Italy is the same as Spain

Will the crisis trigger anti-environmental agenda? Who knows but e.g. Antonio Tajani, the European industry commissioner stated that “I am in favor of a green agenda, but we can’t be religious about this. We need a new energy policy. We have to stop pretending, because we can’t sacrifice Europe’s industry for climate goals that are not realistic, and are not being enforced worldwide.” Yes very strict environmental agenda is not very healthy for European business environment which faces over regulation and higher taxation as well. Contrary to Mr. Tjani I am not a proponent of the weak currency and currency wars. The only sustainable path is a strong currency and easier business environment which means lower taxes and lower regulations. This is the only way to really boost economic activity within the Eurozone. The only problem is that politicians want something else.

Tax records will be shared around the world by 2015. That is the strong statement from G20 meeting leaders who want to crack down on individual tax cheats and global corporations which intend to pay as little tax as possible. “We are committed to automatic exchange of information as the new global standard,” states the G20 final communiqué. So we will see what this brings but as one saying claims “if you do not like tax havens, please do not create tax hells”.

Italy contrary to Spain is not on the radar of mainstream media and it lives its own live. But to be honest this country has a lot of problems; maybe more than Spain which is in troubles. From the political point of view it is heading into the big political crisis connected with Silvio Berlusconi and his supporters who threaten to abolish Italy’s governing coalition which would be not good for economic reputation of the country. About one month ago Berlusconi was found guilty by Italy’s highest court. The verdict – four years for tax fraud. But it seems that Berlusconi and his party want special rules. Italian media are therefore in a constant state of alarm. Every week there are new headlines claiming the government is about to collapse, for real this time. We will see. Fact is that the country is not in a good economic performance and any government failure could cause so many troubles. The biggest issue for government could be Italy´ banking sector which is, simply said, broken. One of many banks in trouble is the Monte dei Paschi di Siena Bank which is facing nationalization. The management of the bank set up plan to raise 2.5 billion euros capital from shareholders within next 12 months. But this is very unlikely scenario and the bank could fall under direct state control. Italy, struggling to control its 2 trillion euro public debt and looking to boost revenues through privatizations, can fall in more deep troubles once it becomes a shareholder of the bank and would be responsible for another indebted body.

Italian housing market is set to shrink significantly and not only because of the housing bubble but also because of trends within Italian population. The most important buyers – it means between 30 and 40 years old – have declined by more than 1 million since 2005 and trend will continue till the end of this decade. It means that there will be less possible buyers of houses. Outcome? It is very probable that prices will follow. And be aware of the fact that Italian 10 Y treasuries are for the first time higher than Spanish one in last 18 month.

We have 5th anniversary of the Lehman failure. 5 years of crisis. What is new? The world’s developed (G7) nations have added around $18tn of consolidated debt to a record $140 trillion combined and they have produced only $1tn of nominal GDP activity. In other words they had to use $18 dollars of debt to generate $1 of growth. Is this sustainable? For now? Yes. But only because we have such a low interests rates which are set up artificially by central banks.

After two tough days of negotiations in Geneva John Kerry and his Russian counterpart Sergey Lavrov announced they have reached an agreement about situation in Syria and how Syria must act to destroy its chemical weapons. It means that the military intervention from the side of the US is not very likely. At least for now.

Matúš Pošvanc

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