by John Ward
The new mood in Italy following the collapse of the Mirandi Bridge has put the European Commission on the spot, made the Rome coalition more aggressively expanionist, and once again put the single currency’s survival in doubt. Rates are rising and more and more currencies look vulnerable. The global financial pandemic is under way.
The bridge disaster in Genoa was an appalling event. We still await more evidence as to why the bridge collapsed (Italy is infamous for its history of construction graft) but the Italian people seem convinced that the bridge should’ve been replaced long ago, and the ClubMed austerity programme is directly responsible for a human tragedy.
Every now and then in history, there is a sort of fateful confluence of Big and Small that changes everything. Genoa may prove to be a bridge too far for ClubMed bonds in particular and fiat currencies in general.
Let’s consider the roots of coincidence in this case. A festering problem of non-performing Italian bank loans has been kicked down the road by antediluvian German ideas unhappily married to eurozone central bank monetarist orthodoxy. That era was, however, preceded by one on which Bunga-Bunga Man (a crony of our own Tony Blair) presided over a régime where far too much eurozone investment went into the back pockets of those lucky First Class passengers on the Jean-Claude Trichet gravy train.
A flatlining economy – plus a Prime Minister all too obviously toeing the Brussels fantasy line – produced a rash of new Parties….and eventually the uneasy Coalition we have today. This made lenders nervous.
Through the office of the President, Brussels tried to enforce obedience – resulting in a compromise Finance Minister. Lenders became more nervous….especially as the Coalition elected to power had grand expansionist plans for the economy.
And then – just when most people had forgotten about the innate instability of Erdoganomics – along came a spat between Turkey and Trump to bring that Ponzi economy into sharper focus.
The economically expansive Coalition collided head-on with an uneconomically expensive borrowing rate. Turkey’s currency problems began to inflate Italian bond yields….and put Draghi into a corner.
And then – from genuinely unpredictable Left Field – came the collapsing Morandi bridge in Genoa. Suddenly, Matteo Salvini, the Italian interior minister from the nationalist Lega Party, has cast all caution to the winds:
“The Italian state must invest all the money needed to ensure the safety of our roads, railways, schools and hospitals, regardless of limits and mad European rules imposed on us”
Strong stuff…..especially in the light of Mario Draghi withdrawing QE support for Italian detbt. From below 30 pts just five months ago, Italian bond yields have zoomed to 200 pts.
I suspect we are about to see Bond traders go from being nervous to hysterically terrified.
And now, the compromise Finance minister Giovanni Tria has captured the political mood too: until recently reticent about irritating Brussels-am-Berlin, Tria over the weekend demanded infrastructural investment “without budgetary constraints”.
I wonder if the German Bundesbank’s boss Joachim Würmeling is going to be quite so self-satisfied and smug as he was last week. Brussels will, as always, affect a lack of concern, and this morning the German Chancellor’s press gofer ruled out financial assistance for Erdogan’s government. But the Euro/Dollar rate dipped below $1.14 earlier today – that’s a 13 month low – as fears mounted that Italy’s coalition will now definitely break EU spending rules in its Budget to be submitted next Month.
Italy is on the verge of burning its bridges with Brussels. That contagion can only spread.