund. The EFSF expansion has to happen because if you cannot sequester the 280 billion euro of Greek government debt that exists outside of Greece, then you’re going to trigger a massive financial catastrophe that the eurozone simply can’t survive. And so to prepare for a Greek ejection, you have to prepare a fund that can handle three things more or less simultaneously. First, you need about 400 billion euro to firebreak Greece off from the rest of eurozone. Second, you need about 800 billion euro in order to prevent a wide-scale banking meltdown, because the day that Greece defaults on that debt, the day that it’s ejected from eurozone, there will be catastrophic banking collapses in Portugal, Italy, Spain and France, probably in that order.
Third, the markets will go wild and the state that is in the most danger of falling after Greece is Italy. Using the bailouts that have happened to date as a template, any bailout of Italy would have to provide enough financing to cover all Italian needs for three years. That comes out to about another 800 billion euro. So until the Europeans have 2 trillion euro in funding stashed away, they can’t kick Greece out of the system.

Read more: Portfolio: Preparing for Greece's Failure | STRATFOR

EU is morally bankrupt and financially insolvent

Breaking news on Italian newspapers are quoting a decision of Brazil, Russia, India and China to coordinate massive purchase of Euro bonds to save Europe from assured disaster.
Although international newspapers are more sceptical of this possibility as reported by Reuters below.


From Reuters:

BRIC major emerging markets are considering ramping up holdings of euro-denominated bonds in a bid to help European countries mired in a sovereign debt crisis, newspaper Valor Economico reported on Tuesday, citing a monetary official.

Valor reported a decision could be made at a Sept. 22 meeting of finance ministers and central bank presidents from Brazil, Russia, India, China and South Africa in Washington.

Brazil's central bank declined to comment on the story. The source in the report was not identified.

It could be a trick to avoid stock collapse and earn some time as it was a trick yesterday's news of Chinese intervention on the Italian sovereign market.
True or not, this is an historic event, for the first time since Middle Ages Western powers are the rescued and not the saviours just this idea is destined to change the arrogant and obsolete mindset of the European population at last.
If BRIC countries will rescue Europe they will try to capitalize on this emergency as much as possible, they will try and pull concessions and strategic industries and infrastructure control in exchange for their money, the fire-sale of Europe will start and in a matter of few years the geography of power will be completely upturned with Europe finding itself under debt indentured service.
Interesting how Europe is getting back to the same debt dynamics of World War II, this time though not due to bombardments, war and destructions, we went into debt for villas, sport cars and luxury items we could not afford but we wanted just the same, for greed and arrogance, for short-sightedness and stupidity.
BRIC countries are aware as the ECB is aware that it is impossible to go on buying Italian, Spanish, Greek, Irish and Portuguese bond indefinitely to keep alive zombie economies and profligrate populations unwilling to pay the price of their recklessness.
Europe can posticipate the inevitable default but will be faced with an hefty bill for selling its soul in exchange for few years of mitigated decrease of standards of living.
The default will arrive maybe not this year but in 1-2 years if BRIC countries keep this insanity alive but when it will unleash Europe will be just a shadow of what is now, voided of power, wealth, dignity and prestige, just a leech.
There is another risk though which is worth consideration, as Chinese sources mentioned yesterday we do not trust buying Italian bonds if the ECB is unwilling to do it.
Effectively when the central European bank in unwilling to risk why those countries should?
The reality is that the EU has surrendered and it has effectively declared the breakup of the Euro, for the EU to leave the shielding of its periphery to external actors is an effective declaration of surrender.
It means that BRIC countries will sustain those economies until an orderly breakup can be arranged or other events will unfold.
Either way BRIC countries get access to a strategic European periphery.
Let us not forget that only 1 year ago for the EU it was a shame even to consider an assistance from the IMF on the Greek crisis, now with Italy and Spain at stake the IMF with Lagarde is silent, IMF does not even meddle anymore in this issue which gives us 1 or 2 thoughts on why Strauss-Kahn was liquidated.
With half of the developing world coming to rescue of Europe there is no embarrassment at all, either the situation is so desperate that shame is no longer in the equation or a trap is being set for the developing world to bleed assets in Europe before orderly default will occur just for strategic considerations.
Probably it is both but one thing is sure the degeneration of the EU is set to leave a very painful mark in the years to come.

Greece agony goes on

It appears Greece will inflict more torture on its population in exchange for a delayed but inevitable default.
What is starting again is though the usual brawl between Germany and Greece.

Germany’s EU commissioner Günther Oettinger said Europe should send blue helmets to take control of Greek tax collection and liquidate state assets.
An “orderly insolvency” for Greece must not be ruled out for the sake of stabilizing the euro, Die Welt reported, citing German Economy Minister Philipp Roesler.
While the headlines in the Greek press have been "Unconditional Capitulation", and "Terrorization of Greeks", and even “Fourth Reich”. Mr Schauble said there would be no more money for Athens under the EU-IMF rescue package until the Greeks "do what they agreed to do" and comply with every demand of `Troika' inspectors. 
Even if the Papandreou government met every Troika demand at this point, it would not make any material difference. Greek citizens already understand this, and they understand that EU loan packages are merely being recycled to northern banks.
We have never been so close to an Euro breakdown. Friday's resignation of Jurgen Stark at the European Central Bank is literally a disaster, a German vote of no confidence in EMU management.
The vehemence of his protest against ECB bond purchases confirm what markets suspect: that the ECB cannot shore up Italian and Spanish debt markets for long without losing Germany.
An exit from the Euro is although no solution as well.
If a debtor such as Greece left, the new drachma would crash by 60pc. Its banks would collapse. Switching sovereign debt into drachma would be a default, shutting the country out of capital markets. Exit would cost 50pc of GDP in the first year.
If creditors such as Germany left, the new mark would jump 40pc to 50pc against the rump euro. Banks would face big haircuts on euro debt, and would need recapitalization. Trade would shrink by a fifth. Exit would cost 20pc to 25pc of GDP.
The scariest part is the entrenchment of both sides on their positions which is making impossible to find a definitive solution to this mess. Either the EU push toward further integration with harmonization of fiscal policies and loss of sovereignty toward a central EU government or we are facing an inevitable collapse.

Cyprus forced to ask bailout to EU

As forecasted in my previous post there is a new economy derailing in Europe and it is Cyprus.

Today the Central Bank of Cyprus has clearly outlined that they will go and ask for a bailout to the EU.

A portion of the statement today:

The Bank of Cyprus, the island's largest financial institution, on Monday urged government action to prevent the eurozone country from having to seek a bailout from the European Union.
"With our inaction we are risking the ability of refinancing the state and the consequences will be instant and serious," a statement from the commercial bank said.
"There is an immediate threat of the country entering the European Union's support mechanism with everything bad that entails."
On Monday, the Bank of Cyprus said: "Time has run out. We are at that turning point at which history will judge us. It's time for immediate and effective action."

"Each day of inaction accelerates the problem and the risks, so we must act today and not tomorrow," the bank said.
"Markets move rapidly; indecision, disagreements or simply talking without taking action are punished, while courageous decisions are rewarded," it said.

In economic terms Cyprus is a nothing. 2010 GDP was only $25b but it is certainly another blow to the EU and the Euro even if the catalyst of this latest bailout is the explosion that destroyed the main power plant of Cyprus and 60% of its energy output, a lethal blow to a country who was already strongly indebted and exposed to the Greek tragedy.

Italy's Illegal economy: Mafia Inc.

Soldi Rubati (Stolen Money) an interesting book on the disastrous situation of the Italian economy and society has been recently published (available in Italian only at this moment).
It describes in full details the extent of corruption and illegal economy now pervasive in the Italian society.
I'm quoting below some incredible figures worth noting now that Italy has entered into the maelstrom of debt collapse.
The illegal economy in Italy is the first of the world and it amounts approximately to 500-600 billions per year. An amount much bigger than the one allocated to bailout Greece, Ireland and Portugal together and a huge amount compared to the 80 billion austerity package enforced by the Italian government last week to save the country from a default.
An approximate breakdown is the following:

Tax Evasion: 120 billion euro per year
Corruption: 60 billion euro per year
Illegal economy: 350 billion per year
Financial Fraud: 55 billion per year

Nunzia Penelope, a journalist and author of the book brings up statistical data from the Italian Statistics Instute, Central Bank of Italy and the Italian Chamber of Industry which are clearly outlining how Italy is becoming the biggest Mafia State in the world. What many research institutes are saying is that the legal economy is being slowly strangled by the illegal one, Mafias are gradually becoming the most efficient and productive enterprise in Italy while swallowing or wackin' any other legal business.
If the crisis should bring to a bailout of the EU/IMF to Italy there is no doubt that a huge percentage of that money would end up in the pockets of the Mafia, worth considering should push come to shovel.

Portugal propaganda video or God save the Eurozone

Not sure if they are trying to snob the Finnish or gain some simpathy for their recent bail-out but certainly we hope that Greece will not try something similar with the Germans.
Worth watching the following bizarre video:

Eurozone crisis update

Image by Mesq via Flickr

More bad news from Europe today:

Ireland's banks are now officially junk following a downgrading of the long-term deposit ratings of the four surviving banks by the ratings agency Moody’s.
The decision to downgrade Bank of Ireland (BoI), Allied Irish Banks (AIB), EBS Building Society and Irish Life & Permanent (IL&P) follows the move to cut Ireland’s own ratings status to one level above junk status last week.
In the meanwhile Athens repeated today it has no plans to restructure its debt, denying a Greek media report it had already requested talks with its lenders. Greek daily Eleftherotypia  said today Greece had told the International Monetary Fund and the European Union earlier this month at a meeting of European finance ministers that it wanted to restructure its debt. Discussions on the issue were expected to start in June, the newspaper said, citing a senior IMF official. US treasury secretary Timothy Geithner had also told Greek finance minister George Papaconstantinou a restructuring would be needed, the paper said.
A further addition to the Portuguese's woes is the recent Finnish election where the party True Finns quadrupled its share of vote in Finland elections, and its party leader says he expects EU to change Portuguese bailout plans.
Unlike others in the eurozone, Finland's parliament has the right to vote on EU requests for bailout funds, meaning it could hold up costly plans to shore up Portugal and bring stability to debt markets.
The strong showing for the populist True Finns reflects growing public frustration in some EU states about footing the bill for weaker economies such as Greece, Ireland and Portugal.

Portuguese five-year credit default swaps climbed 26 basis points to 625bps this morning, according to data monitor Markit.
And this euro mess is bringing back the 2 elephants Italy and Spain in the arena with spreads reaching new highs:

• Portugal 625 (+26) - officially insolvent
• Italy 156 (+13)
• Ireland 588 (+21) - officially insolvent
• Greece 1225bp (+89) - officially insolvent
• Spain 250 (+16)