'Italy is on the brink of a full-blown banking crisis'

Mises Institute
Joseph T. Salerno, Mises Institute

As several articles over the past few days have indicated (here, here,here and here), Italy is on the brink of a full-blown banking crisis.

Bad debts, or "non-performing loans," held by the banking sector total 360 billion euros, which is a remarkable 17 percent of all the outstanding bank loans in Italy and equal to about one-fifth of the annual Italian GDP.

It is also many times the level of bad debt held by Italian banks at the peak of the financial crisis in 2008. Since the beginning of 2016, prices of bank stocks have decreased by more than 50%.

In the case of Italy's oldest and most troubled bank, Banca Monte dei Paschi di Siena, its share price has declined more than 75%. It doesn't help that the Italian economy is struggling mightily to recover from the last financial crisis and is still 8% smaller than it was in 2008 and roughly the same size as it was at the end of the twentieth century.

The Italian government is considering bailing out the banks in defiance of EU rules concerning "bail-ins." These rules require that a bank's creditors, especially bondholders, "take haircuts" before taxpayer funds can be used to "recapitalize" the banks.

The Italian government is reluctant to follow these rules because almost half of the banks' junior, or subordinated, bonds, about 31 billion euros worth, have been sold on the retail market to households and individuals rather than to professional investors. In the case of insolvency, the holders of junior bonds are the last of the bank's creditors to be paid.

In its appeal to the EU to suspend its bail-in rules, the Italian government is portraying the retail purchasers of these bonds as small and naive savers. But this does not ring true. In 2015 the Italian government rescued four small banks. In compliance with EU rules it put the burden of the rescue on bank creditors rather than taxpayers. As a result, 12,500 "small savers" lost a total of 430 million euros on junior bonds. That is an average of 34,500 euros lost per bondholder.

Let us consider these "small savers" whom the Italian government is so eager to protect. In 2013, net wealth of the median Italian household was 145,469 euros, including real and financial assets. It is hard to believe that a household which was savvy and disciplined enough to accumulate this amount of net wealth would be so naive as to rashly invest almost one quarter of it in risky junior bank bonds, especially considering that total bank bonds constituted around 3% of gross household wealth in 2013.

The reasonable inference is that subordinated bank bonds are a small part of the diversified portfolios of those households whose net wealth is far in excess of the median, that is, rich and likely politically connected households. This would explain why the Italian government is so hell bent on using taxpayer funds from the get-go to bail out the banks.

Negotiations between the Italian government and the EU on this issue may soon be rendered pointless, however, if "various unconfirmed rumors of Italian cashless ATMs end up being true."

​When looking at the worst case scenario and if Britain didn't remain in the single market, Mr Mitchell said that it could impact consumer living and increase cost of goods.

Home prices are falling in one of the world’s most expensive housing markets after the Brexit vote.

The London downturn is adding to growing evidence that pre-referendum warnings of woe are beginning to take shape — prompting the Bank of England on Thursday to slash interest rates to 0.25 percent as part of a broader effort to revive the economy. There has been no hard economic data released since the vote. But a cluster of early indicators and business surveys suggest that Britain may be facing its worst downturn since the 2008 global financial crisis.

One July survey showed the construction industry suffering its steepest decline in seven years. This week, Britain’s National Institute of Economic and Social Research predicted an economic contraction of 0.2 percent between June and September, putting the odds of a recession next year at 50 percent.

Perhaps nowhere is the pinch being felt more than in the wild world of London real estate, where flashy offices designed like coffee bars front for a business known for strong-arm tactics and a ruthless press for profit. In the run-up to the June vote, the market had already begun to slip — a combination of pre-referendum jitters and an increase in transaction taxes­ that dampened sales.

But after the vote to leave, prime central London property prices dropped 1.5 percent in July, marking the steepest fall since October 2009, according to the real estate agency Knight Frank. The softening is bleeding into rents, too, which in some parts of central London have fallen as much as 8 percent since January. Some large London real estate companies, such as Foxtons, are blaming Brexit for double-digit drops in profits.

But with average asking prices to rent a two-bedroom flat in central London hovering around $5,200 a month, some locals — renters and buyers — see the softening as marvelous news. London’s new mayor, Sadiq Khan, who was fiercely pro-remain, campaigned on the promise that, if elected, 50 percent of the new homes built in the city would be “genuinely affordable.”

In the wake of Brexit, he has also called for London to be given more powers over how it spends its money, including more control over housing and planning. Unaffordable housing has become a chronic problem here — with a new report this week showing home ownership falling to a 30-year low.

In London, globalization and open migration from Europe boosted the city’s fortunes in recent decades — but they also helped drive prices­ up. Some Londoners who strongly supported staying in the E.U. — like Amelia Lupson, who pays 632 pounds (about $825) a month to rent a room in a shared, five-bedroom apartment — call the softening a silver lining.

“I’m really upset by Brexit. It’s going to change a lot about London,” said Lupson, 24. But, she added, the reining in of rents “is one positive takeaway.”

Commercial deals are also being hit. The German investment firm KanAm, for instance, was slated to purchase an office building at 1 Wood St. in London’s financial district for 190 million pounds ($248 million). But Brexit fears simply became too big for the company’s investors — described as a cluster of “high-net-worth individuals.”

“We have a saying in Germany,” said Michael Birnbaum, KanAm spokesman. “They got cold feet.”

As in many markets, the summer season in London tends to be softer for home sales, and agents warn it is too early to tell if the current drops are a trend or a temporary blip. But they are nevertheless describing a post-Brexit hit. In some cases, the uncertainty is pitting the mega rich against one another in a high-stakes game of who blinks first.

Sarah Birch, with the London-based Savills real estate agency, works in the prime Kensington, Holland Park and Notting Hill areas, which are home to the likes of Richard Branson and David and Victoria Beckham. Of the 12 major home deals the company had on contract after the Brexit vote, eight have either been canceled or renegotiated with discounts as high as 10 percent, she said. Only four sales went through unchanged.

“If those with properties don’t absolutely need to sell now, they are not even trying,” she said.

And the bottom feeding has started. She said a “Russian oligarch” had recently made a lowball offer on a home listed for 7 million pounds ($9.13 million) “because he felt the London market was going to drop, and he wanted to protect himself.”

London sellers, meanwhile, are feeling a rare sense of frustration. Emma Kolasinska, a 36-year-old television producer, was on the brink of selling her three-bedroom Victorian terrace house in east London before the Brexit vote. She had an interested German couple over for dinner. They agreed on a price — 645,000 pounds ($841,000).

Then the Brexit bombshell landed. The German couple pulled out, citing Brexit. Although she managed to sell her home later, she took a 10,000 pound ($13,000) hit on the price.

“On the day of Brexit, the survey was supposed to take place and that was canceled at 8:30 a.m.,” she said. “And then, within two hours, the sale had fallen through. Which I can understand: They didn’t feel welcome here.

Odmah na otvaranju azijskih financijskih tržišta u noći s nedjelje na ponedjeljak, britanska funta je oslabila više od 1 posto u odnosu na gotovo sve ostale najtrgovanije svjetske valute. U trenutku pisanja analize tečaj funte u odnosu na američki dolar na platformama Admiral Marketsa iznosi 1.2068, što je 19 posto ispod razine na kojoj je bio dan prije referenduma o Brexitu, a čak 30 posto ispod razine na kojoj je bio prije dvije i pol godine.

Razlog dodatnog pada bila je vijest o navodnoj izjavi jednog od suradnika britanske premijerke Therese May o tome kako je spremna podržati “Hard Brexit”, tj. vraćanje potpune kontrole nad svim granicama, pa čak i ako to bude značilo gubitak pristupa jedinstvenom tržištu.

U ponedjeljak rano ujutro službena glasnogovornica premijerke izjavila je da su to samo špekulacije, a pravi stav o tom pitanju premijerka će predstaviti u govoru koji će održati u utorak.

Meanwhile, one of the leading candidates to become France's new president yesterday accused Britain of becoming subservient to the US.
The Left-leaning Emmanuel Macron said: 'Britain lived in an equilibrium with Europe. But now it is becoming a vassal state, meaning it is becoming the junior partner of the United States.'

Could Holland DITCH the euro? Dutch MPs order probe into whether Netherlands could leave the single currency - and how

By EMILY CHAN FOR MAILONLINE
PUBLISHED: 17:04 GMT, 24 February 2017 | UPDATED: 15:21 GMT, 25 February 2017

Dutch MPs are considering whether the Netherlands could ditch the Euro, after ordering a report on the future of the currency.

The country's relationship with the single currency is set to be debated in parliament once the findings are published.

The probe, which will also look at how Holland might be able to pull out of the Euro, was prompted by concerns the European Central Bank's ultra-low interest rates are hurting Dutch savers.

The debate on the Euro will come after the country's elections in March, which is expected to change the make-up of parliament dramatically.

While most Dutch voters say they favour retaining the Euro, Geert Wilders' eurosceptic far-right party is expected to make large gains.

The parliamentary motion calling for an investigation into Holland's future was tabled by Pieter Omtzigt, from opposition Christian Democrats.

The probe will examine whether it would be possible for the Dutch to withdraw from the single currency, and if so how.

Omtzigt said: 'The problems with the euro have not been solved. This is a way for us to look at ways forward with no taboos.'

The move coincides with a rising tide of euroscepticism in Europe that populist parties are hoping to tap into this year, with national elections also taking place in France and Germany.

The most probable outcome of the March 15 in Holland is a new centrist coalition including some parties, including Omtzigt's Christian Democrats, that have been vocal in their opposition to current ECB policy.

Thursday's motion instructs the Council of State, the government's legal advisor, to look at 'what political and institutional options are open for the euro,' and 'what are the advantages and disadvantages of each.'

Koliki je cirkus i nepovjerenje u EU kad vlada Poljske piše proteste jer je Brisel ponovo izabrao Poljaka uvlakača.
Bitno je da je Plenković zadovoljan i sretan. Da mu se Merkel posere po glavi on bi bio zadovoljan.