Says the globalist that the markets and Europe are explaining to us that this is not good and that we must get in line. We must listen to them because they are right on the merits and because they finance us.
Says the sovereign that the markets and Europe have taken possession of Italy, taking much more than we were willing to concede. We have to do the opposite of what they ask of us because the interests of the dominant are opposite to those of the dominated.
Both the globalist and the sovereignist hypostatize the markets, Europe and strong or very strong powers. In other words, they give them a unique face and a defined identity. For globalists this face is severe but fair, for sovereignists it is instead rapacious and destructive.
The debate between globalists and sovereignists is limited to the West. China, Japan, Russia or India are shadows in the background, abstractly strong powers that do not relate to us politically or emotionally. If they buy or sell Btp they do it only to diversify or earn and they have no intention of admonishing us, helping us, punishing us or dominating us. In this sense they coincide with the market in its purest and most abstract form.
In the West, on the other hand, in our house, the external subjects who influence the course of BTPs at the moment are a plurality that sometimes has divergent interests. There isn't a single huge Moloch with clear ideas, but a number of large, medium and small Molochs. And the Molochs are divided into political, financial and intermediate.
Politics, above all, starting with Washington. Is there anyone who is rooting for the dissolution of the euro or, to begin with, for Italy's exit? There is Steve Bannon, the soul in pain of antemarcia Trumpism who together with Farage acts on an exclusively ideological level, and little else. The real Trumpism, that of the Oval Room, the Treasury and the State Department, wants an Italy that does not cause problems and that does not live on the brink of civil war, because this could lead to anti-system radicalizations that would risk slipping into anti-capitalism , in anti-Americanism, in Putinism, in Chavismo. This is why America has shown itself to be more open to co-opting the new men in Italian politics than Europe has done.
In general, Washington sees the euro as a useful tool for holding Europe together, a continent which, if balkanized, would end up divided between America, Russia and China in a disorderly and conflictual way (with the serious risk of a Russian-German union). A Europe that holds itself together, on the other hand, would continue to gravitate around America on the fundamental issues.
And then there is not only the strategy, but also the contingency. An Italy in financial crisis in the next few months, which will be decisive for trying to maintain Republican control over Congress in November, would also bring down Wall Street and strengthen the dollar too much at a time when the exact opposite is desired. It can therefore be concluded that, beyond some tepid ideological opening towards Italian populism, Trumpian America, in the name of Realpolitik, will work for a government that has real popular legitimacy and which is however sufficiently domesticated not to put discussion the euro.
In Europe we must try to understand the state of mind in Germany, a less solid country than it appears, with a weakened Merkel, Afd which has overtaken the Spd in the polls and is now the second largest party, China in Stuttgart in the heart of the automotive industry, Trump who is not giving up on tariffs (and now on banks), immigration to be supplemented at the already allocated cost of 100 billion on which Afd campaigns in supermarkets and schools. An Italy that were to leave the euro and make what remains skyrocket to 1.50 against the dollar would come at a bad time and would force the ECB to resume Qe.
The German elites know that Europe cannot be held together by fear alone and would be willing to make some concessions, but the politicians are very clear that any concession would lead to non-reelection to the Bundestag. Italy must therefore be kept at bay vigorously, at least in public.
The ECB, for its part, must dose the spread well, create fear but avoid bringing our rates to an irreversible tightening level. Not, therefore, an ever higher level, but high volatility around a midpoint. As for the end of Qe, it will suffice for now to leave everything vague.
As for the intermediate Molochs, those who are halfway between finance and politics, we are referring, for example, to some large American funds. Some are politicized by vocation, others are simply so big that they treat as equals with sovereign states. In these subjects the position towards Italy is clear and the incoming or outgoing money flows can be very fast, aggressive and decisive.
In the delicate matches that will be played in the coming weeks between Italy and the world, we will see firefighters and arsonists in action. Our impression is that both sides will try not to cross the security threshold. Whoever does it, perhaps among the most privateering funds in the mood for bloodthirsty attacks, will be called to order.
An initial moment of fear is probably already in the descending phase. A second test will be the elections (if any) or the first concrete acts of the new government. If the government is political, it will start with symbolic acts and will not immediately start spending large sums. The model will be Trump, no promises are denied, but implementation must be constant but gradual.
The decline in Italian assets is already creating interesting opportunities. Since these occasions are widespread, you might as well be selective. There are no particular risks in the visible horizon on government bonds and they can continue to be held, possibly in the inflation-linked version, which covers the remote risk of devaluation and subsequent price increases. However, we would not buy others if the intent was speculative.
The same goes for bank stocks. We would therefore concentrate purchases on large and small exporters. We don't believe in a devaluation (it has been talked about so much that the issue has almost burned out politically) but if there really were to be a devaluation, exporters would immediately benefit from it.
