| Expect Strikes and Protests to Spread to Italy; Another Look at Why Italy Will Exit the Eurozone Before Spain Posted: 20 Jul 2012 01:25 PM PDT Anti-euro sentiment in Italy is already very strong and about to get stronger. Eurointellihence has some interesting comments today regarding Italy. The demonstrations and protests [in Spain] are very likely now to spread to Italy. The country's largest union, CGIL, said there would be a public-sector strike in September to oppose the Italian government latest austerity plan, Il Fatto Quotidiano reports.
According to Susanna Camusso, CGIL head, its union will launch "a general strike of the public sector against the umpteenth measure." The cuts, to avert a 2% increase in VAT scheduled for September, include a 10% reduction of staff and 20% reduction of managers of public-sector.
The complete package, result of the spending review conducted by Mario Monti, will save over €26bn until 2014. The measure, which will go before the Parliament at the end of July, was approved by the cabinet two weeks ago. Eurozone Exit Sentiment in Italy In regards to factors that might lead to a eurozone exit, there are two major differences between Italy and Spain. The first difference is anti-euro sentiment in Italy is already at a convincing threshold. Please see Six Reasons Why Italy May Exit the Euro Before Spain Here is a pertinent chart.  The net difference between those who think the euro is a good thing minus those who think it is a bad things is -4 percentage points in Spain, but -14 points in Italy. That is the biggest negative spread in the eurozone. Elections - Mario Monti Gone in 2013 The second difference between Italy and Spain is in regards to elections. Italian prime minister Mario Monti will be gone no later than general elections in 2013. In contrast, Spanish prime minister Mariano Rajoy is not scheduled to face general elections until 2015. Whether Rajoy's government can hang on that long is another question. Rise of the Five Star Movement In Italy, it is highly likely anti-euro candidates take over at least some of Italian parliament. A Time-Lapse Interactive Graph of the Popularity of an Anti-Euro Party shows just that. Please click on the link to learn about the rise of the " Five Star Movement". Former Italian Prime Minister Seeks to Dump Euro Recall that former Italian Prime Minister Silvio Berlusconi said " Italy should dump the euro unless the European Central Bank agreed to inject more cash into the economy". See Italy "Gasping Like Beached Whale"; Berlusconi Reiterates Euro Exit "Not Blasphemy"; Beppe Grillo Discusses "Taboo of the Euro" The collapse of the Spanish bond market and the rise of protests in Spain are both very serious matters. There is every reason to believe those reactions will spread to Italy. And with elections pending, the rise of anti-euro sentiment in Italy is extremely important. Monti may even be ousted before 2013 via failed vote-of-confidence. Every day that passes, the more strength the Five-Star Movement will gain. The irony is that it would be in the best interest of the eurocrats to hold elections now rather than later, before the anti-euro movement becomes politically unstoppable. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Demand for Spanish Bonds Collapses; "No Money Left to Pay Services" says Treasury Minister; Massive Protests Over Austerity; Two-Year Yield soars 60 Basis Points Posted: 20 Jul 2012 10:50 AM PDT On yet another Friday, Europe is overlooking a gigantic bond-market precipice. Yield on the Spanish two-year government bond is up a whopping 60 basis points to 5.76% Yield on the Spanish 10-year bond is up 26 basis points to 7.27%. Italy is participating in the bond debacle as well. Yield on the Italian 10-year bond is up 17 basis points to 6.17%. Yield on the Italian 2-year bond is up 39 basis points to 3.95% This action in the face of another "we are saved" moment less than two weeks ago tells a dramatic story elsewise. Massive Protests in Spain Over Austerity Measures The Guardian reports Spanish take to streets in protest as MPs pass €65bn austerity package Protesters took to the streets of 80 Spanish cities on Thursday night after prime minister Mariano Rajoy's People's party (PP) pushed a €65bn (£51bn) austerity package through parliament and the country paid record prices to borrow money from sceptical markets.
More than 100,000 people were estimated to have joined in demonstrations called by trades unions, with about 50,000 gathering in Madrid. Police fired rubber bullets to disperse the protesters in Madrid.
Angry civil servants had blocked traffic in several main Madrid avenues earlier in the day, with protesters puncturing the tyres of dozens of riot police vans, amid growing upset at austerity, recession and 24% unemployment. "No Money Left to Pay Services" If you are looking statements to incite violent protests, then look no further than comments of treasury minister Cristobal Montoro, who called for years of hard sacrifice, while making a claim " There is no money left to pay for services." Ambrose Evans-Pritchard has the details in his Telegraph piece, Spanish debt crisis returns as Germany nears bailout fatigue 
"Demand for Spanish paper is collapsing, even for shorter-dated debt which is very worrying and raises the spectre of Spain losing market access," said Nicholas Spiro from Spiro Sovereign Strategy.
Marchel Alexandrovich from Jefferies Fixed Income said the markets are already bracing for second bigger rescue of around €400bn. "A few more weeks like this and Madrid is going to decide to it has nothing more to lose and call for a full sovereign bail-out," he said. "Then we will find out if there really is any money in the EU kitty.
"If the ECB goes on holiday without doing anything more, this is going to snowball. We're way past point where any country can deliver fiscal measures on its own. People are not going to buy Spanish and Italian debt right now whatever ever they do. There has to be a circuit breaker."
"There is no money left to pay for services," said treasury minister Cristobal Montoro, calling for years of hard sacrifice. "We have to raise VAT to stay in Europe. There is no other option. All alternatives are worse. This has gone beyond ideologies." Beyond Ideologies Please read that last paragraph carefully. I disagree strongly with the finance minister. This is not "beyond ideologies". Instead it is precisely about the foolish ideology of staying in the eurozone at all costs, including 25% unemployment and tax hikes upon tax hikes. Also note the misstatement (or misquote), the VAT need to be hiked to "stay in Europe". I assure you Spain will stay in Europe regardless of what happens, and it can stay in the European Union as well. The correct alternative, is for Spain to leave the European Monetary Union. Stubborn ideology, unfortunately, is still in the way. At some point, however (and this could be it), Spain is going to hike the VAT one time too many. At that juncture, the willingness of Spanish voters to stay on the euro will fly right out the window. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| S&P Revises Pennsylvania's Outlook to Negative Citing Public Pensions; Compton CA Ponders Bankruptcy; Victorville, Montebello, Los Angeles, Oakland Coming Up Eventually Posted: 20 Jul 2012 12:28 AM PDT As part of a growing trend, Compton California is on the verge of bankruptcy. When it files (and it will eventually), it will become California's 4th city to do so. The Huffington Post reports Compton Will Run Out Of Funds By September 1 Compton, Calif. could be the fourth city in the Golden State to seek bankruptcy protection.
At a city council meeting Tuesday, officials announced that Compton is set to run out of funds by Sept. 1. Compton, which has only 93,000 residents, faces a deficit of $43 million after having depleted a $22 million reserve, reports Reuters.
"I have $3 million in the bank and $5 million in warrants due in the next 10 to 12 days," said city treasurer Doug Sanders during the live-streamed city council meeting. "By then, the council will have a decision to make: don't pay the bonds, default on them, or have a serious talk about bankruptcy."
Standard & Poor's put Compton's revenue bonds on a negative credit watch last Friday, citing concern over allegations of "abuse of public moneys" and fraud, reports the Los Angeles Times.
S&P also warned that unless they receive independently audited financial information from Compton, the city's ratings -- already at BB, or "junk" status -- could be withdrawn or suspended.
Compton may not be able to meet S&P's demands in time. The city's independent auditor, Mayer Hoffman McCann, recently declined to sign off on the city's financial statements and quit the account entirely, reports the Times. The firm stated that they couldn't get anyone at the mayor's office to cooperate with the audit inquiry. What's to Consider? Compton is clearly broke so there is noting to consider. The LA Times has more grim details in Compton on brink of bankruptcy. City officials announced that Compton could run out of money by summer's end, with $3 million in the bank and more than $5 million in bills due.
A longer-term problem is a $43-million deficit that the city amassed after years of improperly using money from water, sewer and retirement funds to balance its general fund. Compton will have to pay the money back at a time when it has no reserves and has been frantically cutting costs.
The state of these cities underscores the complexity of the fiscal crisis roiling California municipalities this year, with Stockton and Mammoth Lakes already in Chapter 9 bankruptcy. While ballooning public pensions and falling property tax revenues have hit many cities hard, bad accounting practices and improper use of funds have also taken a toll.
In many cases cities resorted to these measures because they could not balance their books or raise revenues but were loath to make cuts.
A recent grand jury report found that the High Desert city of Victorville used a series of disparate, possibly illegal measures to stave off insolvency. Those included dipping into sanitation funds to help keep the city's treasury afloat, loaning water agency funds to bail out the city's electric utility and siphoning $2 million in airport bond funds to buy land for a city library.
The inter-agency borrowing was so questionable — with $69 million sloshing around City Hall as of June 2011 — that the Securities and Exchange Commission launched an investigation, which is ongoing.
In Montebello, state auditors last year said they were troubled to learn that the city regularly used money designed for specific purposes to balance its budget — in apparent violation of the law.
"It appears that the City moved money wherever it wanted, whenever it wanted, regardless of the law or the intended purpose of those taxpayer dollars," Controller John Chiang said in a statement. Victorville, Montebello, Los Angeles, Oakland It's a safe bet to add Montebello and Victorville to the list. Moreover, some of the big guns will eventually go under as well. Unsound pension problems will be the death of many cities. I consider Oakland and LA to be sure things. It's just a matter of time. Delays in filing will only waste more taxpayer money. Eventually cities will catch on and there will be a flood of bankruptcies. S&P Revises Pennsylvania's Outlook to Negative Citing pension problems and a slowing economy, S&P Revises Pennsylvania's Outlook to Negative Standard & Poor's Ratings Services changed its outlook to 'negative' from 'stable' for Pennsylvania's general obligation debt because of growing spending pressures, particularly for public pensions, and a slow-growing state economy, the agency said on Thursday.
S&P affirmed the 'AA' credit rating on the state's general-obligation debt, but said it could lower that rating a notch in the next two years if Pennsylvania does not enact pension reform. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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