Italy - Investors Flee As Populist Government Speaks Of Euro-Exit

The Italian bond market saw its largest movement in two years yesterday whilst the rest of European markets remained stable. This is significant as it means international investors are paying attention to the leaked government proposal draft of the populist parties Five-Star-Movement and Lega Nord which was published (on purpose?) in the Italian press.

One phrase stood out from all others, the one that led international investors to drop their Italian holdings immediately. The parties speak of ‘pre-Maastricht’ times, which is a reference to the times when Italy’s currency was the Lira and not the Euro, meaning the parties that are bound to govern Europe’s third-largest economy are at least considering a Euro-exit, even though they had always vowed not to do so.

Related coverage: https://thegoldwater.com/news/25822-Italy-European-Nightmare-Erupts-As-Populists-Parties-Try-To-Form-Government-Together

Five Star and the League said in their leaked draft that: “the spirit must be to return to the pre-Maastricht setting in which European states were moved by genuine intents of peace, brotherhood, co-operation, and solidarity.”

<blockquote class="twitter-tweet" data-lang="en"><p lang="en" dir="ltr">The winners of Italy&#39;s general election are considering a return to the lira — and ditching the euro <a href="https://t.co/n644gX5Xrc">https://t.co/n644gX5Xrc</a> <a href="https://t.co/28PGwEWniM">pic.twitter.com/28PGwEWniM</a></p>&mdash; Financial Times (@FinancialTimes) <a href="https://twitter.com/FinancialTimes/status/996716139962093568?ref_src=twsrc%5Etfw">May 16, 2018</a></blockquote>

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The two parties at first dismissed the leaked draft as “old” and claimed they had moved ahead from that and were no longer “questioning the country’s euro membership”.

However, every draft since then refers back to the days of the 1980s and early 1990s, when Italy still used the lira, leaving many international investors worried about what is to come for Italy.

Related coverage: https://thegoldwater.com/news/25410-Italy-Fresh-Elections-Underway-As-Parties-Fail-To-Form-Government

Financial consultants in London were quick to interpret the draft as a danger for bondholders. Mr. Lorenzo Codogno, of LC Macro Advisors, stated: “Although the two parties may eventually water down the proposals, the document reveals the true extent of their oddity, inexperience and off-track nature.”

<blockquote class="twitter-tweet" data-lang="en"><p lang="en" dir="ltr">Investors are worried that Italy&#39;s new government wants to leave the euro <a href="https://t.co/e9tpa9ZOVC">https://t.co/e9tpa9ZOVC</a></p>&mdash; The Wall Street Journal (@WSJ) <a href="https://twitter.com/WSJ/status/996891819974721541?ref_src=twsrc%5Etfw">May 16, 2018</a></blockquote>

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“The leak is a watershed in the external perception of what an anti-establishment government may mean.”

Source:

http://www.repubblica.it/politica/2018/05/16/news/contratto_m5s-lega_oggi_si_chiude-196521894/