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Confidential reports stern warnings about the Italian national bank debt ratio and possible damaging scenarios when restructuring it!

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The Astellon Capital Partners report on the Italian nation debt is troublesome, as the reports are indicating troubled waters ahead for controlling the debt and repayment on the defaulted loans. This will create other higher issues than only the Greek debt and interest-rates from Brussels and Berlin. The Italian and Rome problem will cause monetary effects for all of Europe, as the debt are like his:

“1980 –1995: Debt / GDP increased by 64%, due to high interest rates levied by Bank of Italy to fight inflation and promote exchange rate stability of Lira within European Monetary System, precursor to the Eurozone” (…)”1995 –2015: Debt / GDP increased by 11%, due entirely to debt servicing costs as Italy ran a primary fiscal surplus over this period” (Astellon Capital Partners, P: 2, 2017).

The continued pressure of the Italian debt is showed with the average primary balance since 1995 have been 2, 1% and the average interest costs of the GDP have been 5, 5%. “Italy among the most fiscally sound member states in the Eurozone, yet also among the most burdened by interest costs” (Astellon Capital Partners, P: 3, 2017).

These numbers are not really positive at all, as the high interest rate by the Bank of Italy together with the rise of debt servicing that increased 11% alone in a decade. That the Italian state have the amount of costs of interests amounting to 5,5% says lots of the economic pressure on the budgets and fiscal policies within the government structures. This does not like a prosperous and strong economic situation.

The report continues with more worrying numbers that the Italian labour costs are 11% higher than rest of the EU average. Certainly also that the average productivity of the labour are 12% lower than the Eurozone average. So you got higher paid workers that work less, which also isn’t strengthening the economy.

That the Italians bank’s they have deflated badly loans that has gone from under 5% in 2005 to the running value of close to 15% in 2016. So that the European Central Bank have bought into the government debt issuance: “2014 –2019: At current government debt net issuance rates and announced QE levels, ECB will have been responsible for financing 100% of Italy’s deficits from 2014 –2019”. This is if the debt is: “Assumes €50bn annual run-rate of government net debt issuance” (Astellon Capital Partners, P: 6, 2017). That is a hefty sum when considering all the other fiscal issues that already put forward.

“Substantial increase in non-bank net purchases of Italian debt required ECB and Italian Banks acquired 88% of government debt net issuance since 2008. Over next six years non-banks will need to increase purchase activity to 7x that of past nine years” (Astellon Capital Partners, P: 7, 2017). So a nation that struggles with high paid performance with low productivity are suddenly needed to get the workforce to 7 times higher purchase activity, meaning the production and selling has to increase seven-fold if the state should have ability to sustain the defaulted debt that has increased and the debt the ECB has bought. Together with the Italian Bank gold-reserve which is lower than the stated and needed figures to be sufficient. The bank has gold-reserves by today’s value about €100bn, but by the ECB agreement need to collateralised that needs to be up to €350bn. That the report claims to be only 25%; while the assets are dwindling too and that is also worrying!

The Assets have from 2011 gone from being around 0% or none, to 2016 when the assets of the Italian bank is now in 2016 -20%. Because this have come a German proposal to avoid an new Argentine Bank collapse case. As the Italian Bank are required independent assessments of debt sustainability.

The great risks for Italy and the Italian republic are these scenarios. Like the hedge funds can buy into with high risks and yields through BTP yields during the 2016-2017. Second scenario in 2018 is that the ECB or European Central Bank will be a marginal buyer of the government bonds and buying debts. Third scenario is that the Italian Banks becoming net-sellers and therefore losing their assets with less of profits in the 2016-2017. Last scenario is unilateral re-profiling or re-domination or some form of Greek-Haircuts by 2017-2018, that means trade-offs and cutting taxes to try to revamp the economy (Astellon Capital Partners, P: 21, 2017).

With these numbers and situation, there are certain men in ECB and in Italy that is worried. The strength and sovereign nation of Italy has to find ways of restructuring the debt and assets. What is certain is that the debtors cannot take it easy on this one. The Italian debts and reserves are worrying as the debt has to restructure and the focus on how the Italian republic has to get more productivity and create more production so the taxes and debt per GDP can go down. This will be painful for the Italian state and their government institutions, together with all the debt and bad-debt that the state has to cover, because the banks cannot afford to lose all of these fiscal funds. There have to be a revolution of something if the Italian republic and its workforce are able to 7 times higher purchase activity. That will not come easy and how they will ever achieve that must be by a unicorn arriving and spinning the Fiat wheels of Torino more than ever before; even getting the world more hooked on Milan fashion design or Illy coffee. Peace.

Reference:

Astellon Capital Partners – ‘Q1 2017 Notes No. 24 – Ciao a tutti: An orderly restructuring of Italian debt’

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Press Release: The USAID Trade and Investment Hub, Syngenta and IREN Launch Second Edition of Agribusiness Competion for Youth in East Africa (04.09.2015)

USAID Trade PR

2015/320/AFR: World Bank Boosts Fisheries in South West Indian Ocean African Countries

WASHINGTON, February 27, 2015 – The World Bank Group’s (WBG) Board of Executive Directors today approved a total of US$75.5 million to improve the management of fisheries and increase the economic benefits from fishing-related activities for families living in the coastal communities of the South West Indian Ocean region.

The First South West Indian Ocean Fisheries Governance and Shared Growth Project(SWIOFish1) will help improve regional cooperation for the nine African countries that border the waters of the South West Indian Ocean.

“Fisheries are a key contributor to food security, nutrition and job creation for rural coastal populations of the South West Indian Ocean, who are among the poorest and most vulnerable in the region,” said Colin Bruce, World Bank Director of Regional Integration for the Africa Region“Promoting sustainable use of fisheries, linking smaller operators to new value chains and improving regional cooperation over shared resources will boost shared prosperity in these countries and the entire region.”

The coastal populations of the South West Indian Ocean region suffer from challenges such as too little economic growth, hunger, poverty and exposure to climate change impacts. Fish stocks in the region are increasingly facing risks of overexploitation or depletion from overfishing by industrial vessels and artisanal fishers.

The project will initiate regional discussions and cooperation to develop a regional fisheries management program focusing on reducing pressure on the fishing ecosystems and helping countries address shared challenges. Safeguarding fish resource productivity and developing the value chain for fish production will expand the fishers’ livelihoods as a step towards reducing poverty.

Financed by $75.5 million from the International Development Association (IDA)*, the WBG’s fund for the poorest, and $15.5 in co-financing trust funds form the Global Environment Facility (GEF), the project will support regional coordination and cooperation to improve the management and sustainable development of fisheries in the South West Indian Ocean and will benefit the countries in the South West Indian Ocean Fisheries Commission: Comoros, Madagascar, Mauritius, Seychelles, Somalia, Kenya, Tanzania, Mozambique, South Africa, Yemen and Maldives.

Three countries in the region, Comoros, Mozambique, and Tanzania have already taken steps to develop strategies and institutions to improve fisheries management and marine health through other World Bank projects. To leverage these previous investments Comoros will receive $13 million, Mozambique will receive $37 million and Tanzania will receive $36 million to strengthen country-wide institutions and activities, improve fishers’ livelihoods, expand the regional business climate and increase private sector investment in the fishing industry.

“Overfishing, including from uncontrolled small-scale fishing, progressively undermines the resource base upon which coastal communities depend, said World Bank Task Team Leader Xavier F. P. Vincent. “The South West Indian Ocean marine fisheries are part of a larger marine ecosystem shared by all countries of the region. Today’s project will support regional coordination among the countries that border the South West Indian Ocean, improve the health and sustainability of the fisheries.”

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