The market rationale that the Berlusconi toss out is bullish is patently absurd. In reality Berlusconi inherited a sinking debt trap ship, and already ran a decent austerity program for Italy, keeping them in the game for the last few years. He also kept a government together, no small task in Italy. It would be like an effective budget hawk being elected President of the US today and quickly reigning in deficit spending to 3-4% of GDP for the next few years, staving off the inevitable. Once again the problem with Italy is extreme debt levels, not Berlusconi. I think his problem may have been going after taxes on wealthy people, an object lesson as attention shifts to the US supercommittee proposal due out Nov. 23. There is very little headline news on that, by the way [Politico: Odds Stacking Up Against Supercommittee].
Italy is finished. Rates above 6% reinforce that. The 10 year Italiano is 6.82% this morning ahead of the latest ratline intervention. The ECB couldn’t step up to the plate on Greece to finance a much smaller situation, so how could this possibly happen for Italy? Are we now going to be subjected to around the clock weekendism and Hail Mary rallies on this ridiculous notion? We are seeing the cost of gimmicks as well, the goon squad has effectively killed the CDS market, so now all these insolvent countries will need to raise money with credit insurance for buyers problematic. Speaking of gimmicks, how about the EFSF financing tool? Duh, nearly a third of it is financed by Italy and Spain. Back to the drawing board on that one. Really not much left of Europe, how about Uranus or Neptune as replacements? I see Luxembourg is still a AAA. Somebody please help!!
The notion of more austerity and economic growth solving Italy’s debt trap is the pinnacle of silly season. The effort to brake Italy’s negative market dynamics was admirable by Berlusconi in the past, but reality has now taken hold. Italy is where the US is going within a few years, if not months. Put that little prediction in a time capsule.
It also looks like the rats are abandoning ship right as it slips below the waves. The LCH effectively doubles deposit charges on Italian bonds. I wonder who is still hung out to dry on leverage on this one? Obviously the aforementioned EFSF and ECB are two of the elephants. They can send Italy part of the bill. Way, way too much faith in government carrying the whole ball and calling the same off tackle put it in the ratline plays.
This post is reprinted from Russ’s premium service, Russ Winter’s Actionable. Click here for information.
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