On May 29, Italian President Mattarella and the newly appointed transitional government Prime Minister Cotarelli met at the presidential palace in Rome to discuss the formation of a cabinet. (Photo source: Agence France-Presse)
[European Times Comprehensive Report] The Italian political crisis began to impact the market, and global stock markets, including Italy, generally showed panic on Tuesday. Market participants are not reassured by the fact that the Italian president vetoed the nomination of an anti-European minister. Instead, they are more worried about the debt crisis caused by "Italy is too big to fail" if a stronger anti-European government really emerges after the re-election. It will cause immeasurable losses, and the survival of the EU and the euro will be seriously threatened. At the same time, the brewing crisis in Spain has also made the European market worse, exacerbating panic.
According to an Agence France-Presse report on Tuesday (May 29), Italian bond yields soared and the stock market fell, dragged down by uncertainty related to a new round of elections later this year. What is even more disturbing is that panic seems to be spreading rapidly, with other European stock markets also falling sharply on Tuesday, and even the stock market declines in Tokyo and New York that day were seen as being triggered by the Italian crisis.
Italy Milan The stock market fell more than 2% at the opening, and the difference in 10-year government bond yields between Italy and Germany expanded by more than 80 basis points. The Milan stock market closed down 2.65% that day, the Paris stock market fell 1.29% that day, and the London stock market fell 1.26%. That day, the New York stock market Dow Jones index fell more than 1.8% intraday, and the German Frankfurt stock market fell 1.53%. The scandal-ridden Spanish government also made the European market worse, with the Madrid stock market falling by 2.49% that day.
Affected by the intensifying political crisis in Italy, the euro has also been "falling and falling" in recent days. On Tuesday, the intraday decline of the euro against the US dollar once expanded to 0.8%, hitting a new low since July last year. The British pound was not spared, falling to a six-month low against the US dollar that day.
Bank of Italy: There is no "reason" for the sell-off
According to Reuters , Italian Bank of Italy President Visco said on Tuesday that the market sell-off was not justified. Vesco said at the central bank's annual meeting in Rome that the sell-off was "very serious" and that "there is no reason for the market conditions we are seeing today - except emotion." Ratings agency Moody's said on Tuesday that if The new Italian government's fiscal policy cannot allow the public debt ratio to embark on a sustained downward trend, and the country's rating may be downgraded. Moody's said Friday's decision to put Italy's rating on the list for possible downgrade was not affected by political developments in recent days. The political development Moody's refers to refers to the failure of the country's right-wing Northern League party and the anti-establishment Five Star Movement party to form a government.
Although the Bank of Italy believes that the market does not need to panic, considering Italy's political and economic status quo and Italy's status in the EU and the euro zone, the market's panic is by no means groundless.
Reuters reported that the coalition government originally planned to be formed by Italy's Eurosceptic parties collapsed over the weekend. Some people believe that the euro has survived, but this may become the first shot in the anti-euro battle. Italy's president on Sunday rejected Eurosceptic Savona, nominated by the far-right Northern League and the anti-establishment Five Star Movement, as economy minister because Savona had previously said Italy should leave the euro zone. The two major parties, which fought each other during the March election, are now beginning to evaluate whether to form an alliance before re-election in the fall or early next year.
"The upcoming election will not be about politics, but a real referendum... on a choice between wanting Italy to be a free country or a slave country," Northern League leader Salvini said on Monday. "There is no freedom in Italy today. It has been financially occupied by the Germans, the French and EU officials."
After Italian President Mattarella vetoed Savona's nomination, the euro, bonds and stock markets initially rebounded, but then the market Concerns turned to early elections in the country. The yield gap between Italian and German 10-year bonds reached its widest in four years.
"The election will in fact be a referendum on the European Union and the euro," said Francesco Galietti, director of Rome-based political risk consultancy Policy Sonar. "This poses a threat to the existence of the entire euro zone."
If the Italian people vote against the EU and the euro in the new election, it will be the biggest challenge facing the EU since the British voted to leave the EU two years ago and will surely trigger Questions about the fate of the euro. Because Italy, which is heavily indebted (public debt is as high as 130% of GDP), is the third largest economy in the euro zone, which means that compared with the Greek economic crisis, changes in the political situation in Italy pose a huge threat to the euro.
Italy is crumbling, can the market not panic?
According to Reuters, just like many British people who were physically and mentally exhausted by the Brexit referendum, there are also Italian people who believe that the country's relationship with Europe is the most fundamental. Italians will also consider concerns about their savings as financial market conditions weigh on the country's stock and bond markets and raise borrowing costs.
"The average voter's heart may be happy to see the rise of anti-establishment forces, but his wallet may say another story," said Galietti, a political risk expert. He believes: "This will be an election where emotions and wallets are at war."
What is worrying is that someone is adding fuel to the fire in such a mess. According to Agence France-Presse, citing sources from the European Union, the European Commission's budget commissioner, German Ottinger, believes that the pressure on the Italian stock and bond markets this week "can teach Italians how to vote." This statement caused an uproar, which is likely to make Italian voters angry and give the far-right Northern League and Five Star Movement, which advocate anti-Europe and Euroscepticism, more support. Polls show that the Northern Alliance's support has risen since it received 17% of the vote in the March 4 general election, reaching a maximum of 24%. The support rate of the Five Star Movement has also remained at about 32% two months ago. Former Italian Prime Minister Darema summed up the concerns of traditional parties: "If we go back to elections because Savona was rejected, they (anti-establishment parties) will win 80% of the vote."
By then, "too big to fail" "Italy" is teetering, and whether it is saved or not will endanger the existence of the EU and the euro. Faced with such a prospect, can the market not be frightened?
