Rome Is On The Verge Of Detroit-Style Bankruptcy
With European peripheral bond yields collapsing every single day to new all time lows (primarily driven by Europe's near-certainty that a US-style QE is imminent as we first showed here in November, despite Mario Draghi's own words from November 2011 that a QE intervention is virtually impossible), increasingly more of Europe is trading just as safe, if not more, as the United States. And in keeping with the analogies, considering a major US metropolitan center, Detroit, recently went bankrupt, it is only fair that Europe should sacrifice one of its own historic cities to the gods of negative cash flows. The city in question, Rome, which as the WSJ reports, is "teetering on the brink of a Detroit-style bankruptcy."
Rome, the eternal city, which survived two millennia of abuse from everyone may be preparing to lay its arms at the hands of unprecedented corruption, capital mismanagement and lies.
On the first day of his premiership, Matteo Renzi had to withdraw a decree, promulgated by his predecessor, that would have helped the city of Rome fill an €816 million ($1.17 billion) budget gap, after filibustering by opposition lawmakers in the Parliament on Wednesday signaled the bill had little likelihood of passing.
Devising a new decree that provides aid to Rome will now cost Mr. Renzi time and political capital he intended to deploy in promoting sweeping electoral and labor overhauls during his first weeks in office.
For Rome's city fathers, though, the setback has more dire consequences. They must now face unpalatable choices—such as cutting public services, raising taxes or delaying payments to suppliers—to gain time as they search for ways to close a yawning budget gap. If it fails, the city could be placed under an administrator tasked with selling off city assets, such as its utilities.
"It's time to stop the accounting tricks and declare Rome's default," said Guido Guidesi, a parliamentarian from the Northern League, which opposed the measure.
Alas, if one stops the accounting tricks, not only Rome, but all of Europe, as well as the US and China would all be swept under a global bankruptcy tsunami. So it is safe to assume that the tricks will continue. Especially when one considers that as Mirko Coratti, head of Rome's city council said on Wednesday, "A default of Italy's capital city would trigger a chain reaction that could sweep across the national economy." Well we can't have that, especially not with everyone in Europe living with their head stuck in the sand of universal denial, assisted by the soothing lies of Mario Draghi and all the other European spin masters.
So what is the catalyst that would push the city into default? Trash.
No really: an appeal for a €485 million transfer from the central government to compensate Rome for the extra costs it incurs in its role as a major tourist destination, the nation's capital and the seat of the Vatican. "Rome is unique compared with other cities" and deserves state support because of huge numbers of visitors who use services but don't contribute much to the economy, Mr. Marino said in a recent interview. But even before the government of Enrico Letta fell this month, the proposed transfer had prompted complaints that the aid was unfair, given the dire straits of other cities.
Rome has long struggled to balance its books. Because of its dearth of industry, the city depends heavily on trash-collection levies and the sale of bus and subway tickets. It struggles much more than other European cities to collect either one. About one in four passengers on Rome's public transit system doesn't buy tickets, costing around €100 million in lost revenue annually, compared with just 2% of passengers on London's public transit network.
Meanwhile, employee absenteeism at Rome's public-transit and trash-collection agencies runs as high as 19%, far above the national average.
But how can Rome's clean up costs be a surprise? Well, they aren't. What is however, is the severity of the recession that crushed the national economy.
Just six years ago, some €12 billion in city debts was transferred to a special fund subsidized and guaranteed by the national government in a move aimed at giving Rome a fresh start. But Italy's economy has shrunk by almost 10% since then, eroding the tax base just as national austerity programs pushed extra costs onto local governments.
Even before the withdrawal of the "Save Rome" decree, Mr. Marino was facing unpalatable choices. He has already raised cremation and cemetery fees and plans to centralize city procurement, which he says will save €300 million a year.
Now, without the transfer from the central government, he may be forced to impose income and property tax surcharge—already among the highest in the country—and to cut salaries to the city's 20,000 employees or trim city services such as child-care centers or job-training programs—also unpopular moves.
What would happen then is unknown, but hardly pleasant:
The political fallout could be severe. The mayor of Taranto, a southeast city that defaulted on €637 million in debt in 2006, has suffered some of the lowest poll ratings in the country after cutting back services.
Oh well, another government overhaul is imminent then, after all it is Italy. Just as long as it is not elected. Because then there woud be a chance that someone who actually sees behind the facade of lies, like Beppe Grillo for example, may just be elected PM, and then all bets are off.
Howeber, that will never be allowed, and instead Rome will almost surely be bailed out. That however would open a whole new can of worms as every other insolvent city demands the same treatment:
A new appeal for a special transfer to Rome could embolden demands that other cities in distress be helped, even though Italy's public finances are already strained. Naples is close to having to declare bankruptcy. Reggio Calabria has been run by a special commissioner for the past three years, but may still default on €694 million in debt, according to Italy's Audit Court.
And if all else fails, there is the nuclear option: "Some politicians say Rome should sell assets such as ACEA, the electric utility that is worth about €1.8 billion and is 51% owned by the city."
True: and Goldman, or some other bank filled to the gills with the Fed's generous excess reserves, would be happy to swoop in and scoop up hard Roman assets providing it with just the right cover for creeping global encroachment. The benefactors? A select few equity shareholders. Because for every million or so peasants who suffer, a few rich men have to get even richer in the New Feudal Normal.
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