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European Sovereign Debt Crisis: S&P reaffirms AAA rating for France, Italy and Greece get new Premiers (Friday Report)

MEPs to vote on "beyond GDP initiative&qu...

Image by European Parliament via Flickr

While not yet final, it is likely that EU Commish, Mario Monti will take up as leader of a new National unity government in Italy and another Euro ‘pioneer’ Greek Central Banker Lucas Papademos will lead the interim government there tillthe elections are completed , likely February 2012 Though the immediate crisis was being resolved, a “sleight of hand” from the deux le machina resolved the crisis much faster and better. A glitch on the site of S&P global Credit slipped a rating downgrade in the listings for france and the ensuing commotion that forced S&P to clarify that France was indeed a well respected AAA credit rating, also cleared the air in Fixed income markets and more.

EU growth rate has been updated to 3.5%contraction in 2012 after a 5.5% contraction this year and this includes non aid receiving nations of France, and Germany. UK, a EU member without the currency commitment is also growing at not more than 0.5%

Italian yields have gone down below the precipitate 7% mark after the clarification was issued and other market statistics also speak to the crisis having been closed out. European banks deleveraging would cost more than a EUR 1 Tln at just the 20 biggest banks on the continent including BNP and Credit Suisse over the next 2-3 years and has already taken away $300bln in Financial assets from guesstimates. Greek citizens now sed to the good life incl high incomes and  an auto for everyone from the day they joined the Euro, will now get down to living within restricted pay and hopefully government spending curbs that last GDP contracton has been muted in 2009 and 2010 at 2% (1.9%) and 4% respectively but a deeper cu is around the corner as political unrest strikes at tourism and services , a good 85% of the GDP

The current situation in Greece, Italy and Spain

Greek unemployment reigns a 18%, equal to the number of people employed by its tourism sector at 900,000 (Wikipedia) in the middle of tourist season for its debt of EUR 329 bln while 40% of the Business is still run by PSEs and need to roll huge reforms to build out the Greek economy as per the Maastricht criteria and the discipline required for the loans to keep coming.

Italy also is predominantly marked by Public Sector Enterprises and in addition has to remove controls on numbers on many occupations incl Taxi Drivers  as well as budgetary reform with far reaching consequences. The Italian central bank bond auction was completed at a now greatly slim looking 6.09%.

An easy round of cuts would include a cut-down on its NATO spending too, but the political equation somehow never gets to the utopian “green” motives for spending less, UK and Italy spending nearly $50 bln and $40 bln respectively (2% of GDP)

Meanwhile Spain is proceeding with its balanced budget amendment, trying to cut deficit spending but the Cajas are unable to get near an adequate capital cover, which is the more immediate problem, despite continuing consolidation in the sector.

Earlier Austerity measures signed in Portugal

Italy has agreed to spending cuts and revenue measures worth EUR 120 bln in June and September earlier incl the change in retirement age in step to its deficit cut. Earlier in Portugal, Cavalco Silva’s government had agreed to bring the deficit to 6% in 20011 and 4.5% in 2012 for the EUR 79 bln bailout. The austerity measures were later stepped up in Q3 as the country achieve 70% of its deficit targets in the first half. he stepped up measures incl 0.5% addl tax on bank profits and those of large companies, 1% incl in VAT (Wholesale and retail trade in nearly 35% of the country’s GDP, services a total of 75% with a 9 mln working age population and a low unemployment rate) Austerity measures signed abolished extra bank holidays, moved other bank holidays to Mondays, added 1/2 hour to the working day. The deficit was 9.8% in 2010. Substantial cuts are being made in health and education spending ( amounts to 10% of GDP and 5% of GDP each in Greece, Italy and Portugal)Bonuses have been abolished in Portugal for those above income levels of $1350 pm (EUR 1000) and reduced from one months pay for others

Measures signed in Greece lean more on revenue measures with PSE divestment amounting to an important proportion of the added revenues. Even after earlier privatisation from 2005 onwards, 40% enterprise is state owned. All the peripherals import 60-80% of their needs from EU nations incl UK and Germany. In 2010, out of the $45 bln in FDI to the nation, approx $30 bln came from EU Nations, of which $10-$15 bln to wholesale and retail trade

Spain and Portugal had signed into a deficit reduction agreement when the first bailout was designed for Greece in May  2010 when a Euro stability pact was signed by the Finance Ministers(BBC) of the 17 countries. Portugal had been working on a deficit financed growth before that but had changed tack once the pain became obvious. Italy’s GDP is about 6 times larger than that of tiny Greece where unemployment in the working population was already 36% before the bailout/austerity started in 2010 . Italy’s measured employment in the ages 25-64 is also woefully short of the EU’s 75% target at 61%. Before October only Portugal and Greece were expected to contract within the Euro Club by 2.8% each, now it would also include France and others apart from Italia. Italy has $50 bln of debt coming payable this month and it is suggested ( EU Commissioner Olli Rehn) that if yields go back above 7% the interest outgo for every additional 1% in interest or EUR 22 bln would cause a 1% dip in GDP

Mario monti

Image via Wikipedia

2 comments on “European Sovereign Debt Crisis: S&P reaffirms AAA rating for France, Italy and Greece get new Premiers (Friday Report)

  1. Pingback: European Debt Crisis: OECD reports, Bond data and ‘elite’ bond rumors | The Banking and Strategy Initiative

  2. Melissa
    January 27, 2012

    Superb inofrmtoain here, ol’e chap; keep burning the midnight oil.

    Like

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