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A new bailout looming: Cyprus downgraded and italy under pressure

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Wednesday, July 27, 2011

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.

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

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Monday, July 25, 2011

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

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 wo
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 wo
uld 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 recieve 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 the 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 10 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, jockers and musicians to his villa in  Sardina as witnessed by judges investigating of 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.

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Travel Photo: Sally Gap, Wicklow Mountains, Ireland

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Sunday, July 24, 2011

Travel Photo: Sally Gap, Wicklow Mountains, Ireland

Sally Gap, Wicklow

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Oslo police terror drill 48 hours before attack

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Saturday, July 23, 2011

Oslo police terror drill 48 hours before attack

Here we go again, is it not surprising that every major terror event is accompanied by a security drill focused around the same scenario. Oslo police were conducting a bombing exercise at a location near the Oslo Opera House just 48 hours before a terrorist blast hit a government building in the Norwegian capital.
According to the translated version of an Aftenposten report, “Anti-terror police fired explosive charges at a training center in Oslo, two hundred meters from the Opera, but forgot to notify the public.”
The exercise occurred on Wednesday and revolved around anti-terror units attacking a disused building at the edge of Bjørvika pier with bombs and firearms.
Police had to publicly apologize today for not informing the public about the exercise.

To give some context on the current situation of Norwegian politics below an excerpt from Wikipedia on Stoltenberg and his cabinet:

Stoltenberg’s second cabinet has governed Norway since 17 October 2005. The 2005 parliamentary election saw a vast improvement for Labour, and the party gained a majority in parliament together with the other “Red-Green” parties, the Socialist Left Party and the Centre Party. This paved the way for a historic first in Norway, with Labour joining in a coalition government, the Red-Green Coalition, after a coalition deal with Stoltenberg was struck. Since the government’s formation, key political issues such as Norwegian military participation in the current war in Afghanistan, petroleum activities in the Barents Sea, LGBT rights, immigration and the quality of standard education have been greatly debated by the public. Following Stoltenberg’s re-election in 2009, the government has put further restrictions on immigration matters due to ongoing threats of terrorism, centralised and re-organised health care and public hospitals, dealt with the ongoing global recession and championed for environmentalist policies through private and corporate taxation.[15]
A marine border dispute with Russia in the Barents Sea since 1978 was settled when Stoltenberg and President of Russia Dimitry Medvedev signed an agreement on 27 April 2010 in Oslo.[16][17] The agreement is a compromise, which divides a disputed area of around 175,000 km2 (68,000 sq mi) into two approximately equally sized parts.[18] However, the agreement still needs ratification by the State Duma and the Parliament of Norway in order to be implemented.
In January 2011, the Stoltenberg government ordered law enforcement personnel to arrest and deport Maria Salmanova, a Russian-born writer and blogger who had lived as an undocumented immigrant in Norway since 2002, a case later known as the Maria Amelie case. It was highly covered by the press as Salmanova was gaining more support and large demonstrations were taking place; Her Facebook page has gained more than 88,000 supporters and the Norwegian Amnesty International has its own signature campaign for Maria Amalie that by 23 January 2011 had over 28,000 signatures.[19][20][21][22] Reasons for this intense media attention included her exceptional fluency in the Norwegian language, and her master’s degree in studies from the Norwegian University of Science and Technology. On January 24 2011, Salmanova was deported from Norway to Russia[23] to much divided public opinions according to recent pollings. [24] As a result of alleged government inefficiency, blunders, scandals and misquotations made by members of the cabinet, among them Centre Party leader and Minister of Local Government and Regional Development Liv Signe Navarsete, Stoltenberg’s second term has attracted controversy and criticism from both conservatives and liberals. According to a recent polling, the three governing parties (combined) gained a 35.8 percent approval rating from the electorate.[25]

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Greece default: shutdown when needed

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Thursday, July 21, 2011

Greece default: shutdown when needed

he grandiose plan to save Europe has been unveiled today and it is the same “kick-the-can-down-the-road” stuff this time designed to give Europe a little bit more time by allowing  Greece to default but just temporarily and selectively.
Even the ECB and Bank of Greece officers need an holiday in August so they decided to freeze the issue and the country just temporarily or selectively as they say.
So Greece is being allowed to selectively default, but this won’t harm Greek banks (nor their French owners) because the greek bonds will be guaranteed by an enhanced European Financial Stability Facility (EFSF) that can intervene in secondary markets amongst other ne
The grandiose plan to save Europe has been unveiled today and it is the same “kick-the-can-down-the-road” stuff this time designed to give Europe a little bit more time by allowing  Greece to default but just temporarily and selectively.

Even the ECB and Bank of Greece officers need an holiday in August so they decided to freeze the issue and the country just temporarily or selectively as they say.


So
Greece is being allowed to selectively default, but this won’t harm Greek banks (nor their French owners) because the greek bonds will be guaranteed by an enhanced European Financial Stability Facility (EFSF) that can intervene in secondary markets amongst other new powers. Other debt-laden member states, including Ireland, will have access to cheaper funds from the uber-EFSF at longer maturities.

As for how to do it and what does it mean exactly well the cryptic EU bureaucracy managed again to be vague enough to allow lots of leeway should policy makers require it.
This is, after all, the tenth time EU leaders have met to sort the problems in Europe out once and for all.The composition of the new beefed up EFSF isn’t reported.
Is Italy, in its current fragile state, expected to keep its share of the EFSF up? If we look at the table on page 1 of this document from the EFSF showing the contributions of member states; Italy is expected to contribute up to 78 billion euros if required.
Italy just passed an 80 billion euros austerity package to cut its debt and stabilize its budget.
A useless austerity package then since the amount will not help the Italian economy at all but most probably will go straight to Greece in the following months.

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Cyprus energy disaster: what to expect when energy crunch hits

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Friday, July 22, 2011

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.

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Euro crisis: contagion talks ahead of EU meeting

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Wednesday, July 20, 2011

Euro crisis: contagion talks ahead of EU meeting

Stock markets are up today, although given the following comments we can expect an interesting emergency meeting tomorrow:

The International Monetary Fund said there is now “serious risk” of eurozone contagion with “large” potential knock-on effects worldwide. “Market participants remain unconvinced that a sustainable solution is at hand,” it said.

Suki Mann from Societe Generale caught the mood in a note to clients, asking whether it is “all over”. “Eurozone politicians don’t – or don’t want to – understand that the eurozone as we know it is on the precipice. Greece appears beyond repair, Italy is on the brink, and the chances are that the euro might be no more very soon,” he said.

RBS fears that Europe is on the cusp of “system-wide convulsion” after yields on Spanish 10-year bonds reached post-EMU records of 6.34pc this week, and Italian yields topped 6pc. “We believe that Spain has entered the danger zone for yield levels,” said Harvender Sian, the bank’s credit strategist, who fears the “point-of-no-return” may be 6.5pc. “Given that Spain [and likely soon Italy] has entered this territory, there is a growing risk that a large systemic risk event is plausible in the near term and if not then in a matter of weeks.”

“We are approaching the endgame for this part of the European sovereign crises: the number of cans that now need kicking down the road would challenge the left foot of Lionel Messi,” said Gary Jenkins from Evolution Securities. “The chances are that the EU will only take the step of fiscal union or common bond issuance at one minute to midnight on a weekend when it is clear that the system is close to collapse.” 

The bond fund Pimco has its own idea of solving the Euro disaster: throwing Greece, Ireland and Portugal to the wolves, and concentrating €1 trillion in “overwhelming force” to defend Spain and Italy. That major players should utter such thoughts shows how fast events are moving.

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Italy’s Illegal economy: Mafia Inc.

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Wednesday, July 20, 2011

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.

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Bridgewater see collapse by 2013

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Wednesday, July 20, 2011

Bridgewater see collapse by 2013

New Yorker has released a must read interview with Ray Dalio – head of the world’s biggest hedge fund, Bridgewater.

From the full interview:

Dalio believes that some heavily indebted countries, including the United States, will eventually opt for printing money as a way to deal with their debts, which will lead to a collapse in their currency and in their bond markets. “There hasn’t been a case in history where they haven’t eventually printed money and devalued their currency,” he said. Other developed countries, particularly those tied to the euro and thus to the European Central Bank, don’t have the option of printing money and are destined to undergo “classic depressions,” Dalio said. The recent deal to avoid an immediate debt default by Greece didn’t alter his pessimistic view. “People concentrate on the particular thing of the moment, and they forget the larger underlying forces,” he said. “That’s what got us into the debt crisis. It’s just today, today.”

Dalio’s assessment sounded alarmingly plausible. But when one plays the global financial markets a thorough economic analysis is only the first stage of the game. At least as important is getting the timing right. I asked Dalio when all this would start to come together. “I think late 2012 or early 2013 is going to be another very difficult period,” he said.

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US National Debt: who is to blame for?

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Monday, July 18, 2011

US National Debt: who is to blame for?

A non-partisan chart of the US debt explosion in the last 10 years, two US Presidents, Bush Jr. and Obama have managed to in-debt the country to unprecedented levels in the history.
It is clear that none of this debt can be ever paid back, even if the debt ceiling is raised it does not matter, the debt bomb is fused and ready to explode.

Labels:
debt,
default,
president,
USA

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