The rating agencies, as we have all understood by now, look to the past more than to the future. When they try to predict they often end up with serious injuries. On the eve of the last US presidential elections, in June 2016, Moody's published a study in which it was calculated that the economic policies proposed by Trump, applied in full, would have led to a long recession and the loss of a large number of jobs. Many others have said so, of course, but we know that quite the opposite has been the case so far. In the coming weeks, the rating agencies will return to expressing themselves on Italy and it is probable that they will adjust their judgment here and there. Moreover, the agencies have been deducting A (and now B) from the debt of developed countries for more than a decade. For a few years, fascinated by globalization, they had compensated for this severity with a continuous improvement in the rating of emerging countries, only to be taken aback, starting in 2011, by the deterioration of economic fundamentals and the financial position of some important countries this group.
It is possible that, on the occasion of these downgrades of Italy's rating, the spread between BTPs and Bunds will temporarily rise again, just as it will probably widen when the European Commission, in November, expresses its perplexities about the manoeuvre, perhaps highlighting the one-time nature of some tax revenues. However, we put forward the hypothesis that the climax of the attack on Italian securities is behind us, that an intermediate phase of cautious but not hostile neutrality is now opening and that at the end of the year the spread is lower than today in a non-dramatic to justify a trade in this direction. We argue this hypothesis by recalling first of all that, in the fiery climate of the political battle, deficit hypotheses have been circulating in the past weeks which calculated the cost of all electoral promises and which we have seen reach up to 8 per cent of GDP. Now, even if in recent times it has become fashionable in the world to honor electoral promises, not even Trump has managed to do everything immediately, so much so that in the coming days he will be forced to threaten to freeze the federal budget if the money to build does not appear. the wall on the border with Mexico (although knowing that once again his threat will fall on deaf ears and the wall will not be built).
Having listened to such impressive Italian deficit figures, anything now falling below 3 per cent looks dour and severe and raises a sigh of relief from heaven. After all, at these levels, the Italian deficit on GDP in 2019 will be equal to that of France and will be less than half that of the United States. The European Commission, for its part, will make its observations but will have the political shrewdness, we believe, not to wage war on Italy, also because Italy, even if only slightly, will in any case manage to lower its debt stock in the 2019. Making war in these circumstances would mean giving further space to the Eurosceptic forces in exchange for nothing. As for the rating agencies, saying that the risk of Italy is a risk of political instability will not be so easy when the Italian government has a consensus percentage and a parliamentary majority that almost all other Western European countries do not reach. Once the Italian mine has been defused (with the necessary precautions of the case), it will be the surroundings of Italy that offer opportunities for uncertainty. Last week we dismissed this note writing that the European willingness to cancel the tariffs on cars together with America would pave the way for an agreement and provoke a recovery of the European stock markets.
A few hours later, however, a tweet from Trump reopened all the games. We can even reset the tariffs, Trump said, but we know very well, we and you, that Europe will never buy American cars. To bring down the unreasonable European surplus you will have to revalue the euro. You are as bad as China, he concluded with anger, you are only smaller than her. From this tweet we have confirmation that Europe is in second place on Trump's blacklist. For him, zero or infinite tariffs are not a good or a bad thing in themselves, but they are interesting as a means to two real ends, the rebalancing of trade with Europe and the political downsizing of the Union controlled by Merkel. If the euro does not appreciate quickly (which today is a little more possible given the decrease in tension over Italy but still structurally difficult as long as the Fed continues to raise rates every three months) Trump will not hesitate to put tariffs on German cars , at the cost of going back on the offer to reset them. Germany, not Italy, is under siege today. To the point that Merkel, by proposing the right-wing pro-European Weber as Juncker's successor, seems to be willing to compromise with Hungary and Italy.
Of course, Merkel plays several tables with her usual skill, but her strength, under the hammer blows of Trump and the closure of one emerging market after another, continues to wane. That said, Europe's underperformance relative to America is starting to take on massive proportions. At the end of the year, when the balance sheet for the past year will be made, it will have to be recognized that Europe has still enjoyed a good level of growth (even if 2019 appears decidedly more uncertain) and a recovery of its stock markets will be probable.
