Italy Unveils

Arthi Gupta
05 Dec, 2011
New York City

European indexes edged higher after the Italian Prime Minister Monti announced a

[R]1:10 PM Frankfurt – European indexes edged higher after the Italian Prime Minister Monti announced a €30 billion three-year austerity plan. Germany sold €2.675 billion of 6-month Treasury debt at a lower yield. SAP agreed to acquire SuccessFactors Inc. for $3.4 billion.[/R]

European markets traded higher as leaders in the region work to finalize details of various agreements and proposals before the summit later in the week.

Germany and France worked to settle differences in how to expedite the fiscal integration in the region and tighten the oversight from the EU to prevent the recurrence of the financial crisis. The leaders also look for ways to increase the size of the rescue fund and invite participation of the International Monetary Fund that will provide additional funds to the euro zone.

The role of IMF has surprised many countries outside the euro zone. The multilateral lender appears to be eager to support lending to the euro zone nations but was reluctant to offer lending to Asian and other troubled nations only a decade ago.

The four track negotiations are expected to finalize various proposals at the summit later in the week and focus on working with the European Central Bank and increase the purchase by the central bank bonds of Spain and Italy.

Investors will also focus on a meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy in Paris later today.

Italian Cabinet approved measures to trim expenses and stimulate economy on Sunday and estimated that the budget will be balanced in the next fiscal year.

European markets gained after Italian Prime Minister Mario Monti announced a financial plan on Sunday aimed at savings of €20 billion from 2012 to 2014 and increasing the pension ages of both men and women. The new measures will balance the budget next year, increase the pension age and also introduce property tax.

Italy’s Prime Minister Mario Monti will unveil a €30 billion of spending cuts and measures to boost the economy before both the houses of parliament today that include spending cuts, tax increases, pension reforms and measures to boost growth.

The package proposes to re-introduce tax on primary residences, impose luxury tax on large boats and raise value added tax. In all, it aims to save €20 billion from 2012 to 2014 and a further €10 billion in measures to boost growth

Other measures include one-time tax of 1.5% on money repatriated to Italy, a two-percentage-point increase in value-added tax, cash transactions of more than €1,000 to be banned, as well as cutting a number of local government functions in a bid to reduce the cost of public administration.

The cornerstone of these austerity measures is a hike in the retirement age to 62 from 60 for women and 66 for men from 65, with women also eventually matching the 66-year rule in six years’ time.

Deputy Economy Minister Vittorio Grilli said gross domestic product will contract 0.4% to 0.5% in 2012 and will be flat the following year.

In recent months, yields on Italian 10 year bonds have hovered near 7%, beyond the level that forced Greece, Portugal and Ireland to seek emergency rescue funds.

Today, Italian 10 year yields declined 30 basis points, to 6.39%.

""This is essential to reinforce the credibility on the Italian economy but also to regain control on the very high debt and alleviate the burden on future generations of Italians,"" vice president at the European Commission in charge of economic and monetary affairs and the euro, Olli Rehn, said in a statement late on Sunday.

German Chancellor Angela is due to meet French President Nicolas Sarkozy in Paris to draft a plan on closer ties between euro-zone economies, to be presented at the December 9 summit. The focus at the EU Summit will be on new rules to tighten fiscal integration.

On Tuesday, U.S. Treasury Secretary Timothy Geithner starts his European visit in Germany to meet ECB President Mario Draghi and Germany officials. He will join EU leaders later in the week.

In Paris trading, the CAC-40 Index gained 31.02 or 1.0% to 3,196.85 and in Frankfurt the DAX Index edged higher 33.29 or 0.6% to 6,113.26.

Germany sold €2.675 billion of 6-month Treasury discount paper at an auction held today, data from Bundesbank showed. The target amount for the sale was €3 billion.

The yield on the 6-month paper fell to 0.05% from 0.08% in the previous auction held on November 7.

Demand for the short term debt was 3.8 times the amount on offer, up from 2.2 in the previous auction.

Euro-zone Retail Sales Rebound

Euro-zone retail sales grew 0.4% on a monthly basis in October, as against the 0.6% drop in September, data from Eurostat showed today.

Gainers & Losers

Commerzbank AG plunged 7.1% to €1.39 after the Germany-based bank said it plans to buy back €600 million worth selected hybrid equity instruments, aiming to further strengthen its capital structure.

Greencore Group Plc plummeted 13.5% to €0.61 after the producer of convenience foods and ingredients said that it is no longer engaged in any discussions regarding a potential offer for the company.

HSBC Holdings plc rose 1.5% to €518.50 after the banking and financial services provider reported an agreement where its subsidiary HSBC Bank Georgia JSC will sell its legacy personal and mortgage loan book to Société Générale Group''s subsidiary Bank Republic JSC.

SAP AG fell 2.5% to €43.60 after the German software corporation agreed to buy the U.S. based SuccessFactors Inc. for $3.4 billion in cash.