"A Toxic Coup Narrative": Why Italy's Political Crisis May Be About To Explode

On Friday Europe experienced an existentially terrifying "deja vu" moment straight from the 9th circle of Europe's 2011/2012 sovereign debt hell, when first Italian, and then Spanish, yields exploded amid fears of political chaos in the Eurozone's 3rd largest economy, coupled with the threat of an imminent collapse of the Rajoy government in Spain, the 5th largest economy.

But while Spain is a late entrant to Europe's "political chaos" soap opera - although with both El País & El Mundo calling for an early general election, it is only a matter of time before this particular box of gunpowder also explodes, all eyes remain on Italy where not only have short-term rates blown out to levels that would send MF Global into Chapter 22...

... but the BTP-Bund spread exploded well beyond Goldman's "contagion" threshold of 200bps...

... while the scariest chart of all revealed that Italian redenomination risk is now at an all time high, reflecting the reality of Italy's 'Mini-BoT' parallel currency concerns.

However, if it was the market's intention into scaring Italy's political system into submission, the same way it did in 2011 when the ECB got Sylvio Berlusconi to "quit" in just a few days as Italian bond yields exploded, it has failed, and according to the latest development in Europe, the Italian crisis may be about to get much worse.

Newly appointed Italy Prime Minister Giuseppe Conte

For those who missed it, Italy entered the weekend with the country deadlocked in what may be a Euro-defining clash whether euroskeptic professor, Paolo Savona, strongly endorsed by the League party, is allowed to become the country's next economy minister. Here are the latest troubling details from Leonardo Carella:

The nomination of the designated Finance Minister, Paolo Savona, is being held back by the President of the Republic - a prerogative he formally has but that has rarely been exercised - reportedly over Savona’s anti-EU views.

From President Mattarella’s point of view, Savona, an 82 year-old professor who served in Ciampi and Berlusconi’s administrations, would send the markets out of control and would bring Italy to the brink of open conflict with the EU.

From Lega’s point of view, the nomination of Savona was one of their major wins in the coalition formation game, and the only guarantee of a strong anti-EU slant to government policy, after the coalition contract’s sections on Europe were heavily watered down.

Salvini just tweeted that he is “really angry”. M5S is, for now, supportive of their coalition partner.

This is how a constitutional crisis begins. The possible scenarios now are:

  1. Most likely, President Mattarella gives in under public pressure and threat of a new election. If Mattarella’s worries are correct, we’re in for a rough ride, but the crisis is averted.
  2. If Mattarella and the coalition partners hold firm, we may be set for new elections, with M5S likely to repeat April’s success and Lega likely to increase its share of the votes, eating up Berlusconi’s party.
  3. A very unlikely scenario is that Parliament calls for Mattarella’s impeachment, as per Article 72 of the constitution. However this isn’t likely to bring him down as the Constitutional Court has the final word.
  4. Alternatively, the coalition partners may find an alternative option as Finance Minister. But Lega really stuck its neck out, so it’s unlikely.
  5. Finally, it’s also possible that Lega holds firm and M5S doesn’t want new elections, so that we’re back to the drawing board, with M5S trying to piece together a new majorit

Overall, while Mattarella’s position is constitutionally sound, it’s politically untenable. There are very high expectations on the new govt and a member of the old guard taking (almost) unprecedented action to block them is going to play in the hands of M5S and Lega.

But the most worrying points are: toxic “coup” narrative developing; in the next days, if the crisis worsens, calls for a show of force, for now limited to a few ultras, will grow louder. Plus, Savona’s appointment means Lega is dead serious to face off the EU.

Savona said in an interview that the EU economic model is a continuation of the 1936 Nazi “Funk plan”, whereby Germany would submit the economies of the rest of Europe to its whims, with the only difference that the EU does that via democratic means.

Meanwhile, the oppositions are AWOL.

In conclusion, this developing crisis could be over by next week, if - as I think will happen - Mattarella folds. But then Italy will have a sharply Eurocritical Finance Minister, with all that it entails in the short (market reaction) and long term (open conflict with the EU).

In other words, Italy now finds itself trapped, with the "best", and most likely possible outcome being what the sellside predicted was the worst case scenario as recently as March. As for the worst one, well... buy bitcoin and gold.

Not surprisingly, in an interview with Welt am Sonntag, that admiral of "establishment Europe", and the "euro order", former ECB chief economist, Otmar Issing called on Italian media and politicians to stop bashing the euro, saying that the "Italians are acting now as if they were dragged into the euro against their will so that Germany could force their exports on them. That’s totally absurd."

In his defense of Brussels, and ECB policies, Issing also said that "in one swoop, the Italians got the lowest interest rates since Julius Caesar without doing much for it. They were the biggest beneficiaries and even before the ECB’s zero-interest policy saved untold billions on interest payments."

There is just one problem, of course: those rates were artificial, and the result was an unprecedented wealth transfer from the poor and middle classes, to the rich, which has spurned the anti-globalization movement, which is manifesting itself right now in precisely the policies that will assured the period of artificially low rates end, and explode higher, potentially leading to an Italian default.

But Issing's punchline was straight (counter) propaganda: "Above all, it shocks me with what kind of vehemence it’s being spread in the media that Germany and the euro are responsible for the misery" adding that "I have to admit I’m a big Italy fan. When you consider the potential there is in this country, the development is really a crying shame."

In case it was unclear, this preachy sermon did not help Germany, or the ECB, many any new friends in Italy.

Meanwhile, Savona doubled down on his rhetoric, saying telling Ansa he wants "a different Europe, stronger but fairer" and saying that government action will aim to reduce public debt and deficit not through taxes and austerity, but through growth in GDP by boosting domestic and foreign demand. What Europe heard? "cutting debt."

As for Italy's next steps, we will get an advance preview shortly: Italy's president Mattarella is about to meet with the designated prime minister Conte at 7pm local time; expect things to start moving rapidly shortly thereafter.


Heros Four Star Sun, 05/27/2018 - 13:52 Permalink

No net new jobs is what happens when your wealth is siphoned off and sent to Jerusalem as tribute.

All the productivity gains of the last 20 years since the dot-com boom have brought no wealth to the goyim.  Instead, the cabalist overlords have siphoned it off while pretending that they are "white" and blaming white people for white "privilege" and an "unfair" wealth distribution.

In reply to by Four Star

lucitanian Tao 4 the Show Sun, 05/27/2018 - 14:19 Permalink

I think one Greece was quite enough, and I believe Europe is more than aware of the need for fundamental reform, as repeated electoral hits keep coming in the form of Euro-skeptic governments and especially after Brexit.

It is important to note that there is a new president appointed to the Eurogroup, the Portuguese ex-finance minister Mario Centeno, an academic economics professor who, having worked through the Portugal's austerity blight on the receiving end of Brussels' stick and meager carrot has a far better capacity to create the necessary plans through a leadership by understanding and consensus than his predecessor. 

In one way, being faced by the aggressive isolationist policies of the US, and the challenges of Italy, will bring the fundamental structural imbalances within the EU system to a head, and provide a catalyst towards resolution.

Interesting times. 

In reply to by Tao 4 the Show

Dincap swissthinker Sun, 05/27/2018 - 13:51 Permalink

It might there be old Italian cursing, however, the article is completely misleading and fake news.

The narrative of the quoted allegedly Italian writer is mostly propaganda since the Italian Constitution is very clear about the President of the Republic's prerogatives: he cannot choose or reject any minister. He must just accept them. However, edging a coup d'etat President Mattarella serving some special and powerful interest is blocking the government formation.

Since each state in the euro illogical frame is totally responsible of his debt denominated now in a foreign currency it is quite easy speculate against a sovereign debt, specially if the ECB doesn't help much. Actually the frame on purpose reduces the range of chooses and possibilities of a government that is not too much obedient and just call for a more rational frame.



In reply to by swissthinker

michigan independant Sun, 05/27/2018 - 12:19 Permalink

So they are still stuck at Shepard's driving Mercedes? There is no difference between communism and socialism, except in the means of achieving the same ultimate end: communism proposes to enslave men by force, socialism—by vote. It is merely the difference between murder and suicide.

shovelhead Sun, 05/27/2018 - 12:22 Permalink

Skittle shitting unicorns are going to grow the Italian economy in 3 ..2..1..

No need to cut spending at all.

Discounted interest free Fiats for refugees so they can drive to Germany?

Dragon HAwk Sun, 05/27/2018 - 12:45 Permalink

Italy is just a tiny country, nothing  will snow ball.   /s

a country here a country there pretty soon you are talking about the whole fucking planet.

Hkan Sun, 05/27/2018 - 13:19 Permalink

Is this what EU/EMU/Europe needs? Maybe!

Europe gotto get out of this corrupt EU mess for a fresh start. 

What will come is hard to say....but whatever comes out will be better IF learning from this lesson.

I hope for decentralisation going back where individual countries interconnect with Europe on individual terms.

Let it Go Sun, 05/27/2018 - 13:22 Permalink

The holiday weekend just got longer!

A melt down of the euro could bring about a liquidity crisis which could turn into a trap. In a liquidity crisis, people who feel they cannot get reasonable returns on physical or normal financial investments place their assets in short-term cash bank accounts, high-risk stocks, or hoard it rather than making long-term investments.

This could become a liquidity trap which can and often does lead to no growth and deflation but maybe not this time. The wild card, in my opinion, is related to the diminished confidence so many people have towards fiat currencies. The fear money was about to become worthless which is explained in the article below could unleash inflation across the globe. 

 http://Liquidity Trap's Wild Potential To Unleash Inflation.html

In.Sip.ient Sun, 05/27/2018 - 13:31 Permalink

You know, there is a bit of a problem with

this so called analysis.


The yield on those 2yrs is .617%.  I seriously doubt THAT

will even trigger a blip anywhere.


In fact, given that the EUs biggest "creditors" essentially

all speak Italian, I'm pretty sure most Italians ( as opposed to

recent "refugees" ) are cheering this on.


The "real money", as opposed to CB/ bankers "money" , are

quite happy to see higher rates.  The rest of the EU... not

so much...



hooligan2009 Sun, 05/27/2018 - 13:47 Permalink

Socialism fails wherever it is implemented. The corrollary is always unsustainable debt. Central banks are enablers of socialism. There will always be more people wanting free benefits, than their are people to pay for those benefits - getting shit for free is an entirely logical proposition - especially if you don't love your neighbors or ever talk to them.

The solution to the debt crisis being experienced across Europe (and Japan, the US, the UK) is to CANCEL the debt held at the central bank and mandate a fiscal surplus of 2% until government debt to gdp reaches 40% and a balanced fiscal budget therafter.

Remember, the ECB is owned by governments, the ECB has already printed fiat currency to buy government debt, so no further debt or fiat currency printing is required. The ECB mandate has to be amended to target inflation using ONLY interest rates and "notes and coins in circulation" - nothing more, nothing less. My preference is to imprison ECB board members for crimes against humanity, but there are simply too many snowflakes in european governments for this to stand a "hope in hell" (sic).

The waste and "entitlement mentality" that socialism spawns is anathema to human development - so is this aborted foetus that goes by the name of the central bank's "monetary policy experiment".

Debt cancellation would allow some room to fund past promises to pensioners - but the debt to gdp and deficit goals have to be used as an anchor.

By the way, if the Italians were to use their homes as ATM machines, like other debt slaves globally, and spend some of their home equity, GDP would accelerate by around 10-20% over the next five years. (Half of Italians own their homes, mortgage free, compared to sut 25-30% for, say germans or french).

Trying new things is fine, but italians would do well to remember that "there is nothing new under the sun" and lenders/investors will simply not finance half-baked crypto currecy launches as proxies for past and future obligations.

Rubicon727 Sun, 05/27/2018 - 14:02 Permalink

How remarkable. Don't you think? ZH comes out with scare tactics regarding "the spread."

But where was ZH (via the financial capitalists) when under Italy's technocrat, MONTI, the spread was far and away much wider than what it is today. The same thing happened during part of Renzi's term. Did we hear WARNING BELLS going off over "the spread" under these two administrations? No.

This strongly suggests that the EU financial dictatorship can't tolerate when two political parties merge in a European nation who mildly to strongly reject the EU dictatorship. All of a sudden, out pops these highly distorted "scare tactics" - fostered by the capitalist arm of the EU and the US.

BTW, under Monti - Italy's public debt soared immensely. Amazing, isn't it!

Sapere aude Rubicon727 Sun, 05/27/2018 - 14:12 Permalink

Is isn't Italy, it isn't Spain, it isn't UK. Its the EU dictatorship that EU citizens are getting mighty sick of, along with Jean Claude and Co's costly bloated bureaucracy, where UK didn't want to leave the EU it wanted reform but where that is a red rag to a Bureaucrat's Bullshit, but it didn't want to be a captive of the EU, which is what Poland, Hungary, Italy, and now Spain are finding out.

Nothing wrong with the a Common Market based on representation, but everything wrong with the current set up, especially with people who thrive on explaining you should lie if you can't get the support of the electorate.

In reply to by Rubicon727

J Mahoney Sun, 05/27/2018 - 14:17 Permalink

Could it be that this is as staged and planned as the financial experiments in Cyprus and Greece -- Lets see how the people can be content and managed in the world of parallel currencies to the one required for international business?

truthalwayswinsout Sun, 05/27/2018 - 14:36 Permalink

The EU was the dumbest idea anyone could ever come up with. Now it is collapsing so the countries can get their old currencies back so they can run up debt and then default without any real consequences.