Berlusconi Risks The Bond Vigilantes' Wrath, By Reneging On All Austerity Promises Ahead Of Refi-Heavy September

Tyler Durden's picture

As previously reported, Italy is stealthily undoing its entire €45.5 billion austerity plan proposed two short weeks ago, first cutting the provision for tax hikes for high earners, and now also scrapping the proposed pension changes as Ansa reports - the pension proposal, would have excluded time at university, mandatory military service, from calculations of the retirement age and pension level. That is now gone due to a vocal opposition against every single austerity line item. Unfortunately for Italy, which has been hoping nobody would notice: Bloomberg, which has released an analysis titled "Berlusconi’s Backpedaling May Push Italy Back Toward The Brink of Disaster." It is rather self-explanatory: as a reminder the ECB is only buying Italy bonds as part of its SMP monetization expansion due to promises that Italy would slash its deficit and implement austerity. Now that this is obviously not happening, the SNB is expected to balk at future purchases of Italian debt due to Germany complaining loudly that it is supposed to carry the burden of Italy's consistent lying. Already Italian bonds have resumed their climb wider, and explains the weaker than expected BTP auction of 3 and 10 year bonds conducted yesterday.

From Bloomberg:

Italian Prime Minister Silvio Berlusconi may be steering his country back toward the eye of the sovereigndebt- crisis storm as he tests the European Central Bank’s commitment to saving the Mediterranean country from a full-blown economic and financial crisis.


Berlusconi, responding to domestic opposition, said on Tuesday that a previously announced 45 billion euro austerity package, which may have swayed the European Central Bank to buy Italy’s government bonds, will be pruned. The new version will drop the “solidarity tax”, which would have taken an extra 5 percent or more of annual incomes exceeding 90,000 euros. In addition, cuts in funding to regional and local governments that totaled 9 billion euros in the original plan will be trimmed by about 2  billion euros. The Senate will vote on the revised plan next week.

To this add now the pension reform scrapping and soon all other real austerity measures.

The reduction of the austerity package will probably leave the ECB’s Governing Council even less inclined to buy Italian government debt as it attempts to cut its overall level of bond purchases from the 22 billion euros acquired during the week ended Aug. 12, after the 10-year Italian sovereign yield reached 6.2 percent. The central bank had already reduced its weekly purchases to 14.3 billion euros during the period ended Aug. 9 and 6.7 billion euros last week.

Why will the ECB do this? It will be forced to, following 5 failed SMP sterilizations:

The ECB has experienced five failed auctions related to its sterilization operations and is likely trying to decrease the probability of additional failures by limiting the size of its intervention program. The bid-to-cover ratio, the number that will probably provide the first signs that the central bank’s sterilization program is no longer sustainable, of the ECB’s latest weekly auction of 115.5 billion euros was announced yesterday at a healthy 1.32, compared with an average of 0.81 for the failed auctions. A  point may eventually be reached when the ECB is unable to fully sterilize its purchases of distressed debt.

The vigilantes are already reminding Berlusconi they are watching his every lie:

The spread between the 10-year yield of Italy’s government bonds and those of Germany rose by 11 basis points on Tuesday, as investors digested the latest amendments to the austerity package, and has increased by 30 basis points since the ECB completed the Aug. 12 round of purchases, its largest weekly intervention.

Italian stupidity apparently knows no bounds, as it is testing the ECB ahead of the crucial for bond refinancings September:

Italy can ill afford to test the ECB’s commitment as the country prepares for a serious test of its ability to continue accessing financial markets in September, when it will need to refinance 46 billion euros of maturing bonds. That is about six times the amount successfully raised by the Italian Treasury on Tuesday. Berlusconi may soon regret his backpedaling on austerity.

He may. Or he may not: after all a resumption of vigilanteeism in Italy risks pushing the country over the precipice and, yes, pushing the Eurozone with it, which in turn would devastate the Euro, even when factoring for the ongoing purchase of the EUR via China, a contagion which would then spread to the US. And as valiant as vigilantes are, they will hardly risk committing suicide by being too aggressive in punshing the transgressors.

We hope we are wrong, but with the markets soon entering the last quarter of the year, and the levered beta trade back on, we doubt much if anything will happen in terms of punshing gross defection behavior.

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DefiantSurf's picture

Italy might as well go ahead and default, get it over with, instead of months of rioting, just one big one

paulie's picture

In a world where logic drives action yours would be the course of events.
But bankers will not allow that because it would mean we would not be paying for our entire debt until the last euro cent.

We should go the way Iceland went but I see no Italian politician on the scene who has the guts to do that.


Construct's picture

'kick the can down the road'

malikai's picture

I propose that Mr. Berlusconi believes he has a joker up his sleeve. Perhaps he's going to let loose a certain Turkish belly dancer on the banksters to satiate them until November.

Spirit Of Truth's picture

The German people need to suck it up and realize that they need to work harder for the plush lifestyles of their southern Euro neighbors.  Bank intermediaries are depending on their submission to the profligacy of others.  If the German people don't cooperate, the banksters will punish the world accordingly for usurping their brazenly imprudent profiteering.

paulie's picture

The interesting thing will be to see whether Germany will succeed in having us spaghetti eaters go down the way of "austerity no matter what" or if we will default before they have a chance to eat the next wurst and take the German bank system down with us (yeah baby!!).

Either way it will not bu funny.

We had one friend (Gaddafi) and many arch enemies (Germany and France on top). Now the only friend is gone, let's face the EU crooks.



falak pema's picture

with friends like that who needs are your worst enemy...friend!

russki standart's picture

Berlusconi was planning out his weekend with the underage models and decided he did not want to be interrupted. 

kahunabear's picture

Our time will come. Just like Mr. Williams said in last night's post, our politicians will never be able to reduce social security, medicaire, medicaid and prescription drugs. The prols are addicted to the teets and will always vote the pushers back in.

Withdrawn Sanction's picture

Italian stupidity apparently knows no bounds

This trait is certainly not limited to Roman politicians

Sudden Debt's picture

I love it when a plan comes together meets berlusconi !

gwar5's picture

In World War II the Italian tanks also only had one gear, and it was reverse.


This is another reason I'm doubting Germany will have the stomach to take over the EFSF facility and dictate terms to Europe. Eventually they'll also have to be the enforcer with boots on the ground because the countries will reject interlopers and won't enforce themselves. Goodbye European Union.




Sudden Debt's picture

are you sure it wheren't French tanks?


Bicycle Repairman's picture

I hope everybody in the USA is noting how austerity is going in Europe.  Kicking granny to the curb is not going to be as easy as you think.  I'll also note the extreme reluctance of the "productive" to participate in the festivities.

irishlink's picture

If you truly understood Italian Politics ,you would understand that these leaders are leaders in name only and frontmen for the underbelly of Italin business.  We know what they will tell Merkel.

spanish inquisition's picture

Good note for those in Europe trying to price in risk. All the agreements and backstops mean shit when one country can say at any time "OK we're out".

disabledvet's picture

So long as monetization proceeds apace why should Italy care? Actually i should say "why should Berlusconi care" since this is the le etat cest moi moment we've all been waiting for. The rest are just--what did wisdom tree's steinhardt call them?-midgets?

Captain Benny's picture

Repeat after me the party slogan:

War is peace.  Freedom is slavery. Ignorance is strength. Meltdown is bullish.

youngman's picture

I voted for it...before I decided not to implement it...

Italy sees that Greece by lying is doing pretty why not..why not get a few extra hundred million in free bailout cash...before you default

scratch_and_sniff's picture

What an old clown, how could they even consider that madness? I really do feel sorry for the poor old Germans, first Greece and now the greaseballs, the mind boggles.

lizzy36's picture

Well played Berlusconi.

A giant fuck you to the ECB and the EU. And what exactly are they going to do about it?

snowball777's picture

I think it's more about what they are not going to do, at this point.

GallaPlacidia's picture

Sure enought, Italy i TBTF for EU.

Berlusconi can do almost everything he wants. At the end of the day, what Germany can do to Italy without arming himself al lot more?

falak pema's picture

Ohh... the Bunga bunga urge; it is irrepressible on Mount Vesuvius's flanks, before that fatal day. Plutarch, an Italian historian, wrote his 'parallel' lives to remind us how basic human atavism, like 'basic instinct' in that film,  makes monkeys of us all, as we fall into the fatal trap of irrational hubris..'GOd's lightning will NEVER fall on us, as we are the chosen...' Dream that hilarious TV serial taught us... Berlusconi, if you go down that road, all Italy is toast, like your neighbours of immortal Greece.

Mother Merkel has her work cut out...

Jim in MN's picture

Spaghetti republic

Slippery like wet noodle

PulauHantu29's picture

Austerity is a Taboo will see more spending...more printing and much more spending to keep the crowds tame. They prefer inflation rather then deflation.

paulie's picture

Deflation is for Germans and Ducth only. All the others cannot afford it.
Austerity kills growth, you can't have both at the same time.
Plus it is promoted by bankster whose main concern is certainly not seeing the PIIGS get out the crisis, au contraire, they want to have a EU made up of debt slaves.



snowball777's picture

Can you imagine how raw they must rub their skin trying to wash off that old man stink?

paulie's picture

As raw as you must rub yours to wash off Obama's.

Alpha Monkey's picture

I'm sure using crisp new euros to exfoliate makes it much easier.

buzzsaw99's picture

They should stop making bond payments altogether.

GCT's picture

Why should he honor his agreement after all he is spending other peoples money.  These politicians are no different then ours, promise the world and renege on it.   I am laughing at all the despots in Europe telling the EU they will do something and never deliever so they can continue to spend other countrie's money.  Europe is starting to run out of money this is going to be more good drama and of course the USA markets will soar ! /Sarc 

Joebloinvestor's picture

Sterilization my ass.

Berlusconi knows that it is just funny FIAT money, printed at will.

The whole house of cards will come crashing down in short order.

Finland already knows it.

ImnotPOTUS's picture

No Italian tanks only came with one gear. French tanks had a selector for forwrd and reverse. But, forward gears were never installed, because nobody thought they would need it to cross the uncrossable Maginot Line.

Didn't they make a movie with Nick Cage (don't call me Copalla, cause I can't underact) about some Germans and Italians who went to Greece on some king of "Joint Venture" that went sour when the Greeks didn't cooperate with them. Then the Italians wanted to back out of the "Joint Venture" and that got the Germans all pissy. I recall that the Germans were kind of hostile about the dissolution of the assets at the end of the film. Hope history doesn't repeat itself.

jmc8888's picture

Good.  Italy shouldn't austere itself for an unpayable debt load rife with fraud.  Especially not to hold together this fucktard system.

Glass-Steagall it Italy.

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Bicycle Repairman's picture

Hey Berlusconi, better watch out the bond vigilantes are on your ass.  That's right, the freakin' bond vigilantes!!

I'll bet that Berlusconi is really shaking about now.