| Italy forms new cabinet, Greek PM wins confidence vote |
| 17.11.11 14:43 | |
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Prime Minister Papademos received vote of confidence Prime Minister Papademos received a vote of confidence in parliament on 16 November, with 255 votes in favour from the 300 seat parliament and 38 votes against (including three MPs from the coalition), according to Kathimerini. The first task of his government is to approve the new reforms as part of the 2012 budget which includes tax hikes and spending cuts that will allow the €8bn tranche of financial aid from the EU and IMF to be paid out in December. The new government also faces the challenge of finalising the draft letter of intent before receiving the next €8bn tranche of aid. The letter needs to be signed by Papademos as well as the leaders of the two main parties and would commit them to the terms of the second bailout agreed on October 26. However, Samaras has insisted that Greek politicians should not be forced to sign written commitments. Portugal concluded the 2nd Review Mission to Portugal The Troika has concluded the 2nd Review Mission to Portugal, agreeing with the government on the next steps to fulfil the programme's objectives. Staff teams from the European Commission, ECB and IMF nevertheless acknowledged that the implementation of the 2011 budget has proven "difficult". Due to spending overruns, the attainment of the 5.9% of GDP budget deficit goal for this year is still conditional on the government's successful negotiation with the country's major banks on the transfer of assets and liabilities of these banks' pension funds to the social security system. These negotiations seem to be progressing, judging from the government's flexible tone towards the banks' complaints on the time frame and form of state intervention in recapitalisation efforts. Looking ahead, the Troika sees an uphill battle for Portugal. The economy is expected to contract by 3% in 2012. Moreover, fiscal risks arising from the regional level and SOEs are still untackled. All in all, we see the 4.5% of GDP budget deficit target as too ambitious. We look for the euro area economy to remain in recession during the first half of next year, and thus expect the Portuguese economy to contract more significantly than the 3% projected by the Troika. With the economy likely shrinking by 3.4% next year, we see the budget deficit remaining above 5% of GDP. But we note (i) the Troika's evaluation that the programme is off to a good start; (ii) Representative Paul Thomsen's comment on being "particularly satisfied" with current progress on structural reforms; and (iii) the Troika's acknowledgement of downside risks to their 2012 GDP growth projection; all of which suggest the Troika will be flexible on programme slippage as long as Portugal pushes ahead with structural reforms. Italy forms technocratic government Newly appointed Prime Minister Mario Monti presented the new technocratic government and will release the reform plan on the 17th of November. PM Monti will also take direction of the Finance Ministry and will be supported by several leading experts in other key positions of the Cabinet. Current CEO of Intesa San Paolo will lead the Development, Infrastructure and Transport minister. Admittedly somewhat of an unorthodox choice, we see Passera's appointment as positive given the key hurdles to growth and market funding posed by banks' deleveraging. We believe his proximity to Monti will facilitate coordination and cooperation with the banking sector. Please refer to our table for the names of the experts in his cabinet. According to Monti the absence of politicians in the government will help the reform process, rather than hinder it. We agree with this statement and would add that ongoing market pressure on bond yields will keep political parties focused on reforms rather than on the next elections. That being said, the risk of early elections cannot be ruled out in the second half of the year once PM Monti has had the time to deliver meaningful reforms and if market pressure subsides. According to Reuters, Monti is expected to outline austerity measures today and will present his programme in the Senate at around 1200 GMT before a confidence vote in the evening. He will seek a separate vote of confidence in the lower house on 18 November. source: Bank of America ML |
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