Italy shows no sign of folding like the Greeks did a few years back when they took on the EU. From Mike “Mish” Shedlock at money-maven.io:
Italy’s is on a collision course with the EU in two different ways. The first regards Italy’s budget.
Outgoing European Commission President Jean-Claude Juncker warns Italy faces an “Excessive Deficit Procedure” and may be fined billions of euros. No country has ever been fined. This is the first time a country has faced such a ruling.
France regularly breaks the deficit rules but “France is France” as Juncker once stated.
The EU would like to a see a split in the coalition governing Italy, but it may prove more durable than they think. From Tom Luongo at tomluongo.me:
Since the moment Lega and Five Star Movement entered into a coalition government after 2018’s election, there has been a concerted external campaign to sow dissent between the two coalition members.
It seems a week doesn’t go by where I don’t see a headline saying that the end of the “Italian Government is Nigh” or some such nonsense.
Incessant poll watching, childish gotcha legal challenges and hair-splitting by European ‘journalists’ results in continuous speculation about when Lega leader Matteo Salvini will finally get tired of his left-of-center coalition partner and sweep away the government.
The votes were barely counted when the countdown to new elections in Italy began in the press. Salvini’s Lega took 34% of the vote while M5S just 17%.
It made Lega, along with Nigel Farage’s Brexit Party the two biggest single political parties in the European Parliament.
Salvini came out on Thursday and put some of those gremlins to bed.
There will be no early election, in September we will be preparing the budget,” Salvini told reporters in parliament.
Matteo Salvini is proving himself to be quite a match for the EU. From Tom Luongo at strategic-culture.org:
Italy’s Matteo Salvini is riding high right now. Having weathered a couple of cheap legal moves to derail his assault on the European Parliament this May, Salvini is working to galvanize Euroskepticism across the continent into a viable political force.
He’s got his work cut out for himself.
But, he has at least two major allies. Marine Le Pen of the National Rally in France and Viktor Orban, the leader of Hungary. Salvini and Le Pen met last week to announce they would be campaigning together for the European elections as well as a major summit in Milan soon.
This is only the beginning, however.
I’ve been saying for over a year now that Salvini needs to be the person who lays the foundation for a wholesale revolt against the European Union and Italy’s participation in the euro.
His Lega party have skyrocketed in the polls, reversing the dynamic between it and coalition partner Five Star Movement. It’s a coalition that is of the kind which frightens the political establishment in Europe because it isn’t formed on the traditional left-right false divide.
It is a populist one united on the common cause of overthrowing the corrupt, corporatist system which most western governments are fronts for.
Italy is in recession, has debt out the wazoo, and its banking system is in bad shape. From Don Quijones at wolfstreet.com:
Italy’s fiscal health is once again in serious decline.
On Wednesday, Italy’s coalition government slashed its growth forecast for the Italian economy in 2019 to 0.2% – the weakest forecast in the Eurozone – from a previous forecast of 1%. Italy is already in a technical recession after chalking up two straight quarters of negative GDP growth in the second half of 2018.
The government’s budget for this year was based on the assumption that the economy would expand by 1% this year. Now, it seems the economy may not grow at all; it could even shrink.
One direct result of this is that Italy’s current account deficit for 2019 will be substantially higher than the 2.04% of GDP Italy’s government pledged to stick to late last year. And that can mean only thing: another standoff between Rome and Brussels over the direction of fiscal policy is in the offing.
The short answer to the question in the title is no. Alasdair Macleod explains why. From Macleod at mises.org:
Despite the ECB’s subsidy of the Eurozone’s banking system, it remains in a sleepwalking state similar to the non-financial, non-crony-capitalist zombified economy. Gone are the heady days of investment banking. There is now a legacy of derivatives and regulators’ fines. Technology has made the over-extended branch network, typical of a European retail bank, a costly white elephant. The market for emptying bank buildings in the towns and villages throughout Europe must be dire, a source of under-provisioned losses. On top of this, the ECB’s interest rate policy has led to lending margins becoming paper-thin.
A negative deposit rate of 0.4% at the ECB has led to negative wholesale (Euribor) money market rates along the yield curve to at least 12 months. This has allowed French banks, for example, to fund Italian government bond positions, stripping out 33 basis points on a “riskless” one-year bond. It’s the peak of collapsed lending margins when even the hare-brained can see the risk is greater than the reward, whatever the regulator says. The entire yield curve is considerably lower than Italian risk implies it should be, given its existing debt obligations, with 10-year Italian government bonds yielding only 2.55%. That’s less than equivalent US Treasuries, the global risk-free standard.
Government bond yields have been and remain considerably reduced through the ECB’s interest rate suppression and its bond-buying programs. The expansion of Eurozone government debt since the Lehman crisis has been about 50% to €9.69 trillion. This expansion, representing €3.1 trillion, compares with the expansion of the Eurosystem’s own balance sheet of €2.8 trillion since 2009. In other words, the expansion of Eurozone government debt has been nearly matched by the ECB’s monetary creation.
Bond prices, such as that of Italian 10-year debt yielding 2.55%, are therefore meaningless in the market sense. This has not been much of an issue so long as asset prices are rising and the global economy is expanding, because monetary inflation will keep the fiat bubble expanding. It is when a credit crisis materializes that the trouble starts. The fiat bubble develops leaks and eventually implodes.
To the consternation of the powers that be in the EU, Salvini is indeed “winning.” From Guilllaume Durocher at unz.com:
A grave Salvini at a press conference after a drunk-driving Moroccan killed two Italians
Really and truly, I did not expect the most promising developments in West-European politics to come from Italy. Who could predict that the strange government appointed in June 2018 – an uneasy alliance of nationalists under Matteo Salvini’s Lega and the populist-but-vague Five-Star Movement – would last as long or achieve as much as it has? Italy’s parliamentary regime is notoriously unstable, governments falling with unnerving regularity, and yet this strange hybrid has gone from strength to strength.
The globalists – notably the EU institutions and the various migrant NGOs, many supported by George Soros’ Open Societies Foundation – had adopted a criminal policy whereby the goal of their operations was not to reduce illegal immigration but to “solve” the problem by “rescuing” migrants at sea, even if they barely left the coast of North Africa, and breaking down Europe’s external and national borders.
Italy’s debt problem makes Greece’s look like small change. From The Oriental Review editorial board at orientalreview.org:
There is a dual Italian crisis brewing in the European Union. On the one hand, it is a political, or even geopolitical, crisis. Italy is undermining the unity of the European Union; blocking the EU’s recognition of those behind the coup in Venezuela as the legitimate authority; preventing the expansion of sanctions against Russia; and even supporting the ‘yellow vest’ movement in France, which is arousing the anger of the French government.
On the other hand, the crisis is economic in nature. Italy is once more sliding into a recession (economic growth was negative in the country); Italian banks are again facing financial problems; and the business media has already estimated that the Italian economic crisis could blow up the entire European banking system.
There is a strong possibility that the EU’s leaders will soon be faced with a choice: try to save Italy (and the whole of Europe) from yet another crisis or set an example by punishing the Italian government for the country’s independent economic and foreign policies. In turn, Italian Prime Minister Giuseppe Conte’s government will most likely have its own dilemma to deal with: bow down and sell its principles to get help from Brussels or go all out and regain Italian independence. The choice will not be easy and either decision will be painful. Neither ending to this Italian drama could really be called happy. As this headline in The Telegraph quite rightly notes: “Crisis brewing in Italy will lead to default, exit from the euro, or both.”
Italian Prime Minister, Giuseppe Conte delivers his speech during the confidence vote for the new government at the Italian Senate. In the picture at left vice premier Luigi Di Maio and right vice premier Matteo Salvini, Italy, Rome, June 05, 2018