Buried deep in the newsflow from Ben Bernanke is the following piece of very critical news for anyone who is still long Italian bonds: namely that Italy may not be Spain, or Uganda, but Sicily is about to become San Bernardino. From Reuters: "Italian Prime Minister Mario Monti said on Tuesday he expected the governor of Sicily to resign following a growing financial crisis that has pushed the autonomous region close to default." Because the resignation of Sicily Governor Lombardo will somehow allow all those who care about the fundamentals of Italy to stick their heads in the sand... at least until Sicily is followed by Calabria, Campania, Lazio, Abruzzo, Tuscany, Lombardy, Umbria, Liguria, Veneto and so on. At least the governors of those respective provinces now have an advance warning what the endgame is.
Monti said in a statement there were "grave concerns" that the island could default and he said he had written to the governor Raffaele Lombardo seeking confirmation that he would resign by the end of the month.
"The solutions which could be considered that involve action on the part of the government cannot fail to take account of the situation of the administration at regional level but rather have to be matched to this so as to deploy the most efficient and appropriate instruments," the statement said.
As to how Italy will actually fund the bailout its insolvent regions, fear not: ze Germans will be delighted to step in and make it rain cash courtesy of the ESM, which may or may not be active one day.