Firstly to Italy where there is still no outcome of the election. To add to the trouble it is supposedly up to the President of Italy to sort out the political mess but his seven year appointment will end on May 15 and now the same broken parliament is supposed to vote on a new one. In an attempt to get something happening in the short time period the President, Gorgio Napolitano, has set up two groups of experts, including members of political parties, to break the dead lock. So far this has achieved nothing and the country looks set to see the beginning of new presidential elections on April 18 with no government formed. There is the potential for many rounds of presidential vote given the 2/3 majority required in the first 3. Given the lack of President and other technical issues it could be that we don’t see another parliamentary election in Italy until late 2013. All the while the economy continues to weaken as the social costs mount.
In Spain the banking system has had yet another slap in the face from the ratings agencies, on the back of the government’s own downgrades of its future economic growth:
The outlook for Spain’s banks remains negative as recession threatens to push up loan defaults across all asset classes in the euro area’s fourth-largest economy, Moody’s Investors Service said.
“The main driver of the outlook is the rating agency’s expectation that the banks will continue to operate in a recessionary environment burdened by high levels of non- performing assets that are expected to significantly deteriorate further,” Moody’s said in a statement today.
An economic slump entering its sixth year is driving up loan defaults for banks already struggling with the impact of low interest rates and weak credit demand. Bad loans as a proportion of total lending stand at 10.8 percent after about 160 billion euros ($208 billion) of credit turned sour since early 2007 amid the country’s property crash.
On the back of Cyprus the “what’s going to happen to my deposits when my country goes splat” story continues at pace with new statements from Olli Rehn quoted in the Telegraph:
“Cyprus was a special case … but the upcoming directive assumes that investor and depositor liability will be carried out in case of a bank restructuring or a wind-down,” Mr Rehn, the European Economic and Monetary Affairs Commissioner.
“But there is a very clear hierarchy, at first the shareholders, then possibly the unprotected investments and deposits. However, the limit of €100,000 (£85,000) is sacred, deposits smaller than that are always safe.”
The issue is, however, that it wasn’t sacred 3 weeks ago when the first cut of the Troika plan for Cyprus demanded all depositors be bailed in. Of course, if the European leaders had actually bothered to move along the path of enactment of the 4-pillar banking plan they supposedly agreed to back in June 2012 this conversation would have been a very different one. Mario Draghi made reference to this exact point in his April 4th press conference.
However, since the politicking around Europe’s “chicken and egg” issue of fiscal integration versus mutual obligation hasn’t moved on for over 18 months, very little has been achieved in terms of structural or legal frameworks so the “plan” for Cyprus was yet another slap-dash last minute mess which is likely to have flow-on consequences for many months to come. Again I do have to wonder what deposit holders in places like Portugal are thinking.
Speaking of Portugal, the Constitutional court has struck down some elements of the government austerity program as unconstitutional, putting in doubt the ability for the government to meet its current obligations under the IMF program. Of course, if you’ve been reading MB for some time, you may have already realised that the government was failing to meet those obligations anyway due to the negative dynamics that the program was causing, but that point aside the government, and the Troika, now has a serious legal issue:
The Portuguese government says it does not agree with a ruling that aspects of its austerity budget are unconstitutional.
The budget was approved by parliament last year and was seen as crucial to austerity efforts promised to creditors by the centre-right government.
But the Constitutional Court has ruled aspects of the budget unlawful, including the scrapping of a 14th month of salary for civil servants and retirees, and cuts to unemployment and sickness benefits.
Court president Joaquim Sousa Ribeiro said the court’s decision covered all of 2013 and therefore carries retroactive powers.
“It’s the laws that need to conform to the constitution and not the other way around,” he said.
The budget had been expected to bring Portugal 5.3 billion euros in savings, and the verdict will reportedly see the country lose out on about 1.2 billion euros of that.
Portugal’s government held an extraordinary cabinet meeting on Saturday.
A government spokesman said the verdict “makes it difficult” to to implement budget cuts promised to creditors as part of a multi-billion-dollar EU-IMF bailout granted in 2011.
So another week of fumbling about for the EZ.