Wednesday, 13 July 2016

Bank runs in Italy?


11 July, 2016

We have numerous reports of BANK RUNS taking place right now throughout Italy.  Reports of lines of people at ATM's are draining the automatic tellers of all cash.
This comes after weeks of speculation about the health of several Italian banks, including the oldest Bank Monte dei Paschi, which has been in business since the year 1472 - twenty years before Columbus discovered America!
Snce March of this year, SuperStation95 has been reporting the Italian banking system is a “leaning tower” heading toward collapse at literally any moment.  And as Italy’s banks begin to go down like dominoes, it is going to set off financial panic all over Europe unlike anything we have ever seen before. 
We even wrote about the troubles in Italy back in January, but since that time the crisis has escalated.  At this point, Italian banking stocks have declined a whopping 68 percent since the beginning of 2016, and when you look at some of the biggest Italian banks the numbers become even more frightening. 
Shares of Monte dei Paschi were down 4.7 percent, and they have now plummeted 86 percent since the start of the year.  Shares of Carige were down 38 percent, and they have now plunged a total of 88 percent since the start of the year.  This is what a financial crisis looks like, and just like we are seeing in South America, the problems in Italy appear to be significantly accelerating.
So what makes Italy so important?
Well, we all saw how difficult it was for the rest of Europe to come up with a plan to rescue Greece.  But Greece is relatively small – they only have the 44th largest economy in the world.
The Italian economy is far larger.  Italy has the 8th largest economy in the world, and their government debt to GDP ratio is currently sitting at about 132 percent.
There is no way that Europe has the resources or the ability to handle a full meltdown of the Italian financial system.  Unfortunately, that is precisely what is happening.  Italian banks are absolutely drowning in non-performing loans, and represents “the greatest threat to the world’s already burdened financial system."
As this "run" continues, Italian banks will fail and be closed.  Once they are closed, it will begin to take out big banks elsewhere in Europe, from whom the Italian Banks have borrowed.  That will spark bank runs in Europe, and some very  (VERY) large banks in Europe will fail.  Once that happens, it will hit Banks in the USA . . . . game over.
We encourage readers in the rest of the world to have CASH MONEY in their possession at home, in case banks are closed for a "bank holiday" which could last for WEEKS.   If the banks are closed, CREDIT and DEBIT CARDS WILL NOT WORK.  You have to have enough cash to survive . . . enough to buy FOOD and perhaps FUEL.  Never mind paying bills; this could end-up being "survival."  Folks without cash will starve.
 Earlier today in Rome:


Eurogroup head Jeroen Dijsselbloem earlier today said he was not "particularly" worried about Italian banks. More interesting was his insistence that “there have always been and will always be bankers that say ’we need more public money to recapitalize our banks.... and I will resist that very strongly because it is, again and again, hitting on the taxpayer." He then added that"the problems with the banks need to be sorted out in the banks and by banks.”
He sided further with Germany's Angel Merkel camp when he said that he finds the ease in which bankers ask for public funds to sort out problems is “very problematic.”
Dijsselbloem added that “there has to come an end to” bankers asking politicians to solve their problems.
His statement comes just a day after David Folkerts-Landau, the chief economist of Deutsche Bank,called for a €150 billion bailout for European banks, confirming that it is no longer just an "Italian" issue.
Dijsselbloem's further comments showed that he won't be easily swayed absent a market-wide panic and/or a steep slump in the economy.
I think they’re talking constructively to try and find solutions within the European frameworks,” says Dijsselbloem before a meeting in Brussels Monday cited by Bloomberg. “Yes, there are issues of non-performing loans in the Italian banks, but that’s not a new issue. It needs to be dealt with. It will have to be dealt with gradually. There will be no big solutions.”
It’s not an acute crisis. That also gives us some time to sort these things out. So as long as the authorities in Italy and the banking authorities are constructively talking, I think we should allow them the time to do that”
BRRD rules are “clear. They are, of course, also strict in the sense that they make very clear when there needs to be a bail-in and who needs to be bailed-in in what order. And within that framework a solution still can be found. I mean, you still have to deal with banks sometimes. And it’s still possible. But it has to be done within those rules."
Customers wait for access to ATM's
He wasn't the only one. Also today Austrian Finance Minister Hans Joerg Schelling says he has “no” sympathy for bending bank bail-in rules.  "Europe has few rules, but these rules must be adhered to. And we can’t discuss the rules every two years. If we give ourselves rules, we must apply them."
His punchline was one we first noted two weeks ago, when Renzi tried to scapegoat the Italian push for a bailout on Brexit: "What’s happening in Italy has nothing to do with Brexit. The non-performing loans under discussion for offloading into a bad bank have been around for many years and have nothing to do with Brexit. One shouldn’t use Brexit as an excuse for one’s own failures. I expect there to be a tough position” toward Italy.
Needless to say this was the worst possible news for an Italian banking sector which many view as the next contagion hotspot, and which as the chart below shows continue to trade at crisis level.

And further coverage

And from the reliable Mish Shedlock

Italy’s Miserable Eurozone Experience: 20 More Years of Woe Coming

12 July, 2016

The Euro was supposed to lift all boats. Italy was left behind, and will stay there for two more decades according to the IMF.
The IMF has warned that Italy faces two decades of stagnant economic growth.
Its latest report on the country puts growth this year at under 1%, down from its previous 1.1% estimate, and forecasts growth in 2017 of about 1% – down from a 1.25% estimate.
The IMF says Italy will not reach pre-crisis levels until 2025, by which time its neighbours will have economies 20-25% above 2008 levels.
Italy is the third largest eurozone country.
It has 11% unemployment and a banking sector in crisis, with government debt second only to that of Greece.
Italy GDP 1961 to Present
Italy GDP Since Joining Eurozone
Charts from World Bank.
Italy has been in decline for a long time. The eurozone was supposed to help. It didn’t.
Decline and Fall of Italy
Italy vs. Eurozone
The Economist discusses The Italian Job.
Italy’s experience within the euro zone has been miserable. It has been in recession for five of the past eight years. Real (ie, adjusted for inflation) GDP per person is lower than in 1999. Sovereign debt has risen above 130% of GDP. Worse, Italy’s economy is woefully uncompetitive. Since 1998 productivity has fallen steadily. Labour costs, however, have not. Since Italy joined the euro, exports have ceased to be a driver of growth, which has consequently slowed. A slowdown is not something a country with such daunting debts can afford.
There is no shortage of explanations for Italy’s slump in productivity. Thanks to punitive regulation of labour and product markets, it is one of the most expensive places in the rich world to start a new business. Taxes and red tape strongly discourage productive firms from growing very large. Nearly 70% of Italian workers labour in firms with fewer than 50 employees, compared with about a third in America. The government taxes income from labour far more heavily than consumption, discouraging work (and encouraging evasion). Perhaps most worrying, the share of young Italian workers with a university degree is among the lowest in the rich world. At just under 10%, the share of highly educated Italians living abroad is also among the highest in the rich world.
The slowdown in productivity occurred just as Italy joined the single currency. Some economists see this as coincidental. The euro was born just as the global economy was undergoing a rapid bout of globalisation. Italy’s small firms did not scale up to capitalise on emerging-market demand, as Germany’s did. By the same token, its under-skilled population could not take advantage of the rising return to trade in professional services, as firms in America and Britain did.
Rather than waiting for productivity to rise, a quicker route to faster growth is to drive down wages. Indeed, Mr Renzi’s advisers suggest that the government may seek to impose a decentralised wage-setting process if negotiations between trade unions and industry do not yield one.
Yet even the benefits of wage restraint could be disappointing. Germany’s competitiveness drive occurred during an era of relatively strong global growth and relatively buoyant inflation, which made the suppression of real wages both less painful and less noticeable. Italy will enjoy no such help. Any growth scheme that rests on falling wages is unlikely to endear Italians to Mr Renzi. For his reforms to work, he will need time that voters are unlikely to grant him. Keeping Italy happy enough to stay in the euro zone will, in the short term, take much faster growth across the euro area as a whole, fostered by continued dovishness from the ECB and less finickiness from the European Commission.
If the euro area is to keep Italy on board, it will need to become a bit less austere and a bit more Italian.
Italy Roundup
Mike “Mish” Shedlock

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