Friday, April 21, 2006 10:

Italy Has Many Near Term Challanges -And No Long Term Plan

The ANNOTICO Report

Although None of the other European Governments seem to have one either, Italy needs a Plan to Pin Point and Encourage those Clean Industries that Italy is uniquely equipped to Foster, that offer great numbers of high paying Employment to a well educated population. It also needs to Foster a plan to alter it's declining birth rate.

 

Otherwise, Italy (Along with other countries) will soon be culturally unrecognizable from what we have known.  

 

The various Italian political factions (like elsewhere) are minutely focused on their own petty narrow agenda, and unconcerned or oblivious to the "greater" National need.

 

The current Political situation is not Volatile as many Commentators claim, BUT more like Gridlock.

Or if you prefer, two Adversaries in a Death Grip, more focused on Gaining Power, than Solving Problems.

 

Keep ALL of the Below in Mind:

 

1) The Wafer-thin margin of Victory in the Election of the Prodi Coalition, 1/10th of 1% or an advantage of 24,755 votes in the Chamber of Deputies, although Berlusconi claims 220,000 votes more than Prodi's bloc, counting all votes cast in both houses of parliament. Ultimate Result: Almost a guarantee of Inaction.

 

2) As in all Coalitions, in all countries, one should expect factions of a Coalition to make and even follow through with threats to withdraw, and or switch sides, if their requests for certain Leadership positions, Cabinet Ministers posts, or legislation are not met, creating instability, and possibly even requiring new elections. It has happened to both Prodi and Berlusconi before, resulting in their expulsion from office, forcing new elections, or the "new" majority leader being asked to form a "new" government.

 

3) A new Election. Oh No!

 

4) Members of Parliament elected to one Coalition shifting to the other Coalition, after being "properly" enticed. In the Senate where Prodi only has a 2 seat majority (158-156), Berlusconi already claims to have at least one "defector".

 

5) Prodi is not expected to take power until the end of May, thanks to a constitutional logjam caused by the expiry of President Carlo Azeglio Ciampi's mandate in mid-May. Under the constitution, the president nominates a new premier and Ciampi wants his new president successor to perform that nomination. That keeps matters in limbo.

 

6) An Impotent Prime Minister/Coalition government unable to remedy the country's "no growth" economic malaise.

 

7) The Uncertainty causing Italy's borrowing costs to jump another 20%, bringing them to 33 more basis points than Germany's cost, and speculated to rise to 45 basis points, falling below Greece and Slovenia, creating more Debt.

 

8) The Big Struggle to Cut Italy's Deficits, which will Require Many Unpopular Measures, that include (a) a more Efficient workforce, (b) cutting some bloated government, (c) trimming some overly generous pension plans-retirement at 55, and making the Robber Barons bear more of the share of Taxes.

 

COALITION STRIFE

Italy's Prodi faces hard tussle before taking office

EITB 24 - Spain                                                                                                                                   04/21/2006

Opponents always said Prodi would be unable to hold together his broad alliance, which spans communists to Roman Catholic moderates, but few expected the cracks to emerge even before Prodi had formally taken office.

Just two days after his election victory was confirmed, Italy's prime minister-in-waiting Romano Prodi struggled on Friday to contain a row within his centre-left coalition that boded ill for his future government.

Opponents always said Prodi would be unable to hold together his broad alliance, which spans diehard communists to Roman Catholic moderates, but few expected the cracks to emerge even before Prodi had formally taken office. The fight centres on who should be appointed speakers of the two houses of parliament. The posts are highly prestigious and Prodi's three main coalition partners are all pressing hard for their own candidates to be elevated.

The major tussle is over the lower house, with two political heavyweights -- Communist Refoundation head Fausto Bertinotti and the chairman of the Democrats of the Left (DS), Massimo D'Alema -- demanding the job.

La Stampa newspaper quoted Bertinotti as saying he might withdraw from Prodi's Union alliance if he does not get the nod while the DS has indicated that as the largest party within the centre-left coalition, it deserves the job.

"I am very embittered and very astonished," D'Alema, a former prime minister, was quoted as saying in left-leaning la Repubblica newspaper. "We are giving our coalition a terrible image and the choice of Bertinotti is divisive."

Prodi told reporters on Friday he was working to resolve the dispute, saying all sides had promised to accept his decision. "It is not going to be a difficult decision, even if it is obviously going to be a painful one," said Prodi, whose previous term as prime minister ended after just two years in 1998 when Bertinotti turned against him.

Adding to Prodi's woes, the head of another small coalition party, the centrist Democratic Union for Europe (UDEUR), said he was unhappy with the centre-left leader's first steps and threatened to quit the alliance unless things changed quickly. Clemente Mastella, in a pugnacious interview in the Roman Catholic daily Avvenire, did not spell out what his demands were, but other newspapers speculated that he was seeking to be named either upper house speaker or defence minister.

The new parliament convenes on April 28 and will almost immediately set to work on choosing the two speakers. Whoever is put forward by Prodi will almost certainly be elected. Italian newspapers agreed that the open squabble over the trophy jobs was a public relations disaster that raised questions over how Prodi will manage to bridge the divides when he gets down to tackling policy issues.

"Leaving aside the possible outcome, which still hangs in the balance, this is an emblematic mess," Corriere della Sera newspaper wrote.

Prime Minister Silvio Berlusconi has yet to concede defeat in the April 9-10 election despite Wednesday's supreme court ruling that adjudged Prodi the victor thanks to a wafer-thin advantage of 24,755 votes in the Chamber of Deputies. Berlusconi said in a newspaper interview on Friday that Prodi should recognise the centre-right's "political" victory because it had won some 220,000 votes more than Prodi's bloc, counting all votes cast in both houses of parliament.

"It is therefore clear that the person who wants to be recognised as the winner for having got more seats ... must in turn necessarily recognise the centre-right's political victory in terms of votes," Berlusconi told the Piccolo daily.

However, even Berlusconi's closest foreign ally, the United States, has now recognised Prodi's win and political sources said the centre-right leader was plotting a fierce opposition, especially in the Senate where the left has a two-seat majority.

Prodi has tried to shrug off concerns over his coalition's stability and is busy drawing up his cabinet list. Tommaso Padoa-Schioppa, a former European Central Bank board member and non-politician, is in pole position to become economy minister. The former European Commission president is not expected to take power until the end of May, thanks to a constitutional logjam caused by the expiry of President Carlo Azeglio Ciampi's mandate in mid-May. Under the constitution, the president nominates a new premier and Ciampi wants his successor to do that job.

 

 

 

Italy's Election Ruckus Dooms Its Rating, Bonds

 

Bloomberg News

Mark Gilbert

April 21, 2006

 

This month's vote to elect the prime minister of Italy... (has resulted in)  Italian government bonds and their associated credit derivatives suffering the brunt of investor dismay at the prospect of an impotent coalition government unable to remedy the country's economic malaise.

Investors now charge Italy about 4.26 percent to borrow for 10 years in the bond market, about 33 basis points more than Germany pays. That spread, a measure of the additional risk that fund managers perceive in Italian debt, has been climbing for weeks, and is up from 28 basis points a month ago.

Five-hundredths of a percentage point may not sound like a big move. In the ossified market for euro-denominated government securities, however, it's a clear vote of no-confidence in Italy's economic prospects.

Default Risk

Credit-default swaps are sending the same message. At the beginning of March, you would have paid 19,500 euros ($24,000) per year to insure 10 million euros of Italian government debt for 10 years. Today, that CDS costs about 24,000 euros, putting debt insurance at its most expensive for nine months.

Earlier this week, Italy's highest appeals court certified the results of the April 10 election, awarding the premiership to Prodi with a winning margin of less than 0.1 percent. Such a slender triumph,... makes it tougher for Prodi to hold together his nine-party alliance for long enough to form a government.

..(It is) a worrisome sign that Italian politics may be revisiting the bad old days when coalition governments crumbled like parmesan.

Combine a coalition government hanging on to power by its fingernails with a deteriorating economic outlook, and you have a sure recipe for spreads on Italian debt to widen. Stir in skepticism about Prodi's abilities to tackle Italy's economic woes, and you start to question whether a 33 basis-point premium to German debt is sufficient compensation for the additional risk of having Italy as a creditor.

Fractured Past

``With Italy's history of more than 50 different governments since World War II, it's hard to believe that a government with such a tight majority will have the mandate to implement the structural reforms demanded by the rating agencies,'' says Kornelius Purps, an economist at HVB Group in Munich.

Purps says Italian yields might rise above those of Greece, even though Greece's A rating at Standard & Poor's is worse than Italy's AA- grade. The spread between Italian and German debt may balloon to 45 basis points, he says.

Italy's creditworthiness is starting to deteriorate, as the debt diet it underwent to qualify for euro membership in 1999 is abandoned. The 60 percent debt-to-gross domestic product limit that the single European currency was supposed to usher in for its participants is a distant memory.

Bad to Worse

Instead, Italy's debt will rise to 108 percent of GDP this year, according to Bloomberg calculations using Treasury Ministry forecasts. That's up from 106.4 percent last year and 103.8 percent in 2004.

Italy's economy, the fourth-largest in the euro region, didn't expand in the fourth quarter, leaving growth unchanged for 2005. Italy has now lagged the euro area for nine years out of the past 10.

It's increasingly likely that S&P analyst Moritz Kraemer will soon pull the trigger and cut Italy's credit rating, giving investors an excuse to demand even higher yields for buying Italian debt. The current S&P assessment of AA- already has a negative outlook; a cut would put Italy's grade below Slovenia, Hong Kong, Japan and Taiwan.

Italy needs ``the resumption of a clear, significant, and sustainable downward trend of government debt as a percentage of GDP to maintain the rating at the current level,'' S&P said on April 10. ``The long-term rating could be lowered this year if no signs of a sustainable and coherent debt reduction strategy emerge after the election.''

Euro Comforts

It's no coincidence that Italian consumers are at their least optimistic for six months, according to figures released this week by the Isae Institute in Rome. ``Pessimism about the short-term evolution of the economic situation in the country has heightened,'' the institute said in a report detailing a decline in its confidence index to 106.1 in April from 109.1 in March.

The comfort international investors derive from having their loans to Italy denominated in euros rather than lire won't stop Italian borrowing costs from climbing. There's nothing like a dollop of political uncertainty to prompt fund managers to seek safer returns elsewhere.

 

 

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