There is one thing you can say about Europe, they never waste a crisis, the side show soap opera spectacular continued last night. It has been going on for so long now that the market seems to have set itself false goals and then managed to convince itself that they equate to something important when they get there. A resolution of the political issues in Greece and Italy, not that we are there yet, matters very little at this juncture. It has very little to do with the actual problems of the European economy and at this stage equate to little more than a shuffle of chairs on the Titanic.
If you are , however, wondering whether these moves will lead to a loss of sovereignty by both the Italian and Greek citizens then you need not go no further than this paragraph from an article from the Wall Street Journal posted today:
German Chancellor Angela Merkel thanked Mr. Papandreou on Monday “for his courage and decisiveness” in leading Greece throughout the financial crisis.
Ms. Merkel had expressed in a phone call her “respect for the decision” by Mr. Papandreou to step down, and said Greece’s new government must be ready to implement reforms decided in Brussels in late October.
Maybe the Italian and Greek people are happy to handover the steerage of their country to some unelected European bureaucrats, but I am sure they would want to vote on it first.
Overnight Berlusconi lost control of his parliament and after some deliberation seems to have decided to quit, but with strings attached:
Italian Prime Minister Silvio Berlusconi confirmed on Tuesday that he would stand down after a new budget law is approved in parliament.
“After the approval of this finance law, which has amendments for everything which Europe has asked of us and which the Eurogroup has requested, I will resign, to allow the head of state to open consultations,” he told his own Canale 5 television.
The comment, which confirmed an earlier statement from President Giorgio Napolitano, came after his center-right coalition failed to secure a majority in a crucial vote in the lower house, securing only 308 votes in the 630-seat chamber.
“This parliament today is paralysed, as far as the lower house is concerned,” he said.
“In the Senate, the center-right still has a good majority. However with the defection of seven members of the ruling majority today, the government does not have the majority we thought we had and so we have to take account of this situation realistically,”
He said Italy was in a “difficult position” with regard to financial markets and had to demonstrate that it was capable of serious reforms. He added that the only realistic option as far as he could see was new elections.
Berlusconi will now step down, but only after the parliament has implemented budgetary changes to satisfy the rest of Europe. Although he is calling for new elections it is not his decision. Once he steps down the Italian President has the ability to re-form parliament under a new leader if it can be negotiated. It is yet to be seen, however, whether a junior coalition party, the Northern League, would come on board with such a plan given they have been calling for fresh elections in the event that Berlusconi resigns. If that turns out to be the case then the parliament may only be able to go as far a Greece and form a unity government to steer the country into new elections. There is obviously a lot more to come on this, but it is likely the President will want to avoid the instability of elections if he can.
I am also a little skeptical that Berlusconi won’t try to lob a pertard on his way out, he certainly has form. Which gestures at an irony in this resolution for Italy. At least Berlusconi’s Machiavellian dealings with Europe held the austerity juggernaut at bay. Any smoothing of political resistance to further fiscal cuts can only worsen the consequences for Italy’s already crashing actual economy.
The Greece situation has been dragging on but appears to be coming to a resolution:
Greece’s Socialist Prime Minister George Papandreou asked his ministers to prepare their resignation letters Tuesday and was expected to name former European Central Bank Vice President Lucas Papademos as prime minister of an interim government, barring any hitches.
The announcement follows days of talks between the Socialist government and the opposition New Democracy party over a new leader to head the government.
Mr. Papademos was seen as the front-runner, but his candidacy appeared to run into hurdles Monday after he placed conditions under which he would serve. “Mr. Papandreou is meeting with Mr. Papademos and many of Mr. Papademos’s requirements have been met,” a senior official said. “Unless there is a last-minute breakdown, I expect him to be the interim prime minister.”
Government spokesman Elias Mossialos said he expected the ruling Socialists and their conservative rival, New Democracy, to make an announcement soon, adding that talks on the new government were still under way. He also said Mr. Papandreou asked his cabinet ministers to be ready to make way for the new government.
In far more important news, Eurozone finance ministers have announced that they plan to finish technical work on increasing the EFSF bailout fund to around 1 trillion euros by the end of November to prepare it for deployment in December. It is still to be verified which actual ‘leverage’ mechanism the facility is going to use. Obviously the big concern about the fund is whether anyone will want to actually ‘invest’ in it. If this weeks bond offer is anything to go by then the answer is NO:
Top officials of the euro zone’s bailout fund played down the subdued demand it drew Monday for a 10-year bond offer, and one told a newspaper the fund was working on plans to tap shorter-term debt markets.
The European Financial Stability Facility’s Financial Officer, Christophe Frankel, told Boersen-Zeitung the transaction, in which subscriptions only just covered the 3 billion euros of debt on offer, reflected an unstable market environment rather than funding risks.
“In addition investors are uncertain with a view to the (future role of the) EFSF. For this reason, orders were weaker than usual,” he said, adding the transaction — which also paid higher yields than previous EFSF bond sales — was “solid.”
In Brussels late Monday, EFSF head Klaus Regling also cited the “very difficult” market climate and uncertainty about the fund’s future profile as factors in the sale.
You can read more on the actual sale here, but struggling to raise 3 billion euros and at the equivalent of 177bp over the Bund isn’t looking convincing.