Traditionally, the formation of a new government opens a phase characterized by the honeymoon with the markets and the voters. In the case of the Lega-M5S executive this does not seem to have happened at all with the markets and only marginally with the voters. According to the latest surveys (Demopolis, Piepoli, Index) in fact, the Conte government today has an approval rating that fluctuates between 44 and 51 percent, a threshold considered by experts not exciting for a prime minister at the beginning of his mandate, moreover supported by a very strong majority. As for investors, after a brief pause following the constitution of the executive, the spread started again and returned to pointing to 300.
Indeed, the Italian financial scenario is considered particularly worrying by international operators. The words spoken at the Confcommercio assembly by the Deputy Prime Minister in charge of the Ministries of Economic Development and Labour, Luigi Di Maio, have raised alarm and are the most immediate cause of the new surge in the spread and the fall in the stock market. The announcements of the new minister and pentastellato political leader (no VAT increase, via the spending meter, via the income meter and via the sector studies without indicating the coverage) after all received the applause of the audience but certified in the eyes of markets that the budget balance does not seem to represent a constraint for the yellow-green government.
Then there is the general context in which the deputy prime minister's words have fallen to cause concern, so much so that in academic and research circles there are those who believe a financial crisis within the year is not impossible. In recent days, the negative signs for a country that has to place 400 billion euros of public securities annually have increased. A first jolt to the spread was given by the statements of the chief economist of the ECB, Peter Praet, according to which inflation in the euro area “it is approaching the 2 per cent target level”beyond which an increase in official interest rates would be inevitable. The governor of the Bundesbank, Jens Weidmann, leader of the penalty takers within the Bank's Council, added that he considers the end of Quantitative easing "plausible" by December. A decision on the timing of exit from Qe could be taken as early as next Thursday in the ECB board. Added to all this are the latest data on the worsening of the Bank of Italy's Target 38 balance by 2 billion euro in May, reflecting a flight of capital from Italian assets towards safer ports. All of this draws a picture in which the prospect of an expansive budgetary policy adds up to a prospective increase in the debt burden and a fall in operator confidence.
Naturally, the judgment of the European partners and of Brussels on the new government is still suspended. And, above all on the German side, prudence is shown in declarations that is directly proportional to the degree of alarm for the Italian situation. The former finance minister the dreaded Wolfang Schaeuble, admitted in an interview with the weekly Wirtschafts Woche that “a monetary union has advantages for everyone, but above all for those who are stronger, that is us. We must therefore be ready to pay something for these advantages and those who are a little better off must be more generous”. But the openings are for now only verbal and the experts remain pessimistic.
According to Carmen Reinhart, economist and consultant to the International Monetary Fund, Italy's debt is underestimated, because it does not take into consideration the Bank of Italy's Target 2 negative balance, which, once added, would bring the debt to GDP ratio to 160 percent. “The current severe political uncertainty coupled with chronically low growth and a debt ratio of 160 percent is enough to trigger a financial crisis. In this case it is difficult to imagine how the restructuring of the Italian debt could be avoided,” wrote Reinhart on the international politics and economics website Project Syndicate. On the same website Nouriel Roubini said he believes Italy's exit from the euro is probable in the medium term, because the Italians, caught between the trap of the euro and the hope of obtaining advantages from the exit "could decide to close their eyes and dive in". The yellow-green government should heed these warnings more.
