Italy ready to beg for a Bailout

By LUIS MIRANDA | THE REAL AGENDA | JULY 17, 2012

The time for handouts doesn’t seem to end in Europe. After ‘solving’ the Spanish problems, the European bankers are now looking forward to ‘rescuing’ Italy from financial disaster. Italy will be the sixth nation to request and receive a financial bailout of its banking system before the country is officially absorbed by the international banking institutions that have, to a great extent, caused the current crisis.

Today, Italy is the third largest economy in the Euro zone and a shiny holder of a G-7 membership card. But that shiny membership is worth nothing as the Italians are also the third largest holder of sovereign debt. The debt to GDP ratio in Italy surpasses 120%. Italy’s dire situation has not been widely publicized due to the fact it is been hiding behind Spain’s  economically genocidal financial agreement with the bankers, which is the same agreement that Italian Prime Minister Mario Monti has in mind for his country.

Monti’s policies, although fairly accepted in his country, have failed to take Italy out of the hole. Instead of pulling the country out of the recession or depression — depending on who you ask — Monti’s so-called reforms aided a contraction of the economy by 0.8% in the first quarter of 2012. With such contraction also came the reduction in economic activity including the manufacturing, services and retail sectors. Retail sales fell below estimates in the past two months, and they are expected to continue the slide to levels between -0.8% and -1.6%.

The same measures taken by Spain before the bailout, a series of conditions imposed by the European bankers as a condition to start looking into a possible financial bailout of the Spanish banking system, were also applied by Monti’s-led government. Much austerity and the transfer of Italian infrastructure to the European lenders was the prelude to the upcoming rescue. Neither the people of Italy nor the markets liked Monti’s plan, but then again, it is not them who Monti works for, is it?

Despite the inevitability of the rescue, some issues have arisen regarding Italy’s standing in Europe and whether these conditions would be limiting when it comes to requesting and getting the funds to bailout its banks. For example, financial consultants cite the fact that the European Stability Mechanism has not been approved by all EU members. They also say that the current measures may not be enough to rescue Italy due to the fact its debt is much larger than that of Spain or Greece, for example.

“Placing Italy in a bailout scheme casts an even bigger shadow over the euro-zone,” says Yohay Elam at Forex Crunch. An Italian bailout, Elam says, would create a bigger hole in the debt crisis, because Italy itself has functioned as a supporter of past bailouts, so having to rescue the Italians would mean a larger burden for the region.

But neither Italy’s standing in Europe not the approval of the ESM by all countries is the big enchilada here. Italy will be absorbed by the banks just as Greece and Spain were. The matter is not if, but how. Should things run the bankers way as it happened with Greece and Spain, Italy will also have to surrender complete sovereignty to Brussels, as explained in the memo of understanding signed by both rescuers and rescues. “Spanish authorities will take all the necessary measures to ensure a successful implementation of the programme. They will also provide the European Commission, the ECB and the IMF with all information required to monitor progress in programme implementation and to track the financial situation.”

In the case of Spain, and most likely with Italy, Portugal, France and then Germany, Brussels will begin as a negotiator, but will end as a manager of all European economies. After receiving the proposals for financial bailouts, the World Bank, IMF, European Central Bank, the European Banking Authority and the Prime Ministers will sit down and agree to accept the request for aid and write the conditions for the rescues to occur. However, once the agreement is signed by all parties, the sole management of the programme falls on the hands of the ESM, a banker controlled institution.

Under the ESM, banking institutions that do not belong to large powerhouses will be either absorbed by mandating that they take bailout money, or dissolved. At this time, their assets will be given to the banks. The money that comes from the financial rescue will be given to partner banks, those who are owned by powerful European bankers, and the toxic financial assets will be re-circulated into other nations or financial entities. (MoU page 3)

Most likely, as in the case of Spain, Italy will have to meet the requirements established by the ESM, which are based on a timeline that begins at the signing of the MoU and goes well into 2013 and 2014. The rescue of banks in Spain may work as a model to be utilized in Italy. According to the MoU the losses incurred into by those participating in the financial rescue will be shared by equity holders and subordinated debt holders who may participate voluntarily of these losses, or otherwise be mandated to accept the mandatory Subordinated Liability Exercises (SLEs).

Through the execution of these supposed rescue plans, the European bankers also reassure their position and that of their decaying model as the only ‘legitimate’ way to take on the current crisis, even though that exact same model is the origin of the crisis itself. In Spain, for example, more independence is warranted to the Spanish Central Bank, which is a branch of the powerful European banking institutions.

“A further strengthening of the operational independence of the Banco de España is warranted. The supervisory procedures of Banco de España will be further enhanced based on a formal internal review,” says the MoU. The central bank will be more of a vigilante for the European bankers.