Unlike Greece, the EU is not going to strongarm Italy and sweep it’s financial problems under the rug. Italy is too big. From Tom Luongo at email@example.com:
Clarity is here in Italian coalition talks. And the markets hate what they see. So does Brussels.
Five-year Italian debt blew out over 1%, CDS spreads have moved over 20 basis points in a week. The markets are trying to scare these outsiders now in charge in Italy to soften their stances on reform and maintain a status quo which is destroying a great country and culture.
The League and Five Star Movement leaked demands for $250 billion in debt relief from the ECB. There was also a demand for developing a mechanism for countries to leave the euro, according to a, now discredited, report from Reuters.
The final proposal doesn’t have any of this inflammatory language, but don’t think the leak wasn’t part of their negotiating strategy or part of where they are ultimately going to push things.
Because the rest of the proposal is already hostile enough to Brussels (see below). And with ECB President Mario Draghi now signaling the need to consolidate European sovereign debt under its umbrella, it isn’t necessary at the moment.
Here’s Martin Armstrong’s take:
So everyone else understands what this is about, the ECB President Mario Draghi has come out and proposed interlocking the euro countries to create a “stronger” and “new vehicle” as a “crisis instrument” to save Europe. He is arguing that this should prevent countries from drifting apart in the event of severe economic shocks. Draghi has said it provides “an extra layer of stabilization” which is a code phrase for the coming bond crash. [emphasis mine]
That tells me that Draghi understands how bad things truly are and that Italian leadership knows they have the upper hand in debt negotiations.
They are prepared to push Brussels hard to get what they want. And well they should. League leader Matteo Salvini understands how ruinous the euro as administered by Germany has been for Italy and most of Europe.
So, to him, if the price for Italy to stay in the EU is to force the northern countries to accept debt consolidation and write-down then so be it.
If they won’t agree to that, then Italy’s new leadership is prepared to back to the people and say, “We tried. Screw them. Let’s walk.”
All of this says to me they sand-bagged the press and the political establishment to get to this point.
To continue reading: Italy is Forming the Epicenter of the EU’s Fateful Shift