Friday, 30 March 2012

Greece and Italy

Analysis: Storm clouds gather over Monti's Italy reform drive
Storm clouds are gathering over Mario Monti's efforts to transform the Italian economy, with his approval ratings dropping, mounting protests against his reforms and a damaging row with the parties that sustain him in parliament.

29 March, 2012

Monti shot out of the blocks after being appointed prime minister in November and quickly implemented tough austerity measures to fend off the debt crisis. But he now risks running into political quicksand that will slow down and weaken the much harder task of reviving a notoriously stagnant economy.

A labor reform that is at the centre of Monti's program has hit heavy opposition, forcing him to abandon immediate implementation and accept a parliamentary debate that will delay the law for months and could lead to it being diluted.

The reform has also caused rifts in the centre-left Democratic Party, his second-biggest parliamentary backer, destabilizing the alliance on which he depends to govern.

Italy's borrowing costs, which fell sharply after Monti took power, have also begun to creep upwards recently, reflecting in part the increased political uncertainty.

The technocrat premier was widely criticized by both politicians and commentators in Italy on Thursday for an outburst against the parties from Japan, where he was on an Asian tour intended to drum up foreign investment.

Monti told reporters: "The government enjoys high support in opinion polls, the parties do not." This followed remarks in South Korea where he threatened to step down if the parties and trade unions didn't like the job his administration was doing.

Both remarks betray Monti's irritation at political sniping and opposition to his measures, particularly the key labor reform. They also mark a departure from the statesmanlike demeanor he adopted earlier in the year when he never lost an opportunity to laud the parties' sense of responsibility.

Judging from reaction on Thursday, the previous approach was more prudent, and the former European Commissioner may have overplayed his trump card - the extreme reluctance of the parties to lead a government that must take painful and unpopular measures to ward off financial disaster.

"This muscular exhibition risks compromising the good things achieved so far by this government, backed by responsible political parties," commentator Pierluigi Battista said in a front-page editorial in the respected Corriere della Sera daily.

Democratic Party (PD) leader Pier Luigi Bersani, under heavy pressure from the party's left wing over the labor reform, quickly shot back at Monti, underlining the interdependence between technocrats and politicians.

"Either politicians and technocrats convince the country together or ... we will all get a kicking," Bersani said.


Monti was appointed as Italy tottered on the brink of a Greek-style debt crisis and politicians suffered widespread contempt for failing to head it off.

But to govern, he is dependent on a grand political coalition stretching from the centre-left to the centre-right.

Monti's irritability may reflect a drop in his approval ratings because of the labor reform, intended to free up a sclerotic dual system that gives cast-iron protection to older workers on permanent contracts while condemning many young people to endless temporary contracts without benefits.

Most Italians do not seem to believe Monti's assertion that a reform making it easier to fire people will also create a fairer jobs market. A poll on Sunday found 67 percent of people opposed the measure.

The same poll showed Monti's support falling to 44 percent last weekend from 62 percent in early March, although another poll on Wednesday registered a more modest drop to 55 percent this month from 59 percent in February.

Nevertheless, his approval is way higher than that of the major parties, whose ratings are still below 30 percent.

Monti's problems also reflect two other factors, one an ironic consequence of his own success, and the other a signal of the return to centre stage of politicians who were cowed by the economic emergency but are now vying to retrieve some of their support in local elections on May 6-7, the first substantial electoral test since the technocrat government took power.

Monti's major prestige abroad, his sobriety and obvious expertise have contributed to a slide in Italy's borrowing costs from an untenable level above 7 percent in November to more manageable levels of around 5 percent.

This reduced the pressure for politicians to go along with his reforms and also encouraged trade union opposition.


The biggest union, the leftwing CGIL, has threatened a general strike against the labor reforms and all the three main union confederations have announced a joint protest on April 13 against a pension reform that was passed in December to muted opposition and is seen by many as Monti's biggest achievement.

Monti's problem is that the easing of debt pressure and his own stumbles over the reform have left space for a revival of political squabbling between the grand coalition's right and left, which will make future reforms more difficult and revive anxiety in financial markets already on edge about Spain's economic difficulties.

Parliamentary debate on the labor reform is likely to see the PD trying to weaken the changes and the centre-right People of Freedom (PDL) party of former Premier Silvio Berlusconi pulling in the opposite direction.

The PDL, backing the position of employers, opposes any changes and says the bill should have been implemented immediately. But if there are changes, it says they must be balanced between right and left, risking prolonged debate.

None of this suggests Monti's days are numbered, only that they may be a great deal more difficult from now on.

With a general election in a year, the parties struggling to overcome their low public esteem and a crisis of identity caused by Monti's wind of change, none want to risk toppling him and provoking a new market storm.

In addition, there is almost no chance of an election now being held before next spring - the season when Italian polls traditionally take place. All sides swiftly denied a recent rumor that there could be a vote in the autumn.

So Monti will no doubt soldier on out of a sense of duty, with the constant danger that his difficulty in passing deep reform will again upset the markets and reverse the progress he has made in restoring respect for Italy.

Greece May Have to Restructure Again, S&P’s Kraemer Says
Greece will probably have to restructure its debt again and this may involve bailout partners such as European governments, said Moritz Kraemer, head of sovereign ratings at Standard & Poor’s.

28 March, 2012.

There may be “down the road, I’m not predicting today when, another restructuring of the outstanding debt,” he said at an event in London late yesterday. “At that time maybe the official creditors need to come into the boat.”

Speaking at the same event at the London School of Economics, Poul Thomsen, the International Monetary Fund mission chief to Greece, said while Greece has made an “aggressive” fiscal adjustment, it will take at least a decade to fully complete the country’s reforms.

Caretaker Prime Minister Lucas Papademos won parliamentary approval on March 21 for a second 130 billion-euro ($173 billion) rescue program. Passage of the legislation moves the country a step closer to elections that may be held as early as next month. Greece pushed through the biggest sovereign debt restructuring in history earlier this month, paving the way for the bailout.

Thomsen said that after the elections, there is “no doubt it will have to reduce its fiscal deficit.” He also said it’s not clear when Greece will be able to return to markets.

It remains uncertain, with this high level of debt and the risks the program faces because of possible resistance to reforms, when market access will return,” he said. “There’s no room for manoeuver or policy slippage.”

Rescue Funds

The euro rose 0.1 percent against the dollar today and traded at $1.3334 as of 8:06 a.m. in London. It was little sovereign ratings at Standard & Poor’s.

Italian Prime Minister Mario Monti said this week that the euro area’s woes are “almost over” after a slow initial response by policy makers. Still, European governments are preparing for a one-year increase in the ceiling on rescue aid to 940 billion euros ($1.3 trillion) to keep the debt crisis at bay, according to a draft statement for finance ministers.

The euro-area finance chiefs will probably decide at a meeting tomorrow to run the 500 billion-euro permanent European Stability Mechanism alongside the 200 billion euros committed by the temporary fund, a European official said yesterday.

Temporary Fund
Beyond that, they are also set to allow the temporary fund’s unused 240 billion euros to be tapped until mid-2013 “in exceptional circumstances following a unanimous decision of euro-area heads of state or government notably in case the ESM capacity would prove insufficient,” according to the draft dated March 23 and obtained by Bloomberg News.

Thomsen said that while Greece’s fiscal adjustment has been “unprecedented, very impressive, and undoubtedly socially very painful,” a “major adjustment is still needed, of 6-7 percent of gross domestic product.”

Kraemer said that the priority some creditors have been claiming, such as the European Central Bank, is complicating the ability of Greece to lower its borrowing costs and be able to return to bond markets.

More and more official creditors have been jumping the queue and becoming so called preferred creditors, which means in the case of a restructuring they do not participate,” he said. For “the regular bond holders, the risk increases significantly. That means that the investor will demand a higher interest rate from Greece and that makes it harder for Greece and other countries on the periphery to establish a sustainable debt trajectory going forward.”

Monetary Union

Kraemer said that while making adjustments in a monetary union is “more difficult,” it’s not an impossible task “if the political preconditions and flexibility are there.”

European officials said this week that Greece must step up efforts to tighten the budget and overhaul the economy to prevent the second bailout from collapsing.

Without a regime change in policy implementation and a much broader political consensus in favor of painful but necessary reforms, there is a high risk that the program derails,” ECB Executive Board member Joerg Asmussen said. “Political courage is needed more than ever.”

Asmussen’s comments were echoed by EU Economic and Monetary Affairs Commissioner Olli Rehn, who said that “challenges remain” as Greece seeks to cut its debt to around 116 percent of gross domestic product in 2020 from more than 160 percent of GDP last year.

Two men torch themselves in Italy as hardship bites 

A Moroccan worker in Italy set himself on fire on Thursday in protest at not being paid for months, a day after an Italian businessman set himself alight over a tax dispute, police said

29 March, 2012

The 27-year-old construction worker is recovering in hospital after dousing himself in petrol and lighting it outside Verona city hall in northern Italy, police said.

Police said the man told them he was desperate after not being paid for four months and running out of money.

On Wednesday, a 58 year-old businessman tried to commit suicide by setting himself on fire in his car outside a tax office in nearby Bologna. His appeal against a demand for thousands of euros in allegedly unpaid taxes had been rejected, according to Italian media reports.

He is being treated in hospital for severe burns.

The government of technocrat Prime Minister Mario Monti is cracking down on tax dodging, which authorities estimate deprives Italy of an around 120 billion euros ($160 billion) a year.

Unions say austerity measures, including tax hikes, spending cuts and pension changes, weigh disproportionately on ordinary workers.

Vincenzo Scudiere from Italy's CGIL trade union said the construction worker's self-immolation was a "symptom of the utter exasperation felt by the weakest employees," and warned the government not to underestimate discontent among workers.

The government presented labor reforms last week which face tough opposition from unions that are planning protests and strikes against measures that will make it easier to fire staff.

Sandro Bondi from the large centre-right People of Freedom party said the crisis spared neither workers nor bosses.

"The tragic tale of the businessman ... should help people realize that the divisions between workers and businessmen are a fantasy of the past," he said.

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