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IMF and ECB to offer Italy a 600 billion euro bailout (sources)

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Cross-posted from Credit Writedowns

There is a flurry of activity going on in Euroland this weekend. I have a number of stories up on different proposals in the offing. Clearly, European policy makers have got religion about saving the euro. Expect some kind of announcement soon.

According to Austrian daily Der Standard, Italy is to receive a 600 billion euro bailout courtesy of the IMF. Note: the article has what I assume to be a typo, referring to 600 million euros instead of 600 billion. I have fixed that in the translation below. Also note that the ultimate source of this information is La Stampa, an Italian daily newspaper.

Translation from German:

According to a media report, the International Monetary Fund (IMF) is preparing an assistance program with a capacity of up to 600 billion euros for heavily indebted Italy. Appropriate credit could be awarded for a period of twelve to 18 months in order to stabilize the financial situation of the country, reported the Italian newspaper "La Stampa " on Sunday, citing an IMF official. With interest rates between four and six percent, it would be much cheaper than current two-and five-year bonds with interest rates of more than seven percent.

Funding still uncertain

According to the report, the IMF may not be able to cope with the auxiliary loans from its current funding, and so different options would be considered for funding. Thus, for example, payment by the European Central Bank (ECB) is in conversation, which the IMF could guarantee. With the assumption of ECB aid under IMF control, Germany, which rejects a stronger involvement of the ECB in euro rescues and presses for the greatest possible independence of the central bank, should also be reassured, the newspaper quoted an IMF representative.

The European Union and the ECB had recently sent experts to Rome to examine Italian public finances. The IMF also wants to send their own auditors. In Italy, the debt burden is about 1.9 trillion euros. Additionally, the country is currently suffering from weak economic growth. This has led to worries in financial markets in recent weeks that Italy, like Greece, Ireland and Portugal before it, may need financial assistance. The new Prime Minister Mario Monti is under strong pressure to cut costs to make up for the failings of his retired predecessor Silvio Berlusconi.

Source: IWF bereitet 600-Millionen-Euro-Hilfsplan für Italien vor – Der Standard

Also see:

All of the articles above are from just this weekend and point to serious damage control now ongoing in Euroland. I doubt whether any of these proposals is an effective long-term solution. But, this is what’s on offer. Boxed in by the ever-worsening sovereign debt crisis, the Franco-German euro zone axis is trying to formulate a policy that both adheres to the German economic orthodoxy without worsening the crisis any further.

But, the damage is done to the real economy. Dithering will lead to recession in the euro zone, Switzerland and the UK at a minimum, according to recent economist projections.

MMT fans: Also note that, while I see an independent central bank as a good thing like Juergen Stark in the article above, top MMT scholars like Mosler and Wray do not. They call for the Fed to be abolished with its role conducted out of the Treasury.

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About Edward Harrison

I am a banking and finance specialist at the economic consultancy Global Macro Advisors. Previously, I worked at Deutsche Bank, Bain, the Corporate Executive Board and Yahoo. I have a BA in Economics from Dartmouth College and an MBA in Finance from Columbia University. As to ideology, I would call myself a libertarian realist - believer in the primacy of markets over a statist approach. However, I am no ideologue who believes that markets can solve all problems. Having lived in a lot of different places, I tend to take a global approach to economics and politics. I started my career as a diplomat in the foreign service and speak German, Dutch, Swedish, Spanish and French as well as English and can read a number of other European languages. I enjoy a good debate on these issues and I hope you enjoy my blogs. Please do sign up for the Email and RSS feeds on my blog pages. Cheers. Edward

105 comments

    1. AndyB

      Hard to relax when the US Senate is contemplating a bill that would allow the roundup of any citizen who disagrees with government policy; or do you love the smell of fascism on a Sunday morning?

          1. rotter

            Thier intent couldnt be more obvious. This is just more of the police tactics they’ve created to crush any possible (likely) dissent in opposition to the coming super “austerity”.

          2. steve

            that worldwide detention bill is outrageous! Talk about trying to destroy the US constitution, Sen. Levin and Sen McCain are the real terrrorists!

  1. F. Beard

    I don’t call new loans a “bailout”.

    At some point we need to get off the borrowing treadmill. Money should only be spent, not borrowed into existence.

    The irony is that the funding for the IMF is a gift from national governments. But what does the IMF do? Does it just give away that money it got for nothing? Nope. It lends it to the poor for usury!

    1. Jim

      And imagine what will happen to the prices of the existing Italian bond stock, given the likelihood that the IMF will loan the country senior paper. When Italy restructures its debt and reintroduces the lira (and it will restructure, as it can’t fulfill its obligations growing 0.5% a year), and the IMF gets 100 cents on the dollar, the private bondholder will end up with even less than Argentina offered.

    1. tom allen

      Somewhere in Bedford Falls, Mr. Potter is having a good chuckle right about now. That or a heart attack.

      1. Jack Parsons

        He’s dancing about in the dark. He’s like the station owner in Second City TV: he goes about in a wheelchair “for respect”.

  2. RueTheDay

    Does the IMF even have 600 billion euros to lend?

    If the funding is going to come from the ECB, then just say “ECB readying 600 billion euro loan…..”

      1. Carla

        If I understand things correctly, the IMF will get the 600 billion euros to lend to Italy from working class and middle class American taxpayers. And further austerity measures will be imposed on U.S. poor and working class people to pay for this.

        Please tell me I’m entirely wrong.

    1. Jim

      My understanding is that the IMF must loan in proportion to paid-in-capital. The ECB will contribute Europe’s portion – about 25% of the 600B package. But the US would have to contribute about 18%, or 108B Euros, or 145B Dollars.

      Will the OWS crowd speak out against President Obama lending Italy 145B dollars?

  3. Richard

    Interesting timing for Juergen Stark to defend an independent central bank.

    I had just finished a post on how central banks should stay independent, but how they should be required to be ultra transparent. This is particularly true of the Fed, but would also apply to the ECB.

    The post asks how can we root out opacity from the global financial system if we allow a bank regulator, lender of last resort and monetary authority to operate in an opaque manner.

    http://tyillc.blogspot.com/2011/11/regulators-as-source-of-financial_26.html

      1. noodles

        LaStampa is also writing about 600 billion

        “E l’Fmi prepara una cura
        da 600 miliardi per l’Italia”

  4. RueTheDay

    If the report turns out to be true what happens tomorrow morning when all of the traders cover their Italian shorts and start shorting Spain? How quickly can the IMF/ECB put together a loan package for Spain? It’s going to be a busy week. Isn’t the next aid tranche to Greece expected on Tuesday as well?

    1. tom allen

      I guess they’ll just get on their Twitter-tweets and fix things. What’s that? Twitter just rolled out a redesign this weekend in time for both Cyber Monday and Euro-geddon?

      http://echidneofthesnakes.blogspot.com/
      (“A Rant About Whoever Changes MY Computer Stuff”)

      Bravo, Twitter executives!

  5. Pete

    @andy – huh? I didnt know this

    @f beard – yeah depends on the terms of the loan doesnt it? A 12 month 4% loan to Italy isnt a better rate than market, but the market gives this rate for like 10 Bil at a time. No way Mr. Market lets Italy have 600 B all at once. So for this reason and also since Mario Monti is a banker boy, I expect them to take it.

    @ruetheday – does the IMF have the cash? don’t worry boys and girls, uncle Ben’s got this one! The ECB is explicitly forbidden from buying and holding sovereign bonds. They can make short term loans to banks and intervene in the currency markets, that’s it I think. For the ECB to lend to the IMF so that the IMF can lend to sovereigns is just too painful to watch. Ah well.

    1. F. Beard

      – yeah depends on the terms of the loan doesnt it? Pete

      Even at 0% interest, loaning money into existence is bad. It is akin to loaning someone a quart of blood and then expecting them to repay it! But with money it is even worse since a body can produce its own blood and thus one can possibly repay the debt over time but how is that possible with money that one cannot create?

    2. Yves Smith

      No, the IMF gets money from the US via fiscal commitments. The money comes from the Treasury and is approved by Congress. Not the best source, but you can see proof in this article:

      http://www.cbsnews.com/8301-503544_162-20063094-503544.html

      The US share of IMF is 16%-17% in SDRs and votes. I’m assuming funding requirement track voting. Think Congress is gonna approve a roughly $140 billion loan to Italy? Now maybe the IMF has some uncommitted funds, but I’d guesstimate some chunk of this 600 billion euros ($840 billion) is new cash.

    1. Edward Harrison Post author

      MMT stands for Modern Monetary Theory, which is a functional finance framework for analysing the current nonconvertible floating exchange rate macro environment.

      1. BR

        Harrison is wrong about what MMT is. It is a post-Keynesian economics framework for analyzing the creation and flow of credit. MMT replaces the mainstream “money multipler” theory of money creation. Instead of base money creating credit money, as in the Federal reserve crediting reserves to a bank and the bank creating loans, MMT argues that the empirical evidence shows that the loans come first. “The credit money dog wags the base money tail.” This is, indeed, what the evidence shows. That is why the Federal Reserve has shown an inability to control the money supply in any serious way over the past several decades. The housing bubble is an excellent example. Banks create loans which puts pressure on interest rates. In order for the Fed to hit its target, it needs to create reserves, buy bonds, or other Open market operations. One of the implications of MMT is that if the banks can create money via the central bank indirectly without causing inflation, why shouldn’t the governments simply use the central bank to create money without the liability on the other side of the equation? The implication is that money is like points on the scoreboard. It’s used as a medium of exchange. Money can be freely created by the central bank to spend in the economy without debt which can be used to stimulate aggregate demand. In the case of the Eurozone, the ECB can monetize the deficits of the Eurozone countries without having a deflationary effect. If pursued in full, the ECB could restore full employment to the Eurozone relatively quickly and reduce the enormous private debt overhang, which increases disposable income and aggregate demand. The Stark vs. MMT comment by Harrison I assume was referring to the fear by the ECB of pursuing what they call a “quasi-fiscal role.”

        This is how I understand it. If you want a better explanation look up Steve Keen, the New School for Social Research, Michael Hudson, University of Missouri–Kansas City. It’s sometimes called “Endogenous money theory” or “Circuit money theory.”

          1. BR

            Hmmm…perhaps I’m mixing up definitions…My understanding was that chartialism was a derivative of MMT…

            http://www.netrootsmass.net/fiscal-sustainability-teach-in-and-counter-conference/stephanie-kelton-are-there-spending-constraints-on-governments-sovereign-in-their-currency/

            http://books.google.com/books?id=eQBy7NBcFNQC&pg=PR9&lpg=PR9&dq=michael+hudson+modern+money+theory&source=bl&ots=-cRx97zTi_&sig=-rq22eakHDOcVsgvatTBHoCbH8E&hl=en&ei=dYPSTvqHM6a42wXwz7SaDw&sa=X&oi=book_result&ct=result&resnum=9&ved=0CEwQ6AEwCA#v=onepage&q=michael%20hudson%20modern%20money%20theory&f=false

          2. BR

            No. After researching more I see that I’ve jumped the gun. Sorry Harrison.

            I do think, however, that MMT encompasses a range of topics, including chartialism, functional finance, etc.

  6. slothrop

    “MMT fans: Also note that, while I see an independent central bank as a good thing like Juergen Stark in the article above, top MMT scholars like Mosler and Wray do not. They call for the Fed to be abolished with its role conducted out of the Treasury.”

    Pretty funny. Ever heard of the ESF?

    The Federal Reserve has not had control of monetary policy since 1934.

    Thank god for academics.

    1. Tao Jonesing

      Whether or not the ESF “controls” the Fed, the fact remains that the current arrangement between the Fed and the Treasury requires the Treasury to borrow money into existence rather than just creating it by fiat. There is no Constitutional reason that the U.S. government should have to create a new liability in order to create new money. According to MMTers, if we were to eliminate that borrowing step, MMT(heory) would become MMF(act).

        1. Ben Wolf

          Payment isn’t an issue because the reserves “borrowed” don’t get spent. They get disbursed to the government’s account at the Fed and then switched back to the buyer’s bank when the bonds mature. The public “debt” is essentially an accounting fiction designed to control interest rates, paying it back isn’t a concern.

    1. F. Beard

      The independence of the FR is a myth. slothrop

      I agree (mostly). So why not incorporate the Fed into the Treasury and be done with it? That would avoid even the appearance of evil and move the debate along to what the fundamental problems are.

  7. Mark

    Two questions:

    Can the IMF do this without additional money from the US?

    If not, does that money require congressional approval?

    1. Yves Smith

      I don’t know about your first question but yes, the US share of IMF budgets is approved by Congress.

      1. Chauncey Gardiner

        With the lack of transparency, how would We the People ever know whether the Federal Reserve Bank of the United States, a privately owned and controlled corporate entity, is creating money (debt owed by the American people) that it is sending to the IMF and/or the ECB to fund sovereign bailouts in Europe?

        Why is there no burden of proof placed on the Fed to show us that this has not been done and is not being done?

        Based upon recent history, I believe this is possibly being done to protect the bondholders, insurers, and other financially interested parties – including senior executives – of very large U.S. and UK banking and insurance corporations from incurring enormous losses on derivatives, particularly credit default swaps that they have issued. I recall that these are the same financial instruments that Warren Buffett characterized as “Weapons of Mass Financial Destruction”.

        1. Jim

          Lack of transparency? In the last two weeks, Brussels has appointed Viceroys in Italy and Greece, and the Italians and Greeks seem to be OK with it. Heck, even the NC commentariat seems to have few problems with the usurpation of democracy in Italy and Greece.

          I would hope that many here would have issues with the US increasing its contribution to the IMF. But I wouldn’t be surprised if many simply accept it one minute.

          And the next minute they support the OWS movement.

          Go figure.

          1. scraping_by

            When in doubt, always the straw man. Ad Hominem Tu Quoque.

            Baseless accusation followed by baseless accusation.

            If you’re auditioning for Fox News by using their specialty, you’d better have a nice rack. They’ve got their quota of concerned blowhards.

          2. tom allen

            I won’t weigh in on the meat of the economic argument, but I do like the style of the rare “tu quoque tu quoque” rebuttal. :-P

        2. Ben Wolf

          It can’t create money. Sorry, but the empirical evidence is against this particular assertion. The U.S. central bank has been attempting to spark inflation via the money supply for three years, and Japan’s central bank for twenty without success. That’s observational evidence that central banks as currently constituted have no way to pump money into the real economy and therefore cannot create it. All they do is swap assets, often ineffectively.

          1. Chauncey Gardiner

            Thank you for your response. It is inconsistent with my understanding about how money is created in the US and the Fed’s role in that process. I have considered your point regarding the growth in the monetary aggregates published weekly by the St. Louis Fed against the backdrop of the declining velocity of money over time. I also spent time reviewing the results of the GAO’s recent audit of the Fed, which was the main point of my reply to Yves’ comment. A Bloomberg article published yesterday evening provides further mood music regarding my shared concerns:
            http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html

  8. Swedish Lex

    Christine Lagarde is beginning to deserve her salary?

    Hope she avoids the Sofitels and their handsome butlers.

    1. Typing Monkey

      Or the IMF is going to become insolvent over this one (if the story is true).

      I suppose it makes sense–now that all the sovereigns are broke, might as well drive the multinational institutions towards insolvency as well.

  9. Paul Tioxon

    http://money.ca.msn.com/investing/news/breaking-news/germany-and-france-examine-push-for-euro-zone-integration

    More corroborating reports. Politicos pushing for tighter integration via treaty mods is short term political tweaking not on a par with structural changes necessary to stop the overwhelming power of private capital. Private capital has been allowed to amass surplus capital in excess of the real economy on a liquidated basis by a factor of who knows how much, and its transmission through markets or lack of transmission through markets is quicker than human scale deliberation through democratically controlled representatives. The divergence between political and economic decisions and the urgency of markets vs the deliberative nature of republics, parliaments and congresses is not so much an indictment of either for lacking, but of their absolute differences. Global capitalism is a tightly coupled system of markets that flows without barriers and the interstate system of nations is defined by territorial boundaries. It is like the wave and particle theory of light, both are true at the same time both are completely different. Power is political and economic simultaneously, but there is no unified field theory that lets them both work with each other in some grand synthesis of reconciliation.

  10. Myr

    The jokes never end. So, the IMF is supposedly going to lend 600b to Italy? And then what happens? Italy is still bankrupt. They just owe the money to someone else and, all the while, the total debt outstanding increases.

    The lack of any actual thinking by those who keep pushing the “more debt is the answer to too much debt” approach is truly comical. I’m looking at you, Credit Writedowns.

    1. Jim

      That’s what so few appreciate. That Italy can’t compete with the Euro as its medium of exchange. That Italy can’t grow more than 0.5% a year over the next decade with the Euro.

      You want Italy to thrive? Have Germany and the northern European countries to permanently transfer 2% of their GDP, annually, to the country.

  11. BR

    Okay. Let’s get real about this crisis. This is a stocks and flows crisis, and Roubini has aptly put it. As long as the total debt levels remain the same and austerity is pursued, eurozone breakup is only a matter of time.

    I’m also less than confident that the Eurocrats are intellectually and politically capable of handling all of these moving parts. Notice that everyone seems to have forgotten Greece in all this. Wasn’t the EFSF bailout fund that ended up failing a mechanism to avert Greek default, referendum, and Eurozone exit?

    The Germans are being incredibly arrogant in their role here demanding Eurobonds with a fiscal agency to control to the budgets of all of the countries in the Euro. Like that’s gonna happen! Yeah, all of these countries are really going to give up their sovereignty to austerity Germany!

    And is 600 billion Euro even enough to hold back the water? The markets must know that austerity will lead to recession in Italy and that they’re never going to be made whole unless the ECB steps in permanently as a lender of last resort. And what about the situation in Spain? Portugal? Ireland? We’re supposed to ignore the fact that 600 billion is not enough? That guaranteeing Italy is somehow going to paper over the underlying problem? That Greece, Spain, Portugal, and Ireland were next on the default train? This new IMF package is SO ill conceived! Is it a bazooka or is it not a bazooka? Is this supposed to create the impression that the Eurocrats are really willing to do anything to save the Euro, or is this simply an attempt to help keep interest rates on Italian bonds low? Which completely misunderstands the crisis! Low Italian bond yields only matters to the extent that A. Italy can stay in the Euro AND B. to the extent that it inspires confidence in the market and stops the spread of contagion.

    Obviously the 600 billion is going to be paid by either the ECB, the US, or the Fed, because no one else is willing to take that kind of loss, as the EFSF failure showed.

    Any serious person must realize that as long as austerity rules, the end game is going to be really ugly for the peripheral countries. Will they remain? Well, the market is pretty stupid sometimes, so maybe it can be fooled for awhile, but there’s only so much pain that a country can endure, and once the market realizes this, collapse is really only a matter of time, unless the ECB decides to step in.

    1. Jim

      How are the Germans being arrogant? Germany was promised, explicitly, that the ECB would never become the lender of last resort. Do you want the Eurocrats to violate German democratic institutions?

      The optimal outcome is for the Eurozone to be dissolved.

      The other less optimal viable outcome is for a United States of Europe, with permanent transfer unions, based in Germany, with Italy, Spain and the other countries mere states.

      Perhaps we should ask Italians, in exchange for permanent transfers from Italy, would they opt to be subject to German rule?

      1. JTFaraday@yahoo.com

        I made the mistake of briefly looking into Silvio Berlusconi the other week. (oy). Are we sure the Germans don’t have better government than the Italians? Maybe receivership is not such a bad thing here.

        But, really, it looks to me like the real impending issue is transcending (even nominally) representative political governence entirely in favor of rule by authoritarian fiat from the banking centers.

        I haven’t been following this carefully, but I think you’re right that the finance technocrats commenting on this generally have no sense for the political issues at stake.

        1. gmanedit

          “it looks to me like the real impending issue is transcending (even nominally) representative political governence entirely in favor of rule by authoritarian fiat from the banking centers”

          Yup. It’s been in the works for decades.

      2. BR

        The ECB stepping in does nothing to hurt Germany except play on their fears of hyperinflation. They’re willing to form a government which they will largely control and subject other countries to austerity policies so that they can maintain current account surpluses. And that’s not arrogant? Maybe arrogant is the wrong word, but it’s certainly incredibly presumptuous that any other country would so willingly and officially give up their sovereignty.

        Yes, it’s true that they were promised the ECB would not play that role, but circumstances have changed. The fact that they were “promised” is no justification for their actions today; the breaking of that promise is much less worse than the consequences of a Germany-driven autocratic austerity Eurozone regime. If it’s a legal question, laws can be changed. That’s not the problem here, it seems to me. The problem is will.

        The optimal outcome is not for the Eurozone to be dissolve. The Euro can be saved, but changes need to be made. First, the ECB needs to step in to stop the sovereign debt run. Second, a massive fiscal stimulus is needed to restore growth. Third, the ECB needs to bail out countries that have accumulated debts that cannot be paid. Fourth, those countries (Greece) should be ejected from the Eurozone, no credit event. Five, the countries that are left should be made to undergo internal re balancing and structural reforms if they are to continue to use the Euro…..that’s all I’ve got…I think that the Euro can be saved, though it would be very difficult.

        1. Fiver

          How can you just dismiss what the man just said. None of this was Germany’s idea. The whole “Allied” plane was to “contain” Germany following the collapse of the Soviet Union and Germany’s decision to re-unify. The ONLY reason they signed on was the EXPLICIT guarantees in the Treaty. To just say they are being “arrogant” or “stupid” is incredibly disingenuous. Can you imagine how the US would react if another power just ripped up a Treaty with the US and stuck the bill for everything onto the US?

          1. JTFaraday

            Yeah, I think that’s the way I see it. There may be differing circumstances in these countries, amongst which Germany is better situated, but all the nations/peoples are being asked to turn their national sovereignty over to the finance technocrats, ie., to a particular international economic class, Simon Johnson’s “quiet coup” in Europe.

            They may be jockeying for position now, but screwing the volk in Germany cannot be far behind the Greeks.

          2. BR

            Let’s say you and I make a deal where I loan you money. Then a crisis hits and you can’t pay the money back with going through extreme distress? Should I, for the sake of the deal, let you starve?

            My only point is that these things aren’t black and white.

  12. Marley

    Move along people… nothing to see here. The Troika is going to (try to) do JUST ENOUGH to keep “the markets” happy. Let’s see how many idiots “rally” come Monday. As many have pointed out already, this really changes nothing to the fundamental flaws in the framework.

  13. Dan G

    Jingle bells the euro smells and easter will be on its way if you can’t afford a loan take it anyway. Ok everyone together now!

  14. Benedict@Large

    I’m not so familiar with Mosler’s views on the Fed, but I’ve never heard Wray make a big deal out of it other than to suggest that the idea that the Fed as independent is nonsense. Independent of democracy, perhaps, but not independent of Wall Street. To the extent that Wray want’s to end the Fed, I’d suggest it is simply his preference for democratic control over Wall Street control of the Fed’s functions, but that is a political desire on his part, and not one indicated by MMT. In any case, Wray will have his shot, as he’s been named to Bernie Sanders’ “panel of experts” on Fed reform. [ http://sanders.senate.gov/newsroom/news/?id=de4c73fb-131c-4a25-b83e-4604eaefcebb ]

  15. mac

    At some point in my life I was addicted to credit. Some 20 years ago I decided to stop. I now have no debt except month to month charges, I own a Home, car and motor home with no debt.
    I stopped borrowing , and paid off my debts and now live well.
    Hello Europe hello Europe, Get the Point?

    1. Marley

      Please… always and everywhere… try… to resist… the urge… to compare household debt to sovereign (gov’t debt)… :)

      EVEN THOUGH, in the case of the Euro, you’d be… right… ish. STILL, don’t do it, OK? ‘Coz it’s wrong… like hurting newborn kittens wrong.

      Instead, feel free to call the architects of the Euro a bunch of ideologically belligerent sadists. And shout to the heavens that no nation should ever give up their own currency for one issued by an entity calling itself a “central bank” (of sorts), but claiming it cannot directly finance member states who now use but cannot issue the funny money this “central bank” does.

      … and shake your fists (as if saying “whyIoughtta…”).

      OK?

  16. Hugh

    Note the following weasel quotes from the article

    the International Monetary Fund (IMF) is preparing an assistance program with a capacity of up to 600 billion euros

    the IMF may not be able to cope with the auxiliary loans from its current funding

    the assumption of ECB aid under IMF control

    Prime Minister Mario Monti is under strong pressure to cut costs

    First, we have the participation of the IMF, a sure sign Italy is about to be mugged with the benefits going to international banking.

    Second, it isn’t 600 billion euros but “up to” this amount. When Eurocrats use a phrase like that, it means they don’t have any solid plans for the funding.

    Third, this is confirmed by the next quote that the IMF doesn’t have the money so we get another of these Rube Goldberg contraptions that the ECB will provide the money but under IMF rules. So the ECB will loan the money under a worthless IMF guarantee and in exchange give the IMF the power to call the shots. Does this make any sense? The ECB can’t loan the money directly but if they find anyone, a drunk in the street even who says they’ll back it then not only is it OK but they will let said drunk list the conditions for it.

    Fourth, and just to show this is nothing more than another exercise in kicking the can down the road, Italy is supposed to engage in yet another round of budget slashing and selling the commons (for the benefit of kleptocrats everywhere). This not only degrades Italy further into debt peonage but guarantees an economic contraction that will see it back in the same situation, or a worse one, in 12 to 18 months time.

    The choice Italy is being given by the IMF/ECB/Paris-Berlin axis is between fast poison and slow poison where the real choice at least for Italy’s 99% should be between poison and just saying no to the poisoners.

    1. Hubert

      Hugh, Sure, another can-kicking-exercise, but what did you expect realistically?
      The Italian budget was a sham for a long time, so what does partly changing one sham for another actually imply on a moral basis?
      Italy was poisened long ago (maybe already when it came into existence as the parts do not fit well together)

      1. Hugh

        As I have often written, Europe has 6 major problems: 1) the lack of a debt and fiscal union, 2)an ineffective central bank, 3)an out of control, and certainly insolvent, banking sector, 4) unsustainable mercantilist trading patterns, 5)a corrupt political class, and 6)its rich. I am more familiar with the construction of kleptocracy in this country over the last 35 years. With Europe, I am less so. Certainly, it has been going on for the last 20 years or since the break up of the USSR. In both the US and Europe, we can see tendencies that predate these periods, and even earlier periods, the Gilded Age, the Roaring Twenties, and the Great Depression, that have marked similarities to events today, but the real genesis of the kleptocracies we see now is in the timelines I suggest. What happened was that what were disparate, sporadic, or marginal kleptocratic traits began coalescing and building on each other, moving from the economic periphery to its core and forming an integrated system of elite looting. It is this all encompassing system of bankers, politicians, the rich, the corporations, academia, the judiciary, and the media who are dedicated to looting the 99% that separates what happened in the past from what is happening now.

  17. scraping_by

    Actually, it’s not so much a loan as deepened control over the economy.

    http://presstv.com/detail/212338.html

    Integration seems to consist of brushing aside national governments to allow private interests unrestrained access to local assets.

    The Conquistadors in Mexico found and executed the Aztec chieftans. Now the bankers in Italy will gain a free hand to loot.

  18. Hugh

    The following is a list of the top 20 economies in the IMF. The first number is the required percent contribution of the member to IMF funds. The second reflects the country’s percent voting rights. These numbers are from wiki and reflect conditions to July 2011. In July changes were made but these were on the scale of 0.01 so don’t materially change anything.

    United States–17.72–16.77
    Japan–6.57–6.24
    Germany–6.13–5.82
    United Kingdom–4.52–4.30
    France–4.52–4.30
    China–4.01–3.82
    Italy–3.32–3.16
    Saudi Arabia–2.94–2.81
    India–2.75–2.34
    Canada–2.68–2.56
    Russia–2.50–2.39
    Netherlands–2.17–2.08
    Belgium–1.94–1.86
    Brazil–1.79–1.72
    Spain–1.69–1.63
    Mexico–1.52–1.47
    Switzerland–1.45–1.40
    South Korea–1.42–1.37
    Australia–1.36–1.32
    Venezuela–1.12–1.09
    remaining 166 countries–28.79–30.05

    What stands out in this list is that the US would have to back 106.2 billion euros (or something over $141 billion) of the deal. Would Congress, most notably Republicans favor this? Somehow I don’t think so. Note also that the BRIC countries are on the hook as well. And finally European basket cases like Italy (the supposed bailoutee) as well as Belgium and Spain would be part of this, –as well as countries like the UK that aren’t doing particularly well either.

    Current US contributions to the IMF are 17.7%. For current listings, see

    http://www.imf.org/external/np/sec/memdir/members.aspx

  19. Doug Terpstra

    This is the never-ending story on can kicking. So many chapters and each only a tiresome rehash of ways to subvert democracy and save the asse(t)s of plutocrats and banksters on the backs of the working class. As Hugh notes, the IMF is a sure sign of such bankster mugging. It’s their raison d’être. But like credulous Obama voters, Charlie Brown investors keep coming back, and the Wall Street roulette roller coaster keeps churning.

    Also as Hugh notes, the inextricable integration of global finance means that Benny and Timmy will put US workers and taxpayers on the hook with more QE and extend and pretend accounting. But integration is no assurance of stability. On the contrary, current conditions echo earlier preludes to world war, at a time when economic interdependence was widely thought to make war inconceivable. And as in the 30’s, determined denial of social needs and human rights can easily lead to “balkanization of the continent and a slide into dictatorship and war”.

    http://www.wsws.org/articles/2011/nov2011/pers-n25.shtml

  20. Cathryn Mataga

    My assumption at this point, is that every deal, no matter what it is, will just make it worse and worse. I think it’s a desperation move. Article on Zero Hedge, says that once Italy goes to the IMF, that its ability to borrow from regular lenders is diminished — because IMF loan payments get paid back first, before any other debt.

  21. EDF

    From “La Stampa”

    “riservandosi la possibilità di aiutarlo con un programma di aiuti finanziari che potrebbe arrivare a valere fino a 600 miliardi di euro.”

    The way I read “La Stampa”, this is all in the conditional. Could the article be a trial balloon only?

    1. Hugh

      On the one hand, I think this is journalistic style. On the other, you’re right if this were a done deal the conditional “potrebbe” and the qualification “fino a” could have been condensed down to “aiuti finanziari di 600 miliardi di euro.”

  22. SteveA

    IMF assistance has made all the difference with Greece, hasn’t it? The white knights to rescue Europe are all ghosts.

    1. tawal

      In 2009 the IMF interest income did not cover expenses. Their economists retire at age 50 with salary at $10,000 per month. No austerity for them.

  23. RodZone

    All this lending and zero bound nonsense just convinces a saver like me that the system is close to imploding. I’m going back to all gold shortly, unless interest rates go up. Cash may be king for now but there aren’t any consumer goods I want or need apart from continuing to live and travel in my motorhome with wife and two dogs. I could afford to buy a show off house and all the toys but I’ll save that for another day and recommend my lifestyle to others who can get off the treadmill.

  24. Fiver

    I don’t see the US Congress springing for this cash – only Japan, UK and Korea have voted to approve the IMF quota increase. If done at all, China and others would have to fill the breach, which is where we already were – or the IMF/ECB simply lies. It would not be the first time a major financial institution was guilty of that. Speaking of the Fed…..

    Here’s my NC post from a prior story:

    The question of democracy is paramount at this juncture. Give in to “markets” demands for what amounts to a European version of a Latin American-style IMF hit-job now and it’s 20 years of going backwards for Europe – if it lasted that long, which it wouldn’t.

    I have no fear at all of a REAL “Lehman” in any event. I rather see, and soon, a more credible effort to buy time for a more orderly breakup (and to juice markets keep those wallets open, of course). I can well imagine something like the suggestion from Peter Tchir – which would see the Fed buy up several hundred billion in bonds (no approval needed) or other temporary, but credible (because buying time is the stated purpose) get-arounds that would serve as well. Enough time (3 to 6 months) free from incoming fire to think through the best options for all concerned – which most certainly means disappointing “markets” at that later date, though it could no longer credibly prompt threats of Wall Street suicide/genocide, as the attacks can occur ONLY because there are targets of opportunity. The moment the big decision is made (there is or isn’t an EZ consisting of X, Y, etc.…) the strictly financial crisis is over.

    1. Hugh

      I think if the Fed started openly buying up eurobonds, all hell would break loose in Washington among the nativists and various conservative and libertarian elements in Congress. What would be interesting would be if the Fed tried to hide this by subsuming it into their already up and running dollar swaps program. What gets overlooked is that the Fed is already shoring up European finances. It’s just how far they can go without getting caught or have it blow up politically on them here.

  25. RueTheDay

    This whole thing gets sillier by the minute.

    http://www.telegraph.co.uk/finance/financialcrisis/8919470/IMF-drawing-up-517bn-package-to-save-Italy-Spain-and-the-euro.html

    While Italy will get €600 billion in loans, Spain will instead get “access to IMF credit”. Right. Why is that? Because the IMF doesn’t even have the €600 billion to loan Italy? Let’s not forget European countries are responsible for roughly 25% of IMF funding.

    The EFSF will lever up to $1.4 trillion by, get this, selling its own bonds (to whom, one wonders) in order to issue tradable guarantees that will insure the first 30% of losses on sovereign debt.

    Then there’s this December 9th date, when “European leaders will meet … for crunch talks on the package and changes to EU treaties”. These leaders are more worried about conforming to arbitrary schedules that they’ve set for themselves than actually responding to the problem. Not that any realistic solutions will emerge from the Dec 9 meeting.

    This Rube Goldberg approach is somehow preferable to having the ECB just buy sovereign bonds? Imposing austerity measures to (try but fail to) meet arbitrary deficit targets is somehow preferable to growth strategies that would reduce deficits in reality by fully employing productive resources? It’s time to get the bankers and lawyers out of the way and let the real stakeholders – the citizens and the nonfinancial industries – come up with an equitable solution that doesn’t involve sacrificing an entire nation to make a small number of bankers whole.

  26. Sy Krass

    OK, so can’t we see the Portuguese, French, Spanish, Italian, and maybe even German bond markets collpase within days now?

  27. Glen

    Gee, more bank bailouts.

    If I’d had known that was how to get ahead – I would have started a bank and ran it into the ground with fraud and corruption.

  28. Fiver

    Asian markets and US Futures currently pointing to at least a 250+ (Dow) up day. I’m sure some will attempt to attribute it to “blowout” Black Friday sales, but I believe this is direct intervention to “calm” things whether we get any of the rumored “fix” announcements today or not.

  29. BR

    Can anyone else confirm the following quote:

    “In the real world of global finance the reality is that any country that is forced to accept an IMF bailout is also blocked from issuing debt in the public markets. IMF (or other supranational debt) is ALWAYS senior to other indebtedness of the country. That’s just the way it works. When Italy borrows money from the IMF it automatically subordinates the existing creditors. Lenders hate this. They will vote with their feet and take a pass at Italian new debt issuance for a long time to come. Once the process starts, it will not end. There will be a snow ball of other creditors. That’s exactly what happened in the 80′s when Mexico failed; within a year two dozen other countries were forced to their debt knees.”

    http://www.businessinsider.com/italy-on-the-brink-krasting-2011-11

  30. SteveA

    Dow Jones is reporting the rumor is false:

    A report that the International Monetary Fund could offer Italy between EUR400 billion and EUR600 billion in financial support is not credible, people familiar with ongoing international discussions on the European debt crisis said Monday.

    The report is “not credible,” one of the people told Dow Jones Newswires.

    “I think it is baseless,” another source also told Dow Jones Newswires. “There has been no talk on something like that among (Group of Seven) authorities.”

    http://www.efxnews.com/story/7491/reports-imf-package-italy-not-credible-international-financial-officials

    1. SteveA

      The IMF has denied the story (Bloomberg):

      The International Monetary Fund said it isn’t discussing a rescue package with Italy and Japan said no such talks have occurred within the Group of Seven, amid concern that Italy will struggle to bring down borrowing costs.

      The International Monetary Fund said it isn’t discussing a rescue package with Italy and Japan said no such talks have occurred within the Group of Seven, amid concern that Italy will struggle to bring down borrowing costs.

      http://www.bloomberg.com/news/2011-11-28/imf-says-no-talks-under-way-with-italy.html

      Whiplash on this one is gonna hurt.

  31. vlade

    Where did I see this movie before? IMF steps in to provide funds to a country that has a currency peg, in world downturn, and the country is forced to do austerity at the same time…

    Don’t cry for me, Italy? Doesn’t have te same sound to it…

    That, of course, is if the whishful thinking of IMF having the money can be realised in the first place…

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