Monday, 10 December 2012

Italy Vote Will Test EU Nobel Winners After Greek Buyback

By Andrew Frye - Dec 10, 2012 2:13 PM GMT+0400

The imminent end of Italian Prime Minister Mario Monti’s government threatens to open a new front in Europe’s crisis fight before a year-end summit, as Greece wraps up a six-month effort to secure a new bailout payment.
European Union leaders, gathering in Oslo today to collect the Nobel Peace Prize, were set to check an item off their to-do list with the completion of a 10 billion-euro ($13 billion) Greek debt buyback. At the same time, former Italian Prime Minister Silvio Berlusconi’s pledge to topple Monti with his German-skeptic, anti-austerity message rattled investors, sending Italian stocks and bonds falling.
Italian Vote to Test EU Nobel Winners After Greek Bond Buyback Former Italian Prime Minister Silvio Berlusconi’s pledge to topple Mario Monti with his German-skeptic, anti-austerity message may rattle investors. Photographer: Alessia Pierdomenico/Bloomberg
Dec. 10 (Bloomberg) -- Italian Prime Minister Mario Monti told the head of state he has lost support in Parliament and intends to resign. At the same time, his predecessor, Silvio Berlusconi announced plans for a return to power. Mark Barton and David Tweed report on Bloomberg Television's "Countdown." (Source: Bloomberg)
Dec. 10 (Bloomberg) -- Federigo Argentieri, professor at the John Cabot University in Rome and Nicola Marinelli, portfolio manager at Glendevon King, talk about the imminent end of Italian Prime Minister Mario Monti's government and the possible impact on the economy. They speak with Francine Lacqua on Bloomberg Television's "On the Move." (Source: Bloomberg)
Dec. 10 (Bloomberg) -- Giovanni Orsina, a professor at the Luiss-Guido Carli University, talks about the possible political comeback of former Italian Prime Minister Silvio Berlusconi. He speaks from Rome with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)
Italian Election Tests EU Nobel Winners After Greek Bond Buyback Pedestrians pass the Greek parliament on Syntagma square in Athens, Greece. Photographer: Kostas Tsironis/Bloomberg
Greece is using bailout funds to repurchase bonds with a face value of about 30 billion euros in a move that EU leaders said puts the nation on the path to debt sustainability. In Italy, where 10-year bond yields widened last week for the first time in nearly a month, Monti said Dec. 8 he will resign due to parliamentary opposition from Berlusconi and his allies, who had previously backed the government.
“The underlying cracks within the euro zone are actually widening,” Georg Grodzki, head of credit research at Legal & General Investment Management in London, which has about $290 billion of bond funds, said in an interview yesterday. “Investors will be reading Italian politicians’ lips very, very closely.”
Italian 10-year bond yields jumped 28 basis points to 4.81 percent at 10:10 a.m. London time. The FTSE MIB stock index fell 3.5 percent.

Euro Summit

Tension is returning to bond markets after the relative tranquility that followed European Central Bank President Mario Draghi’s promise in July to do whatever it takes to save the euro. Since June, EU leaders have wrangled over plans to create a banking union and last month failed to agree on a new seven- year budget.
At a summit in Brussels on Dec. 13-14, EU heads of state and government will debate a road map for the overhaul of the euro area, including increased powers to intervene in national budgets and the establishment of a single banking supervisor. Finance ministers will meet first, on Dec. 12.
Finding consensus may become more difficult without Monti, who overcame German resistance at an EU summit in June to broker a common pledge to aid members in financial distress. Berlusconi, who was pushed from power last year after proving unable to protect Italy from the debt crisis, announced Dec. 8 he will seek the premiership in next year’s election and criticized Monti for running a “German-centric” program.

‘Unsettle Markets’

“The 2013 Italian election remains high on our list of tail risks,”Holger Schmieding, chief economist at Berenberg Bank AG, wrote in a note yesterday. “A Berlusconi campaign against ‘German austerity’ could potentially unsettle markets.”
Monti, an unelected technocrat, is undecided about whether to run a campaign for a second term, la Repubblica reported today, citing a telephone call with the premier.
The buyback in Greece was part of a package of measures approved by euro-area finance ministers on Nov. 27 that Luxembourg Prime Minister Jean-Claude Juncker said put public debt “clearly back on a sustainable path.” The prices offered for bonds maturing from 2023 to 2042 averaged 33.1 percent of face value, based on information in a statement from the Athens- based Public Debt Management Agency on Dec. 3. Greek Premier Antonis Samaras told reporters in Munich last night that the program has gone “very well.”

Greek Decision

“They call this debt sustainability, but it’s only on paper,” said Joerg Kraemer, chief economist at Commerzbank AG. “The buyback was a success because investors do not believe in the debt sustainability.”
Euro finance ministers plan to make a formal decision on Greece’s 34.4 billion-euro disbursement by Dec. 13. Deutsche Bank AG and Morgan Stanley International were appointed to manage the buyback, according to the PDMA.
Italy faces at least two months of campaigning as Berlusconi seeks to reverse an opinion-poll slide by disavowing his ties to Monti’s agenda and appealing to an electorate weary of tax increases and recession. His People of Liberty party had 13.8 percent support in an SWG Institute poll released last week, compared with 30.3 percent for Monti’s biggest remaining parliamentary backer, Italy’s Democratic Party.

Five Star

Pier Luigi Bersani, head of the Democratic Party, this month won a primary election to head a coalition of center-left parties in general elections. Bersani’s biggest challenge may come from the anti-austerity Five Star Movement, of comedian- turned politician Beppe Grillo, which had 19.5 percent support, making it the second-most popular party.
President Giorgio Napolitano failed to mediate the dispute between Berlusconi and the government. Monti told Napolitano he will make an attempt to muster parliamentary support for the 2013 budget law before handing in his final resignation.
“We should probably expect a sell-off in Italian assets,” Erik Nielsen, London-based chief global economist at UniCredit SpA (UCG), wrote in a note to clients yesterday. The campaign “will probably fuel volatility for a couple of months. But beyond that, I am not seriously worried about the direction of policies in Italy.”
To contact the reporter on this story: Andrew Frye in Rome at
To contact the editor responsible for this story: James Hertling at