Forget Three Months: Italy May Have Two Weeks Tops, As "It Already Is Where Spain Is Heading"

Tyler Durden's picture

Yesterday, Austrian finance minister Maria Fekter ruffled the unelected Italian PM's feather by saying "forget Spain, Italy is next in the bailout line" - a statement which as expected was promptly loudly refuted, mocked, and scorned by everyone possible: the type of reaction that only the truth can possibly generate in Europe. So far so good: after all the typical European reaction to any instance of the truth is loud screams of "lies, lies" and promptly sticking your head deep in the sand. However, this time around Italy may not have the benefit of the doubt, nor the benefit of some sacrificial replacement of a prime minister: Silvio is long gone, and at this point switching one banker figurehead with another will do precisely nothing. Which is why this morning's assessment from Bloomberg economist David Powell is spot on: "Italy would probably be forced into receiving a bailout if it were to face another two weeks like the last seven days." But the punchline: "The bad news for Italy is the country’s stock of debt is already as large as Spain’s may become after years of fiscal turmoil. In other words, Italy already is where Spain may be heading."

Surely Powell must be joking: has he not heard that Spain is not Uganda, and that there is "no risk" Spanish contagion will shift to Italy? Apparently not: which is actually what happens when one does the math and relies on facts instead of bluster, rhetoric and propaganda.

From Powell:

The seven-year sovereign yield has increased to 589 basis points from 538 basis points a week ago. That figure can be used as a proxy for the level with which the average cost of debt will eventually converge, as long as the current maturity profile is maintained, because the average age of the nation’s bonds is seven years.


The country would violate the IMF’s definition of solvency if its average cost of debt were to surpass 680 basis points. The fund defines debt as sustainable if the debt-to-GDP ratio starts to decline before the end of the forecast horizon. A rise to that level would push the ratio up to about 131 percent in 2016 and marginally higher the following year, according to Bloomberg Brief estimates. Those calculations use the projections of the IMF for growth, inflation and the primary budget deficit. If the average cost of debt were to remain at 5.89 percent - the present level of the seven-year yield - the debt-to-GDP ratio would peak in 2014 at126 percent. It would then decline to 124 percent by 2017.


The picture would deteriorate if the IMF’s economic growth forecast for this year were to prove too optimistic. It has estimated a contraction of 1.9 percent.


That looks like a best-case scenario. Output already declined 0.8 percent quarter over quarter during the first three months of the year.


The PMI data suggests the second quarter will be worse. The readings for the manufacturing sector were lower in April and May than they were at the start of the year. The figures for January, February and March came in at 46.8, 47.8 and 47.9, respectively. They were 43.8 and 44.8 for the following two months.

It gets worse...

The debt-to-GDP ratio already violates the proxy of national solvency derived from the research of Carmen Reinhart and Kenneth Rogoff. They have found sovereign debt becomes detrimental to economic growth, on average, when the ratio surpasses 90 percent.


The good news for Italy is the country has avoided a real estate bubble capable of bringing down the domestic banking system and the government has already closed the primary budget deficit. The major problem for Spain has been a recapitalization of the  nation’s lenders and several years of persistent budget deficits may push the country’s debt-to-GDP ratio toward the territory of insolvency.


...And much worse.

The bad news for Italy is the country’s stock of debt is already as large as Spain’s may become after years of fiscal turmoil. In other words, Italy already is where Spain may be heading.


A sharp rise of funding costs is capable of making the size of the liabilities of Italy start to look relatively as large as thoseof Greece.

And so the temporal bogey is set at +/- 14 days, as the bond market sets its sights on the exits in preempting the Nash equilibrium defection out of Italy.

Now, we look forward to blaring denials out of Italy that all of the math above is simply idiotic and that we should trust them, because all is fine. Also: Italy is not Somalia.

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LULZBank's picture

Is Italy Uganda then?

ArgentoFisico's picture

At least we still have an industry to restart from ...  and LooOOOoots of untraced wealth

falak pema's picture

you must be a berlu boy or a vatican toy! 

ArgentoFisico's picture

Water man... I hate both. Just trying to convince myself

Chief KnocAHoma's picture

The suspense is killing me! This movie never ends! It is like the worst Friday the 13th film EVER! Only Bernanke and the CB whores of the World are Jason. So in this movie when once Jason gets killed, another pops up to... (Cue the scary music) .... PRINT MORE FUCKING MONEY TO BURRY YOU WITH! We all know where this going, but the slow starvation of humanity is cruel.

Just end it already... I'm getting bored.


GetZeeGold's picture



The suspense is killing me!


.....................hang on a second.


ArgentoFisico's picture

"Just end it already... I'm getting bored."

Yeah, me too

AssFire's picture

The private sector in Uganda is doing fine.

If the United States had a son- It would look like Uganda


HoofHearted's picture

France is much worse-off than Haiti. France has a huge class of people all trying to suck off the (now nearly dry) government tit. Of course we saw the same in Haiti after the earthquake, so maybe they are the same...

obelisks's picture

Chief just enjoy the performance because there will not be a re-run......

TheGardener's picture

But in every episode we say : They killed Kenny!

Shocker's picture

Spain, Italy, Greece, everyone is in the same boat. If you haven't realized by now, then your not even trying to pay attention

We are global, that means one problem overseas will now affect everyone.

And at this current time, we are in shape to take another economic hit

Just a couple days, we have newspapers, HP, list goes on and on


GetZeeGold's picture



We are global, that means one problem overseas will now affect everyone.


I vote we just kick them off the they just did in Wisconsin and California. Shut the wallet and tell them to fuk off.


YuropeanImbecille's picture

I feel sorry for the Italians, the country is torn in two divided between north and south. The northern part is actually productive and proseperous while the south part (SURPRISE!) is a mafia ceespool shithole.


TheGardener's picture

When Argentina got bust, it had about half the salary level
and half the consumer prices of Italy at the time, so the effective living standard was about the same. But the former having better infrastructure and even better food !

And that was after the peso got pegged to dollar, making Argentina a no-go zone for Italian tourists lacking "hard" currency...

Harbanger's picture

You are wrong about every single point you tried to make.  You should take the time to learn the true financial history of Argentina beginning with Peron to the 2001 financial "bust" and their present government.  It's a textbook example of failed socialism.

TheGardener's picture

I lived there at the time and don`t get your point.

I did get a good lesson on decadence and how slow
this kind of retreating battle is being fought.

On ideology , I only got a glimpse of what a
soft national socialism alias peronism would
have meant for the world.

As it appears now , we all get some lesson on this soon.

Chaos_Theory's picture

I talked with my family from Northeast Italy in the past about this.  They highly favored splitting Italy into two nations.  I made the near moronic comment that their Northern Italy (or Padania) would include Roma....that would be like telling ZH folks that D.C. is a positive!  No,their line to the south ended at Bologna/Ferrara. 

Recently, they note heavy increases in taxes, Indian immigrants who show up, bring in their relatives (automatic pensions for their parents and grandparents), and set up their own economies where they literally never interact with the existing stores, banks, and in effect avoid the VAT.  The family recently tried to withdraw about $5,000 Euro equivalent and the bank demanded they justify making a withdrawal above some .gov approved threshhold.  Yea, that's freedom for you....

Harbanger's picture

"They highly favored splitting Italy into two nations."  "No,their line to the south ended at Bologna/Ferrara."

Why, did the Italian Rennaissance begin North of Bologna/Ferrara? I didn't think so.

Chaos_Theory's picture

I wasn't clear...their fictional new nation includes Bologna, Ferrara, Firenze, Rimini, Sienna, Perugia...basically a line from Ancona on the East to Perugia in the center to the southern boundary of Toscano.  That's pretty much the positive tax base.  Personally as a history buff, I think it would be sad for some rump state to not include Rome and the old city states of the Etruscans. 

Stoploss's picture

Where's the Borgias when you need them??

GMadScientist's picture

No. Once again: Uganda can devalue if they need to do so. Italy: not so much.

francis_sawyer's picture

Well at least Italia has re-runs of 'Colpo Grosso' on TV, so they have that going for them... CIN CIN!

Nussi34's picture

Uganda is in much better shape than the ClubMed! Maybe they have less than 8 weeks of vacation per year in Uganda?

Chief_Illiniwek's picture

What is this fascination with insulting Uganda?

francis_sawyer's picture

Started with Zimbabwe... We're working backwards thru the alphabet (skipping over anything with "United" in it for convenience purposes)...

GOSPLAN HERO's picture

Washington, D.C. is Kenya.

maxmad's picture

Its over before the fireworks on the 4th!

pepperspray's picture

Throw in a Venetian tornado and the party's just starting.

ArgentoFisico's picture

And earthquakes... party's already started

chinaguy's picture
French Industry Minister: France is in an “economic emergency situation”
  • French economy is hardly growing
  • 900 plants closed over 3 years
  • Studying potential new govt support to auto sector
  • Will prepare bill to prevent “abusive” layoffs (like fcuk off, you’re fired!!)
  • To present bill encouraging cap to executive pay in private sector this fall
  • Austerity in Europe would lead to recession
  • Need to boost growth like in US
ATM's picture

Exactly... forget Italy already it is France that really matters and they are fucked. The Germans are actually broke too because what they own is a mirage. 

carbon's picture

looks like the EURO is a

mickey mouse currency
unrulian's picture

poor reference...Mickey Mouse is real

JOYFUL's picture

+101 last, a commentator with the wit n willies to say it like it is!

 Mickey(Cohen?!?) Donald(Trump!?!), n the rest of the Disney gang overcame the limitations of their celluloid beginnings to reach the pinnacle of achievement in the market economy of kapitalist Euro-merika...whilst the (formerly) actual inhabitants of said map space have retreated into the margins of a cartoon-like opus scripted by insane deviants bent upon draining every ounce of real blood n treasure from the wandering crowds of onlookers who believe that they have paid an entrance fee to a fun park but have actually given themselves over to be come citizens of a new post reality prison facility of gigantic proportions....


Disneyland exists in order to hide that it is the "real" country, all of "real" America that is Disneyland (a bit like prisons are there to hide that it is the social in its entirety, in its banal omnipresence, that is carceral).

Disneyland is presented as imaginary in order to make us believe that the rest is real, whereas all of Los Angeles and the America that surrounds it are no longer real, but belong to the hyperreal order and to theorder of simulation. It is no longer a question of a false representation of reality(ideology) but of concealing the fact that the real is no longer real, and thus of saving the reality principle.

 - Disneyland: a space of the regeneration of the imaginary as waste-treatment plants are elsewhere, and even here. Everywhere today one must recycle waste, and the dreams, the phantasms, the historical, fairylike, legendary imaginary of children and adults is a waste
product, the first great toxic excrement of a hyperreal civilization. On a mental level, Disneyland is the prototype of this new function. But all the sexual, psychic, somatic recycling institutes, which proliferate in California, belong to the same order.

-People no longer look at each other, but there are institutes for that. They no longer touch each other, but there is contactotherapy. They no longer walk, but they go jogging, etc. Everywhere one recycles lost faculties, or lost bodies, or lost sociality, or the lost taste for food. One reinvents penury, asceticism, vanished savage naturalness: natural food, health food, yoga. Marshall Sahlins's idea that it is the economy of the market, and not of nature at all, that secretes penury, is verified, but at a secondary level: here, in the sophisticated confines of a triumphal market economy is reinvented a penury/sign, a penury/simulacrum, a simulated behavior of the underdeveloped (including the adoptionof Marxist tenets) that, in the guise of ecology, of energy crises and the critique of capital, adds a final esoteric aureole to the triumph of an esoteric culture... Baudrillard\Simulacra&Simulation

Dezperado's picture

A bailout is supposed to have money. Where is it?

LULZBank's picture

If theres' actual money involved than its a loan with a hard collateral.

Bailouts is FREE MONEEZ!!!

disabledvet's picture

First and only rule of bailouts! "you better have the phucking money." and of course the Tylers' Durden claim outrageous amounts that don't exist. that's because this is STILL a Marshal Plan in reverse. As it ALWAYS has been in Europe. Now why Is the entirety of the media such euro-philes again? Methinks "it all begins with the hunt for yield...

TheGardener's picture

It`s easy, Nobel price winning Stiglitz explained it to us:
the government lends it to the banks and the banks lend it to the government.

He calls it Voodoo-economics and invalidated my prejudices against Nobel prices as contra indicators.

GCT's picture

The Vatican will bail out Italy!