ITALY: BONDS AND RIOTSFebruary 26, 2018
For a few years, as the crisis that is the European Union and its disastrous immigration policies have been unfolding, I've been urging people to watch Italy. Indeed, during last week's News and Views I implicitly suggested that the center of the European stage has shifted from Berlin - where a workable coalition government has yet to take shape in any recognizable fashion and where Mad Madam Merkel is under increasing pressure to go - and from Paris, where M. Macron, if his performance in the recent Munich security conference is any measure, has yet to muster enough pluck to stand up to the paper tigress in Berlin, to Rome. Why is Italy so crucial? For one thing, it's in the top ten economies of the world, and depending on who one consults, comes in at about number 8, making its economy about as large as Russia's. More importantly, Italy's is by far the strongest economy in southern Europe, which on any analysis, has been suffering the transference of wealth to the north under the crazy euro scheme, a scheme which one might say is nothing but the old Exchange Rate Mechanism and the Deutschmark, version 2.0.
During the last News and Views I also implied that the European "project" is being threatened by the looming Italian elections in a major way. At stake is a simple question: should Brussels bureaucrats, firmly in Berlin's pocket, be the arbiters of Italy's policy and destiny, or should Italy be in charge? And lurking behind this, as always, is money. The Italian banking system is a mess, and that mess is inextricably intertwined with a certain big German bank north of the Alps.
As is to confirm all these relationships, Ms. K.M. passed along this article which appeared at Zero Hedge, and there's a key point which this article makes.
The politics-as-usual, with a Merkel-style coalition government of all the leading parties (except the "populist" ones), simply isn't in the cards in Italy, which has had to bear the brunt of the Mad Madam's policy diktats via her cronies in Brussels:
These are the most important elections in Europe this year – laying aside the possibility of a German re-vote – and the amount of coverage it is getting is disturbingly scant. Articles like this bit of pablum from Bloomberg is what passes for analysis, purporting to tell you “What You Need to Know about Italy’s March 4th Elections”
Even as the specter of populist revolt recedes elsewhere in Europe, Italy’s anti-establishment, Euroskeptic Five Star Movement is seeking a breakthrough.
That’s a lie. And a bald-faced one at that. There hasn’t been one election in Europe in the past two years where populism hasn’t been a major and rising factor. The fact that Italy’s President dissolved parliament early and moved elections up from May to March 4th is proof they are scared of the trend.
Because the trend is against them. Five Star Movement or M5S continues to rise in the polls and another two months would put them in a position to put a government together.
The writers of this article push a lie that M5S is uninterested in forming a coalition government. The rules for this election were changed to allow the parties to fight as coalitions to freeze out M5S from ruling, even if they win the most votes.
The last polls taken had the Northern League tied at 15% with Silvio Berlusconi’s Forza Italia. These two are campaigning together. And the intention, clearly expressed by the Bloomberg writers, is to create a ‘grand coalition’ a la Germany, which no one in Italy wants except the political elites who back further integration with the European Union.
As the article also points out however, the bond markets belie the political narrative.
These are the real stakes in the Italian elections next week. And despite the gaslighting of the Bloombergs and worse, the Los Angeles Times, trying to tell everyone that M5S has no chance at winning, traders in the sovereign bond pits aren’t buying it.
Since the beginning of December European bond yields across the board have been rising. The chart below is the magnitude of the rise in yields for Germany, France, Portugal and Italy.
Now, it’s hard for that market to not be bullish when the ECB is the only marginal buyer of Italian debt and heretofore, traders bet on that behavior continuing in perpetuity, front-running the ECB’s buying.
But, rising yields means that the net volume of selling across the spectrum of European sovereign debt is more than the ECB is willing or allowed to buy. So, what’s happening is the ECB is managing the rate of the rise in sovereign bond yields and that is clear in the chart above.
What is also clear is that it is losing control of the Italian bond markets.
So, what’s next? While new polls will not be published between now and the election, polls are being taken. Someone has seen them. And, by inference, the Italian bond market is telling us that those numbers are either far worse than we’ve been led to believe at this point or some traders are simply nervous.
For now that is off the table to get votes but Salvini and his M5S counterpart Luigi Di Maio both know that Italy’s path to prosperity lies through either a massive write-down of its sovereign debt, something German voters are clearly not in favor of (and are becoming moreso every day) or leaving the euro and depreciating it away.
Given the rate at which rates are rising that is moving that timetable up considerably. And with no government in Germany yet that creates a lot of uncertainty for investors, who rightly, are beginning to panic that those in charge really aren’t. (Bold emphasis in the original, italicized emphasis added)
And that about says it all, except for a couple of high octane speculative possibilities. As I implied in last week's News and Views, the long-term prospects for Italy in the European Union - in the "atlanticist straightjacket" - are not good. Indeed, a few years ago I noted that Italian businessmen, like their German counterparts, were unhappy with the sanctions regime against Russia, and were trying to explore ways around it. Throw in massive social programs and their looting by the usual culprits in the usual fashion, an immigration crisis, a banking system on the verge of collapse, and you get the picture. Riots? We've seen those stage-managed affairs here as well, and we know who was behind them, and I wouldn't be a bit surprised that he has a hand in staging some of these Italian riots as well. Indeed, Italians are well aware of his role in "helping" refugees into Italy. No surprise there. So what does one do if one is a globaloney elitist Eurocrat and wants to make sure to avoid any strong showing by the Lega Nord or M5S parties in Italy, which all the indicators appear to suggest? One would have either to nullify the results of the election somehow, or stuff the ballot boxes and rig the election. Even then, a person with enough determination and a real talent for incompetence can still manage to lose a rigged election (just ask Darth Hillary). And if that happens, expect the rioting to continue as the populist parties mobilize support on the right. And if the elections turn out as the above indicators seem to suggest, expect the riots to continue as the political elites mobilize their forces on the left. And as I said a few years ago, once things start to get "interesting" in Italy, they will roll on into Spain, and then northward into France.
The bottom line? Regardless of the outcome in Italy, one thing seems to be becoming more of a European-wide certainty: Merkel muss weg. Merkel must go. Why am I suggesting that? Because the globaloney policies cooked up in the cauldrons in Brussels have largely become identified with her from Athens to Madrid. She didn't invent them, of course, but she readily embraced them and accepted the role of "symbol" for them. If I were the Eurocrats bent on trying to keep the "game" afloat, I'd resort to the time-honored tradition of all Mafia capi, and throw the opposition a very big fish by throwing Merkel under the bus. But the Italians have been playing this game for about as long as anyone in Europe; or to put it differently, the Gustiniani and della Torre i Tassos have been around a lot longer than the Rothschilds and Darth Soros. So whether the Eurocrats opt for rigged elections, staged riots, or throwing big whale Merkel under the bus, I doubt they'll be so easily fooled. That's what makes this election so very interesting: the old "playbooks" don't work, because, essentially, the Italians invented those playbooks.
The fun won't really be over with the elections; it will, on the contrary, just be getting started, as the negotiations in Brussels over Italy begin. Brussels bureaucrats, and old Italian families. (And while I'm thinking about it and entertaining all sorts of high octane speculations, wouldn't it be a hoot if Queen Elizabeth suddenly invited some of those old families around for tea at the Palace, just like she did the vice-premier a few years back, and asked if he could name three good things about the European Union?)
You get the picture.
See you on the flip side...