The Eurozone's Fault Line and Italy
The eurozone sovereign debt crisis reached its climax with the forced resignation of Italian Prime Minister Silvio Berlusconi in November 2011.
For the first decade after the currency was created in 1999, Italian BTPs traded at almost exactly the same yield as German bunds.
All countries within the euro were seen as carrying the same risk.
Then came the Global Financial Crisis of 2008, which scrambled perceptions.
When the Greek government needed a bailout in 2010 to avoid default, the spread of BTP over bund yields leaped.
By the end of 2011, bond markets were so confident in betting against Italian debt that they sent the spread to five percentage points and forced Silvio Berlusconi to resign as prime minister.
Mario Draghi, as newly installed president of the ECB, talked spreads down in 2012 by promising to do “whatever it takes” to preserve the euro.
But the BTP spread ballooned again in 2018 after the electorate produced an ungainly coalition of the left-populist Five Star movement and the right-populist League, who were united only in their euroskepticism and tried to confront the EU over budgetary rules.
After more brinkmanship, the pandemic, and a stint for Draghi as Italy’s specially installed technocratic prime minister, the spread ballooned once more as Meloni’s polling lead increased.
When she took office after elections, amazingly, calm was restored
How did this happen?
Traders might have forgotten that even if Meloni had some fairly unpleasant political ideas, she wasn’t stupid.
She didn’t want to preside over another crisis, or still less suffer the ignominy of being replaced by a technocrat.
“They have the votes, and it’s a de facto Fifth Republic,” he said, drawing a parallel with the arrival of General de Gaulle in France who ended the chaotic Fourth Republic in 1958.
He added: “She’s survived because she represents social revolution. People identify with her.”
John Authers Bloomberg 7 June 2024
Nils Lundgren: Dagens Nyheter om eurokris, teknokrati och demokrati
december 2011
https://englundmacro.blogspot.com/2011/12/nils-lundgren-dagens-nyheter-om.html
För tio år sedan hade Italien en annan expertregering under ledning av Mario Monti som, liksom Draghis blivande, hade stort förtroende utomlands ...
Rolf Gustavsson SvD 12 februari 2021
https://englundmacro.blogspot.com/2021/02/rolf-gustavsson-draghis-jattejobb-fa.html
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