They Just Hate Berlusconi

Ahead of Italy's election, an ever longer list of eurocratic indignants is heard condemning the possibility of Silvio Berlusconi receiving the support of voters. That by itself already speaks strongly in the man's favor of course. The latest example is provided by Martin Schulz, the socialist president of the European parliament, and one of the chief 'centralizers' and 'harmonizers' in the EU. 

According to Der Spiegel:

“European Parliamentary President Martin Schulz has warned Italians against voting for Silvio Berlusconi in upcoming elections. He joins a growing list of leaders who are wary of the return of "Il Cavaliere." The worry is particularly pronounced in the financial world.

Back in 2004, Silvio Berlusconi was seen as something of a salve for political wounds that had been plaguing Italy for decades. On May 5 of that year, a slew of newspaper articles pointed to the fact that, having been in office for 1,060 days, Berlusconi had become the longest serving postwar Italian prime minister — beating out the 59 previous governments that had ruled from Rome since 1946.

Even then, of course, he was a divisive figure. His own comparison of his longevity with that of World War II-era dictator Benito Mussolini certainly didn't help. And now, after three terms as prime minister and a fourth looming should he be able to pull out a surprise victory in the election on Sunday and Monday, top German politicians have had enough.

Germany's Martin Schulz, the president of European Parliament, became the latest on Wednesday to warn Italians against casting their ballots for Il Cavaliere. Berlusconi, he said, "has previously sent Italy into a tailspin with his irresponsible actions as head of government and his personal escapades." He said that a lot was riding on the upcoming vote "including the avoidance of gambling away trust."

It is, of course, hardly news that Schulz is no great fan of Berlusconi. In 2003, when Schulz was a rank-and-file European parliamentarian and Berlusconi occupied the position of European Council president, the Italian prime minister took umbrage at critical comments made by Schulz. In response, Berlusconi said: "I know that in Italy there is a man producing a film on Nazi concentration camps. I shall put you forward for the part of guard." The comment unleashed a brief but intense diplomatic tiff between Rome and Berlin.”

(emphasis added)

So apparently Schulz has not forgotten the slightly tasteless remark by Uncle Silvio that provided us onlookers with so much entertainment. It is possible that Italy's voters actually won't like these threats of an 'imminent tailspin' for Italy if they vote for the 'Cavaliere'. Many may well vote for him in a show of defiance. The FT meanwhile reports that 'investors are rattled' by Berlsuconi's good showing in the polls. We will know more on Monday.


20 Percent of Italy's Companies May not Survive the Downturn

Staying with Italy, the CEO of Intesa San Paolo, Enrico Cucchiani, recently opined that 20 percent of Italy's companies are practically at death's door. He should know, given that Intesa was there as well not too long ago. Contrary to the banks, other companies do not have the luxury of a central bank standing ready to bail them out. According to CNBC:

“Twenty percent of Italian companies are set to fail as the recession bites, Intesa Sanpaolo Chief Executive Enrico Cucchiani, told CNBC on Wednesday.

"The top 20 percent of Italian companies in the past three years have seen the top line grow between 35 and 50 percent… but on the other side, unfortunately, the bottom 20 percent has seen top line shrinking 35 to 45 percent, so it's clear that these companies won't make it," Cucchiani, the CEO of Italy's second-largest bank, said in an interview in Milan. He said a wave of corporate collapses will impact negatively on Italy's banking sector.

"It is going to fuel non-performing loans and that makes banks very reluctant to lend to this sort of company. I don't think the problem is availability of funds, but on the issue of risk selection."

The latest gross domestic product data from Italy showed the economy contracted by 0.9 percent in the fourth quarter of 2012, quarter-on-quarter, while figures released on Wednesday suggested a sharp drop in industrial new orders at the end of the year.

Hopes the euro zone as a whole might emerge from recession soon were dealt a further blow on Thursday, as PMI (Purchasing Managers Index) surveys indicated the downturn in the region's service sector worsened in February.

Cucchiani said a destabilization in the Italian economy could pose a risk to the euro zone.  "Italy, because of its size and integration in the Europe economy is a potential risk," he said. "But the risk is currently under control and my assessment is that it will continue to be under control with the new government."

Cucchiani also called for increased financial regulation, in order to combat corruption scandals like those that have beset Italy's Monte dei Paschi bank and defense firm Finmeccanica.

"We need more stringent regulation and also most importantly, more enforcement of regulation… I think corporate integrity is essential because businesses work on trust and trust is an essential element in the global economy, so when you have scandal it is very hurtful to the overall economy," he said”

(emphasis added)

In reality of course we do not need 'more regulation' – all we need to do is abolish central banks, introduce a free banking system and end fractional reserve banking (which is a violation of property rights and causes boom-bust cycles). Then all the rest of the existing banking regulations could be away more or less thrown out of the window.

It is however not surprising to see the CEO of a big bank call for 'more regulations', as he knows this will keep competition from upstarts at bay. Overleveraged clumsy giants like Intesa would soon succumb if there were free competition in banking based on sound traditional legal principles.

More Minimum Wage Propaganda from the NYT

The New York Times has spotted yet another place that apparently requires improvement by meddling 'progressives'. This time Germany stands accused of  practically practicing slavery. The reason: there is no minimum wage regulation in Germany. Of course there is also very low unemployment in Germany, in spite of Europe's ongoing economic crisis. According to the NYT it would be far better to render all the low-skilled workers in Germany unemployed, so that they can enjoy the distant prospect of a 'minimum wage' while queuing for the dole:

“Low unemployment and steady growth despite the global downturn have made Germany the envy of its less robust European partners. But hidden behind the so-called German economic miracle is an underclass of low-paid employees whose incomes have benefited little from the country’s stability and in fact have shrunk in real terms over the last decade, according to recent data.

And because of government policies intended to keep wages low to discourage outsourcing and encourage skills training, the incomes of these workers are not likely to rise anytime soon.

That, in turn, means they are likely to continue to depend on government aid programs to make ends meet, costing taxpayers billions of euros a year.

The paradox of a rising tide that does not lift all boats stems in part from the fact that Germany has no federally set minimum wage. But it also has its roots in recent German politics, which have favored measures to keep unemployment low and win support from employers.”

(emphasis added)

This makes it almost sound as though the low-paid workers would cost tax payers less if they were completely unemployed (of course the NYT falsely assumes that distorting the labor market by introducing a minimum wage above the market rate would somehow magically leave employment intact). What remains unmentioned in the NYT article is that the decline in real wages has absolutely nothing to do with evil capitalists exploiting workers, but is the result of the loose monetary policy implemented by the ECB and other central banks.


Japan's Taro Aso: Trade Deficit 'A Problem'

Reuters reports that Japanese finance minister Taro Aso is getting worried about Japan's growing trade deficit:

“Finance Minister Taro Aso said on Thursday it would be a problem if Japan continues to run a huge trade deficit due to rising energy costs. Japan is now importing more oil and gas to make up for energy shortfalls after the shutdown of nuclear power plants due to the March 2011 earthquake, Aso said in parliament.

"Import prices are rising sharply and as a result Japan is running a huge trade deficit. If this continues, it would be a big problem for Japan," Aso said in response to a question by a lawmaker on whether the yen's recent falls are becoming more problematic than beneficial for Japan by boosting the cost of fuel imports. Aso declined to comment directly on recent yen declines.”

(emphasis added)

We can believe that Aso regards this as a problem – after all, if Japan's government were forced to increasingly rely on foreign financing of its huge deficits and public debt, then the whole house of fiscal cards could come tumbling down very quickly.

EU Commission Downgrades Outlook for France

Marketwatch reports that the EU commission has finally noticed that the French economy is going down the drain:


“The EU Commission is expected to worsen its already grim forecast for France's economy and budget deficit this year, French media reported on their websites late Wednesday, citing a report due out Friday. The commission's economic experts have reduced their forecast for France's economic growth this year to 0.1% from 0.4% before, Le Monde and Le Point reported.

The country's deficit is now forecast at 3.6% of GDP, up from a prior 3.5% estimate made last fall, the newspapers said, and thus missing the Maastricht treaty target of 3%.”

(emphasis added)

We expect that the 'grim forecast' could well become grimmer as the year progresses. Then the deficit target 'miss' will become larger as well.

Stock Market Rally in its 'Infancy'

Stock market bulls have been falling over each other lately in predicting 'permanent plateaus' and even 'Dow 60,000'. This happens just as measures of market risk are at extremes that are truly rare. The mutual fund cash-to-assets ratio has for instance just hit a new all time low.

But this report may take the cake: After rallying from 666 points in 2009 to over 1,500 points today, we read on Yahoo that the 'rally is in its infancy'. We wonder only where those people were when it really was in its infancy back in 2009. A strong belief in the efficacy of central planning is invoked (presumably because it has worked so well in 2002-2008? It is hard to tell).

“What is the basis for such optimism? After all, didn’t GDP contract slightly in the fourth quarter? While it is true that growth has been disappointing, the headwinds that have restrained GDP are abating. The big macro uncertainties of Europe and China have receded dramatically. At the same time, with each passing month we get closer to greater clarity on how the fiscal cliff standoff will play out. Even a bad deal will at least remove the scary nature of a big unknown. The diminishing risk of fat tails will allow the cumulative impact of negative real interest rates to gain traction.

Quantitative easing is working. It has kick-started a recovery in housing and autos, traditionally the two key leading sectors of recovery. It has also led to extremely buoyant conditions in credit markets, a boon to medium-sized businesses. What few investors have realized is that the Bernanke game plan is meeting with tangible success. This explains the market’s extraordinary resilience. But whereas QE1 and QE2 were crisis-fighting policies, QE3 was designed as a proactive, outcome-based program. The desired outcome? An unemployment rate of less than 6.5% (versus today’s 7.8%).”

(emphasis added)

And of course, it is 'not a bubble' and we only need the good old 'animal spirits' to reawaken:

“Only a much faster rate of economic growth can drive unemployment down to that level. The sequencing is really quite simple. Keep rates across the whole maturity spectrum low enough for long enough and capital markets are lifted above a critical threshold. What is that critical threshold? The point at which financial conditions become so benign that they awaken good old animal spirits in the real economy.

While some dismiss Fed policy as creating the next bubble in credit markets, this is a misuse of the word bubble. A bubble describes an excess that eventually self-destructs. This, in contrast, is a healthy tonic for a very fragile economy. It is the only pathway out of a long-lasting liquidity trap. Just ask the Japanese about whether liquidity traps cure themselves. They don’t. It takes a policy shock. This is exactly what the Fed is delivering. The precondition for a better economy is a powerful and long-lasting rally in stocks and credit, thus driving down the cost of capital for American business.”

(emphasis added)

Exactly! All we need is a severe mispricing of capital imposed by a central planning agency, and magically everything will be alright again! Why have we never thought of this before?



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One Response to “Tidbits, February 22”

  • Nice tidbits. Having watched plenty of Nigel Farage clips, Berlusconi clearly has Schultz nailed. Looks like Germany has an economy that works, while NYC merely needs more money to fund its guzzling organized crime syndicate government. Aso might be figuring out pretty fast that the cost of imports will go up faster than the exports come in and decide it might be better to let their workers keep what the make instead of give it away. Using devaluation to run trade policy is so clearly stupid that one has to wonder if the economists are lying or went to schools that only take idiots. The stock market bulls are clueless, as the market has never left bubble territory, save for maybe the 2009 bottom in the past 20 years.

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