Mish's Global Economic Trend Analysis

Time-Lapse Interactive Graph Shows Stunning Rise in Anti-Euro Sentiment in Italy
Japanese Manufacturing Output Falls for First Time in 2012
Laughable Text of EU "Memorandum of Understanding"; ESM Not Been Ratified Yet Already Requires Changes; How Much ESM Firepower Is There?

Time-Lapse Interactive Graph Shows Stunning Rise in Anti-Euro Sentiment in Italy

Posted: 29 Jun 2012 12:09 PM PDT

The rise of the Five Star Movement in Italy is the number one happening in Europe right now and mainstream media has not even begun to cover it in any depth. The movement is led by an Italian comedian, Beppe Grillo.

Main Rules for the Five Star Movement

Not be an elected politician prior to 5 Stelle
Commit to stay in charge for no longer than 2 terms
Commit to take a minimum salary and give the rest back to the community
Post a public platform on the internet
Be willing to hold a public debate on the platform

Beppe Grillo's personal position, not a mandate for the Five Star Movement is "Get out of the Euro and default on debt"

For more on the Five Star Movement please see Six Reasons Why Italy May Exit the Euro Before Spain; Ultimate Occupy Movement

Time-Lapse Interactive Polls

Following are some time lapse polls of the Five Star Movement and other political parties in Italy. Please give the graphs extra time to load.

The polls are from data gathered by data gathered by Termometro Polico (one on the best Italian poll-makers according to a friend who sent me the link.) The important poll is in tab number four.

Explanations and Comments on the graphs appear below.

For now, please click on tab number four. You may also wish to go to the link above for additional information (in Italian).

Graphs courtesy of Termometro Polico via tools from Tableau Software.

Explanations and Comments

The following comments are from Lorenzo, who lives in Italy. He is the person who sent me the link to Termometro Polico.

Hello Mish

In the first and third chart, red=centre-left (PD+Idv+Sel+others), blue= centre-right (PdL+Lega+Others), and yellow = 5 star movement. PdL = Former Prime Minister Berlusconi's party.

The third tab shows that a centre-left plus center (green) coalition could win the election, albeit with a relatively small margin. There is a catch however: (centre-left and centre-right) do not currently exist, except as theoretical coalitions rather than political parties.

Right now PDL and PD support the Monti government, while all the other parties that they commonly ally with (Lega, IDV, SEL, etc) do not. The two main parties (PD and PDL) scorn each other but are "forced to go along", while the minor parties in both "coalitions" bad-mouth them and Monti's government to attract the resentment created by Monti's taxes reforms.

This makes it pretty hard to predict the shape the two coalitions will take and how the voters' choices will change according to it. The situation is pretty fluid right now.

Italian politics is hard to make sense of for somebody used to a simple two-parties system situation.

Lorenzo

Coalition Building

For more on the difficulty of building a coalition in Italy, please see comments from Andrea in my post Reader from Italy Explains Why Early Elections Might Lead to "Deadlock".

Andrea is a reader who is from Italy but now lives in France. The pertinent section is labeled "Explaining Italian Politics".

Five Star Movement September 2011 vs. June 2016

This simple graph below shows the stunning rise of the Five Star Movement

Implications of the rise in popularity of the Five Star Movement from 3.7% in September 2011 to 20.6% in June 2012 are both massive and obvious. Yet mainstream media in the US and Europe have essentially ignored the phenomena.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Japanese Manufacturing Output Falls for First Time in 2012

Posted: 29 Jun 2012 09:22 AM PDT

The short term effect of Japanese stimulus following the earthquake and tsunami has now worn off. All Japan has to show for that stimulus is a bigger pile of debt, proving once again the Broken Window Fallacy.

In the real world, Japan has a debt-to GDP ratio of 225% and rising. Japan's export machine has stalled. So has Japanese manufacturing in general.

Markit reports Japanese manufacturing output falls for first time in 2012 to date

June data pointed to the first month-on-month reduction in manufacturing output since December 2011, as both new business and new export orders fell. Backlogs of work decreased as a result, while employment growth eased to only a marginal rate. On the price front, factory gate charges fell further in June, in response to a first reduction of average costs in 20 months.

After adjusting for seasonal factors, the headline Markit/JMMA Purchasing Managers' Index™ (PMI™) dipped fractionally below the neutral 50.0 threshold in June, to post its lowest reading in seven months.

Commenting on the Japanese Manufacturing PMI survey data, Alex Hamilton, economist at Markit and author of the report said:

"June data suggest that Japan's manufacturing sector upturn is fading into mid-year, with output and new business falling simultaneously for the first time since December 2011.

Growth in the year to date has been supported by earthquake-related reconstruction projects. The latest survey findings indicate that the boost from these efforts is starting to ebb, however, with investment goods producers noting a particularly sharp fall in output during June. This bodes ill for growth heading into the second half of the year, especially given the fragility of demand in external markets – highlighted by an accelerated fall in new export business during June."

Japan Doubles Sales Tax

The AP reports Lawmakers in Japan OK hike in sales tax

Japan's lower house voted Tuesday to double the country's sales tax to 10 percent over three years in a bid to rein in a bulging national debt as an aging population burdens the country's social security system.

The vote, however, shook Prime Minister Yoshihiko Noda's grip on power because of strong opposition from a group within the ruling party led by power broker Ichiro Ozawa that believes the tax hike will weaken the economy. Ozawa and his supporters have threatened to bolt the Democratic Party over the tax issue.

The bill passed easily by a vote of 363-96, with support coming from the two biggest opposition parties. The bill must still pass the less powerful upper house to become law, which is expected.

It calls for raising the sales tax from 5 percent to 8 percent in 2014, and then to 10 percent in 2015.

Even Noda's government projects the tax hike will take only a modest bite out of Japan's deficit. The Cabinet Office forecasts that doubling the sales tax will boost revenues by ¥13.5 trillion ($170 billion) annually by 2015. Japan currently runs a deficit of about ¥45 trillion ($563 billion) a year.

Ruling party veteran Ozawa, who has often criticized Noda and controls a bloc in the ruling party, has suggested he may leave the party and take as many lawmakers as he can with him to form a new one. If 54 or more lawmakers join Ozawa, Noda's party would lose its majority in the key lower house.

Japan is in a very tight situation. The US will find itself in a similar situation down the road if it listens to misguided economists hell-bent on getting government to waste more money.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Laughable Text of EU "Memorandum of Understanding"; ESM Not Been Ratified Yet Already Requires Changes; How Much ESM Firepower Is There?

Posted: 29 Jun 2012 12:00 AM PDT

Futures are flying over a "breakthrough" that supposedly will lower borrowing costs for Italy, Spain, and Ireland. The "breakthrough" is a modification to the terms of the ESM to allow "the possibility" to recapitalize banks directly.

Amusingly, the existing ESM agreement has not even been ratified. The agreement is still on hold in Germany (numerous other countries have yet to ratify as well).

Yet the "Memorandum of Understanding" worked out at the summit today appears to require changes to the ESM.

Other ambiguous statement from the eurogroup committee are simply laughable. Here is the complete text. Emphasis added in places.

EURO AREA SUMMIT STATEMENT - 29 June 2012 -

• We affirm that it is imperative to break the vicious circle between banks and sovereigns. The Commission will present Proposals on the basis of Article 127(6) for a single supervisory mechanism shortly. We ask the Council to consider these Proposals as a matter of urgency by the end of 2012. When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly. This would rely on appropriate conditionality, including compliance with state aid rules, which should be institution-specific, sector-specific or economy-wide and would be formalised in a Memorandum of Understanding. The eurogroup will examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme. Similar cases will be treated equally.

• We urge the rapid conclusion of the Memorandum of Understanding attached to the financial support to Spain for recapitalisation of its banking sector. We reaffirm that the financial assistance will be provided by the EFSF until the ESM becomes available, and that it will then be transferred to the ESM, without gaining seniority status.

• We affirm our strong commitment to do what is necessary to ensure the financial stability of the euro area, in particular by using the existing EFSF/ESM instruments in a flexible and efficient manner in order to stabilise markets for Member States respecting their Country Specific Recommendations and their other commitments including their respective timelines, under the European Semester, the Stability and Growth Pact and the Macroeconomic Imbalances Procedure. These conditions should be reflected in a Memorandum of Understanding. We welcome that the ECB has agreed to serve as an agent to EFSF/ESM in conducting market operations in an effective and efficient manner.

• We task the Eurogroup to implement these decisions by 9 July 2012.

ESM Under Review by German Constitutional Court

Bear in mind that ESM ratification in Germany has already been delayed subject to Review by German Constitutional Court

Germany's highest court asked the country's president on Thursday to delay ratification of the permanent euro bailout fund, the European Stability Mechanism, and the fiscal pact into law next week. If he complies, the move could delay the implementation of the ESM by several weeks in the latest setback for Chancellor Angela Merkel.

The Constitutional Court, anticipating challenges to the legislation, wanted more time to review documents. German President Joachim Gauck, hardly three months in office, was already faced with an important decision. If he complied with the request from Karlsruhe, at least one piece of legislation proposed by Chancellor Merkel and her coalition government -- the permanent bailout fund known as the European Stability Mechanism (ESM) -- would undoubtedly be delayed. The ESM was originally scheduled to come into force on July 1, 2012.

More Challenges Coming

The proposed changes will put German taxpayers (eurozone taxpayers in general) at more risk. Thus, it's safe to say that more challenges to the ESM are coming.

However, let's assume for the moment that Finland, Austria, Germany, and the Netherlands accept more taxpayer risk. (Admittedly that's quite an assumption).

Is this a euro-saving breakthrough?

Van Rumpoy Calls Summit a "Breakthrough"

Please consider EU Leaders Ease Debt-Crisis Rules on Spain in Merkel Retreat

After 13 1/2 hours of talks ending at 4:30 a.m. in Brussels today, leaders of the 17 euro countries dropped the requirement that governments get preferred creditor status on crisis loans to Spain's blighted banks, European Union President Herman Van Rompuy said. Banks can also be recapitalized directly with European bailout funds rather than being channeled through governments, he said.

Merkel left the summit, which continues at 10 a.m., without addressing specifics of the agreements. She said there were decisions on "future measures within the framework of our methods that we will have through" Europe's two rescue funds. "I think we will have a successful conclusion."

The euro rose to as high as $1.2628, the strongest since June 21. Euro-area finance ministers will enact today's deal at a meeting on July 9, Van Rompuy said, calling the accord a "breakthrough."

Breakthrough? Really? How Much Firepower is Needed?

Bloomberg reports ...

The EU's two rescue funds may only amount to about 20 percent of the outstanding debt of Italy and Spain, limiting its ability to lower the nations' borrowing costs.
The EU's two rescue mechanisms, the European Financial Stability Facility and the yet-to-start ESM, may have 500 billion euros ($621 billion) available for purchases.
Italy and Spain have about 2.4 trillion euros combined of outstanding bonds, bills and loans.

For now, the market is pleased with this non-breakthrough. Let's see how long it lasts. I suspect not long.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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29.6.12

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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