Not enough people have their eyes on the Italian budget at the moment.
Markets have rebounded from previous sell-offs and the bulls seem to be back in control. But ignore the developments out of Italy at your peril.
Yesterday, Italy officially submitted its latest budget for review.
At a basic level, its proposed deficit throws down the gauntlet at Europe and Brussels.
By raising the deficit to 2.4% of GDP, as expected, and over the 0.8% mandated by the EU, it rejects the notion of EU control of internal finances.
With a bit of classic Italian braggadocio, the Premier Giuseppe Conte said:
‘Italy is a founding EU member and a net contributor… on the strength of this position, we go to Brussels with a budget that we are proud of and that we want to discuss without prejudices.’
We pay for our membership, he says, now let us bring out the credit card…again.
Italy’s budget could collapse the Euro
Euro-scepticism has been on the rise in Europe for some time.
As Business Insider reports, the government ‘is believed to privately back an exit from the single currency’.
This is supported by a leaked report published in the Italian Huffington Post in May, that the coalition government had discussed a ‘commitment to leave the euro prior to entering government.’ Only later did they abandon this position.
If this is the case, the implications are truly massive.
A split from the Euro and a return to the lira would be the first sign that the euro could be doomed as a currency.
Perhaps the Spanish would return to the peseta.
The Greeks would potentially love a return to the drachma.
These countries could then print as much money as they like and avoid austerity.
Indeed, this is the attitude of the Italian Premier, ‘austerity is a path that can no longer be taken’.
Meanwhile, markets could go into meltdown.
Italy could be the next Greece
If this is the path for Italy now, don’t be surprised if Italy becomes the next Greece.
With a debt to GDP ratio that is the fourth highest in the world at 131.8%, austerity would usually be thought to be the only option.
Not to mention, Italy’s aging population which has a median age of 45.9.
All of this points to a worrying set of problems for Italy, Europe, the World and potentially your portfolio.
Stay tuned for further updates as this story develops.
For Market & Money