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On October 26th the leaders of the 17 countries of the Euro-zone reached, after a 10 hour meeting, an agreement that should contain the Euro-crisis. The decision was made that the debt of Greece is diminished with 50%; the banks holding Greek bonds have to write off 100 billion Euro.
Italy, the third economy in the Euro-zone, agreed to take measures to reverse soaring long term interest rates which threatens Italy's possibilities to finance redemption and further budget deficits. Rising interest rates are the result of increasing fears on the financial markets that Italy is not able to control its finance. When you realize that the financial crisis of Greece, a small economy, almost lead to the fall of the Euro, then Italy will be disastrous.
The fear of the financial markets concerning the Italian financial situation is expressed by the rise of the long term interest rates; in the end of October 2011 the interest rates on 10 years government bonds was up to 6.18% from 3.80% one year earlier. With a debt of 120% of GDP and a budget deficit forecast of 4% in 2011 (4,6% in 2010) the financial situation of Italy becomes problematic. Prime Minister Berlusconi pledged that the budget deficit in 2013 would be 0% while in 2014 a structural budget surplus would be achieved (forecast 2013 -1% and 2014 -0.7%).
This goal should be achieved by diminishing the administrative tape, abolish-ion of minimum tariffs in professional services, ongoing liberalization of local government and utilities. Furthermore Italy would reform firing rules and procedures and before end 2011 the fragmented unemployment benefits will be reviewed. In 2026 the pension age will be 67 and before end 2011 Italy would know how this is going to be realized. Further Italy will re-prioritize projects focused on education, employment and more.
Five days after the meeting Berlusconi already retracts his promise for elections and his resignation. What is a agreement of 17 Prime Ministers and Presidents worth when one of them is not to be trusted? In 1998 Berlusconi was convicted for 2 years and 4 months jail-time for fraud. He was also convicted for bribing tax-inspectors on three separated cases between 1989 and 1993 and sentenced for 2 years and 9 months and more convictions. At this moment there are 4 lawsuits pending!
Why is Don Berlusconi not in jail? He changes laws so his crimes of the past are no longer prosecutable. He bribes witnesses. He will do anything! His priorities are to stay out of jail, to keep in power, to preserve his ego, to …. His personal goals are his first priority; Italy let alone Europe are immaterial. In this perspective Don Berlusconi is extremely predictable. In my mind there is no doubt at all that his promises to restructure Italy are worthless.
In the end of 2011 it will be certain that Italy is the next country in severe financial problems. The Euro-crisis will be back in full. The ESFS with a leveraged capital of 1 billion Euro will be powerless. Further increasing the ESFS-fund is political and economical impossible. The collapse of the Euro-zone economies will drag the US-economy, China and the rest of the world into severe and long depression. Only when the world is a total mess the force of the people might provoke a financial revolution.
However investors do not mourn. There is lots of money to be earned when you bet on the destruction of society. Join the investment funds and banks, but be aware that not even you might escape the misery.
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