Action:
We remain with our short EURCHF trade as best hedge or proxy for Italy
The Italian President is trying to play the political game with the usual rules – get a stalemate then introduce hawkish austerity, by the rule Prime Minister!
Using the Italian Constitution as an excuse he is clearly, in my view, making his own interpretation of what's right and wrong. This is not going to go well with voters who is upset - They want a "clash" or "confrontation" with EU and austerity,
That the President is right, does not remove the risk he takes by trying to appoint an ANTI- League and Five Star candidate to run the country!
The market agrees with me and we see higher Italian yields (and higher than Friday even)…..
Below is short summary from our resident Italian Fixed Income Star Althea:
From: Althea Spinozzi (ALTS)
Sent: 28. maj 2018 11:52
To: Strategy Team <strategyteam@saxobank.com>; Team - GST <TeamGST@saxobank.com>
Cc: Simon Fasdal (SIF) <SIF@saxobank.com>; Jonas Vinter (JONV) <JONV@saxobank.com>
Subject: Italy: Q&A. Colatelli meeting President Mattarella right now.
News from Local newspapers highlight that the President Mattarella is preparing to form a technocratic government lead by Carlo Cottarelli
Who is Carlo Colatelli?
Colatelli is a former director of the IMF. He previously worked under the premier Enrico Letta to review public spending in 2013.
What are the issues that a technocratic government is facing?
The real problem is that without the support of the 5Stars Movement and the Northern League a technocratic government will not obtain a parliamentary vote of confidence, which means that it will only be able to manage current affairs until a new vote will be held.
When a new vote will be possible?
Minimum time to call election in Italy is 45 days since the dissolution of the parliament, but in order to organize vote from abroad it is necessary to have at least 60 days. This means that if the parliament is dissolved straight away, a vote is possible in the middle of the summer. However, there are important international deadlines such as the budget bill that needs to be presented to the parliament within October and approved by the same within December. This could delay new elections until the beginning of next year.
What is the real risk? That the populist sentiment will strengthen.
Berlusconi defends the action of President Mattarella to have a technocratic government leading to new elections. This put distance between Berlusconi's led Forza Italia party and Salvini's Northern League party. The risk is that the right coalition will be broken and that 5 Star Movement and the Northern league will form a coalition that has the potential to win the vote of majority during next elections, giving more power to a populist government which at that point will be unstoppable.
Is there a real case for impeachment? Short answer is no.
According to the constitution the President of the Republic is not a mere executor of parties' will and he has the obligation to safeguards the interest of Italian citizens if he needs to. In 1994, Berlusconi asked for Previti to become minister of Justice however the President Scalfaro rejected Previti and the same happened in 2001 when President Ciampini rejected Maroni as minister of Justice. Mattarella has accepted all proposals coming from the 5 Stars and the Northern League expect the Savona as Economy Minister because he's a well-known euro-skeptic and this can cause spread between BTPS vs Bunds to spike hurting Italian citizens.
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Best regards
Althea Spinozzi | Manager | Fixed Income Specialist
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