A new bailout looming: Cyprus downgraded and italy under pressure

And the hits keep coming! After the launch last week of the Great Euro Marshall Plan which was supposed to cure all economic diseases once for all, the bond tragedy has resumed relentless.
Yields on Italian 10-year bonds spiked to 5.8pc on Wednesday while Spanish yields punched through 6pc once again. Analysts remain perplexed by the decision of Italy's treasury to cancel bond auctions in mid August due to lack of liquidity and "reduced financing needs". Italy was expected to raise €68bn (£60bn) in August and September.
In the meanwhile there is a new entry in the bailout club.
Cyprus has been downgraded today two notches from A2 to BAA1 due to "fractious politics", exposure to Greece and the disaster of the energy crunch caused by the explosion and destruction of his main power plant on the 11th of July which destroyed 60% of Cyprus electricity output.

The darkening picture in Cyprus raises concerns that a fourth eurozone country might soon need some sort of rescue, exhausting bail-out tolerance in Germany, Holland, Finland and Slovakia, where a wing of the coalition has denounced the EU accord.

"The markets have started to see all the flaws in the summit deal," said David Owen, of Jefferies Fixed Income. "They know there has been no increase in the size of the European Financial Stability Facility (EFSF) and that it will not be in any position to intervene in the Spanish and Italian markets for quite some time because the changes have to be ratified by all parliaments."

"Unless the European Central Bank (ECB) steps in to buy bonds, this is going to be tested by markets over the summer. EU leaders have sent absolutely the wrong signal by thinking they have done the job and can now go on holiday," he added.
But the most interesting and scary piece of news today is the following:
Italian bank stocks fell sharply in Milan with Intesa down 5pc and Unicredit off 4pc.
Deutsche Bank said it had cut its exposure to Italian debt from €8bn to €1bn since the end of last year, mostly by purchasing credit default swaps (CDS). This suggest Europe's banks have been the main buyers of Italian CDS for hedging purposes, rather speculators as claimed by Italian leaders. It appears that core Europe started now for quite a while to dump the peripheral PIIGS.
The economic outlook continues to darken in Italy. The manufacturing index fell for a fourth month in July, dipping below the contraction line of 100. Italy's business lobby Confindustria said growth would be "almost nil" this quarter. The group's leader Emma Marcegaglia said Italy's political system was unravelling, leaving industry to its fate.

Net foreign liabilities in Italy have reached 26pc of GDP, the Italian government leitmotiv has been always that Italy is safe since most of the debt is owned by Italian families, this has not been the case since now for some time regardless of the Prime Minister's media propaganda.
Italy is cushioned for some months and the traditional summer shutdown will let the country slumber through till September unless of course a major event wreak havoc on the international markets.
September though will be torture for PIIGS.

Cyprus energy disaster: what to expect when energy crunch hits

The international media has ignored a real energy crisis developing in the Mediterranean island of Cyprus, the story itself is quite surreal and symptomatic of how dire and fast the situation can develop when an energy crisis hit a country.
For the majority who never heard of this story which was decently covered only by BBC for few days let us do a recap:
On the 11th of July flames from a small fire on the Evangelos Florakis Naval Base near Zygi reached 98 containers of explosives that were being stored on the base.
The resulting explosion killed 13 people, 12 of them immediately, including Captain Andreas Ioannides, the Commander of the Navy (Cyprus's most senior naval officer), and the base commander, Lambros Lambrou. Also killed were four navy personnel and six fire-fighters, while a further 62 people were injured. The explosion severely damaged hundreds of nearby buildings including the island's largest power station, responsible for supplying over 60% of Cyprus' electricity.
As a result, much of Cyprus is without power and rolling blackouts have been initiated in order to conserve supplies.
The 98 containers of Iranian high explosives where seized in 2009 and since then were sitting calmly under the scorching sun of Cyprus at the naval base right next to the power plant.
No comment on the total stupidity of leaving explosives under the sun next to a strategic energy hub with temperatures that reach 45 Celsius in summer.
The more interesting part though is the current situation with an entire country lacking electricity with rolling blackouts running wild and with remaining old power plants struggling to cope, just today the other remaining power plant suffered a failure and technicians are scrambling to avoid a disaster.
It could take up to 1 year, to rebuild the destroyed power plant supposed the government is able to find 1 billion Euro they do not have at this moment, and it will be interesting to see what damage a prolonged energy crisis can do to a country.
Cyprus is in a dire economical situation with industry and services paralysed by the lack of electricity, there are no scheduled black-outs so there is no telling when lights will be off and no planned working activity is possible, motorists are facing the greatest risk at crosslights and emergency services are in complete chaos.

Cyprus economy is in a state of emergency comparable to 1974 and is facing an imminent EU bailout. 
Cyprus Central Bank governor Athanasios Orphanides warned yesterday: "To avoid the worst, including admission into (a) support mechanism and all that that entails for the economy ... further and more drastic measures must be taken immediately,"
Cyprus was already under market pressure because of its links to debt-laden Greece, and following the tragic explosion economists have warned the island could face a bill of up to €1 billion just to reinstate electricity supplies.
"Weighing all the facts, the unfavourable international environment, the difficulties in resorting to external borrowing and the additional economic impact from the recent events, I believe the economy is in a state of emergency, comparable to that of 1974," Orphanides said, referring to the Turkish invasion and its aftermath.
Cyprus is unfortunately set to become the first reality laboratory for an energy crunch crisis, worth keeping an eye on this small Mediterranean island in the following months.