Last week, ECB president Jean-Claude Trichet sent a secret letter to Silvio Berlusconi, Italy’s Prime Minister demanding various labor reform actions from the Italian government. Leaks of that letter have appeared in Italian media, but there has been no comment on the letter in the US although there has been some discussion of announced Italian labor reforms.
Courtesy of Google Translate, please consider Letter of Trichet and Dragons Transfers, liberalization and labor.
This is my modified as well as re-ordered translation.
A letter from Trichet and Mario Draghi was written and delivered to last Thursday or Friday to Italian Prime Minister Silvio Berlusconi.
The letter is most delicate because it concerns the labor market, a sector historically outside the European Central Bank. Trichet demands in detail: less rigidity in the rules on dismissals of permanent contracts, actions for the public service sector, and various corporate productivity incentives.
It was clear for days that the ECB was able to dictate the pace of Italy, if the government wanted to work with the help of Frankfurt on government bonds.
However, the level of detail of the letter must have surprised even those who received it: there are measures to be taken, there is the calendar that should be applied and there are not legislative instruments that the ECB claims that the government should adopt: the more expeditious and more effective. Moreover, the same Franco-German declaration of Nicolas Sarkozy and Angela Merkel yesterday in Parliament calls on Italy to introduce the measures already announced “by September.”
Email From Steen Jakobsen on Things to Watch For
Via Email from Steen Jakobsen, Chief Economist, Saxo Bank in Denmark ….
Things to Watch:
- Germany’s stance – still the key to resolving EU issue – Bundesbank and Merkel needs to stand behind EFSF and we need details on size of EFSF – I see need for 2.5 trillion Euros to stop this contagion.
- Banks – Bank of America under huge pressure yesterday. Funding an issue like in 2008.
- Will Fed move to QE3? Bernanke surely would like to, but anything possible. Obama is desperate, Bernanke is desperate.
- Short selling banned – So far Korea and Greece have done it. Germany and EU never far behind.
- Some talk – not confirmed – about Trichet/Draghi demanding “Italy moves forward via “decreet” – It should be said that this is said to be media’s interpretation, however people are already loudly protesting in Italy
- Italy = Greece now
- Italy is now sideshow and France the real show. Watch the CDS for France.
- Riots: London, demonstrations in Israel, soon even the Italians could be out on the streets
“Decreet” is a legal term meaning “final judgment or sentence of a court”. The term is a good one. Trichet is now acting like judge and jury, clearly outside his legal powers as ECB president.
The opening translation was the “media interpretation” of which Steen spoke. Here is chart from Steen on France CDS.
France 5-Year CDS
click on chart for sharper image
Fed Uncertainty Principle In Action
The actions by Trichet and the ECB are one of the best examples of the Fed Uncertainty Principle you can find. Simply substitute “ECB” where “FED” appears below and it tells the story of what is happening.
Uncertainty Principle Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.
Inquiring minds will note that Corollary Numbers Three and Four apply as well.
Uncertainty Principle Corollary Number Three: Don’t expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.
Uncertainty Principle Corollary Number Four: The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it’s easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking.
The Fed Uncertainty Principle was written April 03, 2008, long before massive Fed and Congressional interference into the markets. The Fed’s actions were not legal. Nor are the ECB’s. This is what the already “not-free” markets have become. Sadly, people blame the “free market” and not the FED, Central Bankers in general, and Congress for the fiscal and financial madness we see today.
I assure you this: Fed and ECB hubris will fail, and when it does the results will likely be catastrophic.
Mike “Mish” Shedlock
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