Source: Bloomberg
CONFLICT IN ITALY — WHEN WILL IT COME TO A BOIL?
On Italy this is likely just the calm before the next storm given the Five Star and League coalition government’s economic policies are almost inevitably going to be in conflict with the fiscal rules set by Brussels — though the confrontation may take longer to come to a boil because of the presence of technocrats in the new government, a compromise required by Italian president Sergio Mattarella for the government to be formed on June 1.
There will also doubtless be hopes on the part of the political establishment that the differences in ideologies between the left of centre Five Star and the right-wing League will become evident in the everyday practice of trying to run a government resulting in due course in both ‘populist’ parties being discredited in the eyes of the electorate.
ITALIAN 10-YEAR GOVERNMENT BOND YIELD AND SPREAD OVER 10Y GERMAN BUND YIELD
Source: Bloomberg
THE ECB AND THE EUROSYSTEM — ITALY’S GREATEST CREDITOR
The other point to consider with an Italian populist government now in place is how the ECB will react in terms of the signals sent given that the ECB and the Eurosystem is the single largest holder of Italian government debt.
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