Italian bond yields hit the deadly 7%
Within the last hour, Italy’s biggest clearing house began demanding that sovereign bond investors put up more cash or margin to cover the risks of those transactions. The fairly immediate result has been to wipe out any potential breathing-space offered by the hook coming onstage for Bunga-Bunga Man…that is, Italian borrowing just got even more expensive.
In the last 20 minutes, the yield (which had leapt again to 6.83% ) zoomed upwards to hit the infamous ‘bailout trigger’ of 7%. (Bear in mind that, if markets had a functioning left-brain, this would be irrelevant – Italy’s structure of debt is quite different to that of Greece or Portugal. But nobody’s listening out there at the moment. Welcome to the Barmy Bourse Bunga-Bunga Show).
Berlusconi said today that he favoured early elections and that Angelino Alfano, head of his People of Liberty Party, might be the candidate. But Berlusconi is a goner, and clearly the markets have now decided that he was nothing to do with the problem after all. That’s decisive markets for you.
As always, these crises beg the question, when it comes to the ‘markets must decide’ mantra, “What happens when the market is wrong?”. In the case of Italy, the market is being willfully wrong: by making it more expensive for Italy to borrow (for no particularly good reason) panicky markets are fulfilling their own prophecy: they are turning a liquidity problem into an insolvency disaster.
I’ve yet to read of any mainstream journos pointing this out. Or even, dare I suggest, posing the question about when ‘willful’ means ‘deliberate’. Greece is a mess of the Athenian political class’s own making. Italy is an inferior sitcom of its own making….but without market neurosis (or crookery) it remains a perfectly solvent sovereign State.
The Slog managed to produce a self-denying prophecy with the reported shoe-in of banker Papademos to the Prime Ministership. Greek political leaders were scrambling on Wednesday to agree on new prime minister to lead the country back from the brink of bankruptcy, after a plan to name a former European Central Bank official fell apart. This is our friend Mr Venizelos scheming again: he wants the top job, and no mistake. However, from the EU viewpoint, this represents another ‘accident’ whereby the elected officials actually decide against the stool-pigeon. In forcing Papandreou out, the GdF may well have shot itself in the foot. Hurrah.
Irish bond yields are beginning to reflect how Ireland may struggle to stick to its budget targets as a slowing global economy threatens exports. And already, Prime Minister Kenny has had to acknowledge that Italian contagion could become a problem.
He’s right. We are reaching the point at which sound money starts to pull out of the eurozone. This is a major acceleration on the road to Crash 2.
The Slog 