By Julien Backhaus – Wealth Protection Up-to-Date (Germany)-
New data is revealing that Brexit is starting to affect the British economy negatively. Even if the British don’t realize it yet, the mood is drifting downwards.
Britain is continuing to try to secure a trade deal that will keep the trade markets free… and the EU is on the verge of agreement.
The Italians are now thinking about an exit from the EU. From an economic point of view, this would probably not be so bad at first, since Italy contributes little to our economic community. However, the exit would add momentum to the snowball effect started by Brexit.
The exit already has a name in the German media, “Italoexit”. Italy is on the verge of following the populist Beppe Grillo, who is pushing for the exit. Deutsche Medien reported on this at the end of last week.
Will it come to this? We will find out on December 4th. On this day, a referendum will be held, in which the Constitutional Reform of Italy will be put to a vote.
According to the latest polls, the current Prime Minister, Matteo Renzi, might be forced out… much like Tony Blair was in Britain.
Then, Beppe Grillo would likely take his place. Quite contrary to all reports in the German media, however, is that the impact of this referendum has not yet hit the financial markets. In that case, the worst is yet to come.
The yield on ten-year Italian government bonds jumped recently again to above 2%. This is already a sign of alarm. But that’s just a taste for what’s going to happen. Greece had pre-empted it: when the country was in a state of insolvency and / or shortly before the exclusion from the Eurozone, debt was increased suddenly by more than 10%. Therefore, if you buy these bonds, you have a risk rate of more than 10% because the price of the bonds is so low.
If Italy wants to get out, this scenario will repeat itself. For Italy is also heavily indebted. Including the debt of private households and companies, the southern European country has a debt-to-GDP ratio of over 200%.
A withdrawal from the euro zone would mean that no one is liable for these debts. The interest rates and thus the return on the current securities would rise sharply. At least 10% would call for risky investors to lend money to the Italians. The banks in Italy are already on the verge of bankruptcy – many of them have no hope of bailout. Financial institutions will also have to pay horrendous interest for new bonds.
In short, leaving the euro zone could be the end of Italy.
At the moment, it looks as though the media would simply ignore the real impact of the development in Italy, despite reporting on the “Italoexit”. 2017 could become a very expensive and problematic year.
The EU and the euro zone are crumbling just before our eyes. Possibly, a future core Europe with Scandinavia, the Netherlands and Germany / Austria would again be stronger. But the risks from Italy are currently underestimated and highly dangerous.