Is Italy still in trouble? Is the Pope Catholic?
With the wheels starting to grind slowly over Italy's debt crisis, the markets have reflected this. But we are not out of the woods yet
Rejoice, the Italian Senate has approved the austerity bill and the 10-year bond has slipped to 6.59 percent.
So that’s it, panic over, we can all put our punditry back in the box and go back to more mundane matters such as whether the UK government actually understands how taxation works.
Except, Italy, and Europe as a whole, are not out of the woods yet.
Italy needs to deal with the €1.9trn (£1.62trn) of debt and has to rollover €300bn of its debts next year alone. And these measures are just the tip of the iceberg with growth projected at 0.6 percent this year and 0.3 percent next year.
In addition, productivity was down 4.8 percent which, combined with the mooted cutbacks, look set to bring immense pressures to the political elite. Just look at the criticism that the coalition government in the UK gets - and it hasn’t even started cutting yet.
With Italy quite often failing to clear up its economy historically, it is not clear where there will be the political will to rein back decades of spending habits. Indeed, we still don’t know whether there will be an unelected technocracy or a new government to come following Silvio Berlusconi’s resignation.
France is also in crisis. Its productivity shrank by 1.7 percent month-on-month and the current to-ing and fro-ing over Europe makes it abundantly clear that President Sarkozy has one eye on the elections and the other on whether the economy is about to join Italy and Greece.
Don’t be mistaken about this. If you take Italy’s debt out of the equation it is actually a healthy and robust economy. France’s isn’t.
Its 10-year bond is just under 3.5 percent which will probably rise and next year it is looking at having to find €281bn euros to finance mature debt.
Although the French government and the EU is making a fuss over the accidental downgrading of the country to AA by Standard & Poor’s this morning, France is in essence an AA-rating. Gallic pride refuses to countenance this and as a result, it is slightly blinded about the realities of its precarious situation.
And it is this Gallic pride that is causing it to shrug off troublesome countries like Greece and Italy.
Although they have denied a move, Germany and France are considering a new Eurozone where fiscal autonomy is nigh on removed and countries such as the UK are shoved even further away from the centre.
And if the rumours are untrue, why exactly is father of the Eurozone, Jean-Claude Piris coming out of retirement to find a legal way of setting this up without treaty negotiations?
Speaking of treaty negotiations, Angela Merkel has reportedly told David Cameron that unless he accepted unconditional changes to the Lisbon Treaty a split would take place and leave Britain isolated and in a voting minority.
Well the changes would leave Britain isolated and in a voting minority anyway, so where’s the threat Merkel?I would say to David Cameron that unless he does everything, and I mean everything, to protect UK interests then he may as well stay in Brussels being isolated as the damage being planned on the City wouldn’t leave him with many friends over here either.
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