Tuesday, March 12, 2013

Politicians are starting to get their act together

NOT Italian heritage can be difficult. I'm not just referring to the Six Nations rugby tournament, or many football scandal, but specifically related to politics.

The position of prime minister in Italy has changed 12 times since 1990 and the country is often called the sick man of Europe, continued sluggish economic growth for over a decade. But Italian political and financial turmoil should not only be a concern in the country because it threatens the future of Europe.

Last year, investors have vibrant markets and FTSE 100 Index fell nearly 20% between July and October. In large part, this is down to fears over problems in Europe.

For short, too European government debt and borrowing costs, or bond yields in technical terms, will rise sharply. This has raised the possibility that some countries do not pay their debts - it is too late for Greece.

Many European banks have large Companies and European sovereign debt default in exchange for a big loss. But while Greek small in grand scheme of things, it would be a disaster if Italy or Spain were to go the same route. Italy is the third largest bond market in the world, behind only the U.S. and Japan, with more than $ 2 trillion in debt. Rising yields on Italian government bonds not only threaten the financial stability of Italy, but also in Europe.

As long as it pains me to bash both Milanese (and owner of my football team, AC Milan), former Italian prime minister Silvio Berlusconi is unable to restore faith in Italy. It is surprising he lasted so long but his tenure is more to do with lack of opposition with the ability of his own political prowess.

Skip to November 2011 and step Mario Monti, or "Super Mario" called by his colleagues and the press. In the midst of the European debt crisis he was invited to develop a new technocratic government after Berlusconi's resignation. Monti seems the opposite of Berlusconi. Known for his quiet demeanor and gentle character, he does not use the emotional rhetoric of a typical politician and admitted not very friendly.

In December, the government Monti has managed to introduce emergency austerity measures intended to restore market confidence. He also addressed measures to combat the chronic problems of the country tax evasion and tailor a package of much needed reforms targeting the labor market. European politicians to support him.

Also another Mario was instrumental in calming the market. Mario Draghi succeeded Jean-Claude Trichet as president of the European Central Bank (ECB) in the same month with the appointment of Monti.

In December, Draghi oversee the three-year loan program in the region of € 500 billion from the ECB to European banks, calming fears that banks are difficult to fund themselves.

Right now, the market looks calmed nerves and emotions are improved. The FTSE 100 Index recovered to 20% from the lows in October. Peripheral bond yields fell sharply in Europe, although it remained at a level that is not sustainable. Sort itself out when Europe, stocks still look cheap.

But there are still many challenges and seem likely that Europe will enter a recession this year. Known and unknown exogenous risks could derail feeling. But at least for now, seems politicians getting their act together and a step in the right direction. Hopefully.

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