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.
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,