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Friday, July 08, 2011 2:19 PM

Italian Yields Hit 9-Year High, Spreads Record High vs. Germany; Italy's Finance Minister in Rent Scandal

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It's a good thing "Greece is Saved" so we can all turn our attention to something far more important, like saving Italy.

Italian Government Bond Yield 9-Year High

Bloomberg reports Italian Yields Reach Nine-Year High as Debt Crisis Spreads; Bunds Surge

Italian bonds slid for the fifth straight day, driving yields to a nine-year high, as contagion from Greece’s fiscal crisis intensified in the region’s biggest government-debt market.

German 10-year yields fell the most since April after U.S. employers added less than a fifth of the workers economists estimated in June. The yield on 10-year Italian securities jumped to a euro-era record over German bunds as data showed industrial production in the Mediterranean nation dropped. Spanish, Irish and Greek bonds also fell.

“If you are talking about a default in Greece where contagion spreads through Ireland, Portugal and Spain, then Italy is the next stop,” said Charles Diebel, head of market strategy at Lloyds Bank Corporate Markets in London. “Italy has an awful lot of debt.”

Italian industrial output declined 0.6 percent in May from April, when it rose 1.1 percent, the Rome-based statistics office Istat said today. Economists had forecast a 0.1 percent decrease, according to the median of 22 estimates in a Bloomberg News survey.
Finance Minister Scandal

RTE reports Italian finance minister in rent scandal
Italian finance minister Giulio Tremonti has found himself in hot water after it was disclosed that his former adviser - facing a possible jail term for corruption - had been paying his rent.

Naples prosecutors revealed late yesterday that Marco Milanese had been paying €8,500 a month for an apartment in Rome that was used by Tremonti.

Tremonti's right-hand man, Milanese resigned from the ministry at the end of June after being implicated in an alleged corruption ring known as 'P4'. The ring involved high-profile figures from the world of politics and economy.

Naples prosecutors called for Milanese - a member of Prime Minister Silvio Berlsconi's People of Freedom party (PDL) - to be imprisoned for his involvement in alleged corruption uncovered during an inquiry.

According to the magistrates, Tremonti's former adviser had received large sums of money - at least €450,000 in cash - as well as jewels, luxury cars and other gifts from a businessman who was being hounded by the law.

Milanese allegedly received kickbacks from two people in exchange for jobs within companies run by the finance ministry.
Tremonti's Future in Doubt

The Financial Times reports Italy’s finance minister under fire
Giulio Tremonti’s future as Italy’s finance minister appeared in doubt on Friday after Silvio Berlusconi, prime minister, launched a public attack on his handling of the centre-right government’s proposed austerity package.

The open criticism followed disclosures that Mr Tremonti had been dragged into a widening corruption investigation by magistrates who on Thursday requested the arrest of Marco Milanese, a member of parliament and until recently political advisor to the finance minister.

Friction between Mr Berlusconi and Mr Tremonti has been a constant theme since the centre-right government came to office three years ago, with the latter seen as one of several contenders to head a new government should the prime minister be forced to resign as a result of his personal scandals and court trials.

Tensions have come to a head over Mr Tremonti’s insistence on austerity in eliminating the budget deficit, and his reluctance to endorse tax cuts demanded by the prime minister. Mr Berlusconi’s attempted use of the budget law to insert a clause potentially favouring his Fininvest media empire has also soured relations between the two.

“You know, he [Tremonti] thinks he’s a genius and that everyone else is stupid,” the billionaire prime minister said. “I put up with him because I’ve known him for a long time and one has to accept the way he is. But he’s the only one who is not a team player.”
Italy 10-Year Government Bonds

Germany 10-Year Government Bonds

Widening Spread

Spread is easy enough to calculate: 5.27 - 2.83 = 2.44.

Italy has nearly as much debt as Germany, in an economy nowhere near as big.

Mike "Mish" Shedlock
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