You’d think that after watching Italian bank stocks careen lower on Friday and after seeing the bottom fall out again in late Monday trading, Matteo Salvini and Luigi Di Maio would politely ask that folks avoid making inflammatory comments to the press, at least until the budget rancor dies down.
Then again, I don’t know why you should assume that considering Salvini is the poster child for making inflammatory comments to the press at inopportune moments.
Italian assets got no relief on Monday following Friday’s bloodbath. BTPs and Italian financials succumbed to another bout of late session selling, which pressured banks lower by some 3% and drove yields higher still.
Fast forward to Tuesday and euroskeptic Claudio Borghi (whose appointment as head of the Lower House budget panel sparked a selloff back in June) said this on Radio Anch’io:
I am more than convinced that Italy, with its own currency, would be able to resolve its problems. [The] euro as a common currency is not sufficient for Italy to solve [its] fiscal issues.
As if that wasn’t enough, he went on to say that if it weren’t for Brussels, Italy would have set the deficit target for 2019 at 3.1%. Given how violent the market reaction to 2.4% has been, one can only imagine what would have happened had they gone that route. Suffice to say Tria would have quit.
Needless to say, Borghi’s comments gave everyone yet another reason to sell Italian assets. The banks are down more than 1.5%, extending the four-day slide to more than 12%.
More broadly, the FTSE MIB sank to its lowest level in 18 months, before trimming losses:
December BTP futures dove (again), the curve bear flattened (again) and the BTP-bund spread ballooned to the widest on a closing basis in more than a half decade.
(Dec futs / Bloomberg)
For its part, the euro fell to a five-week low on Borghi’s bombast:
Meanwhile, Di Maio declared that Italy isn’t going to “move a millimeter” on its 2019 budget target. In the same breath, he said his government isn’t planning to exit the euro or the E.U.
Conte tried to put a Band-Aid on things as well. “The euro is our currency and is irreversible for us”, he said in a statement, adding that anyone saying anything different is just expressing their own “subjective opinion” which is not a “part of current government policy”.
The selloff in Italian assets lost some steam after Conte’s reassurance and Borghi himself would later tell Bloomberg TV that Italy has no plan to leave the euro.
That said, if you’re getting the feeling that the populists and euroskeptics are deliberately keeping a euro exit fresh in the mind of the Italian public in an effort to perhaps sow the seeds for an EMU exit push later on down the road, you’re not alone.
Oh, and Borghi’s original comments to Radio Anch’io included this gem:
If France’s spread started widening, at a certain point [the ECB] would raise their hands and say ‘OK let’s intervene’.
That’s yet another example of a euroskeptic in Italy tacitly suggesting that the country’s populist government should be allowed to have its cake and eat it too by flouting E.U. budget rules and then demanding an ECB bailout when the bond market tries to price in fiscal profligacy.