Executive Intelligence Review


It’s the EU That Wants Italy To Default; the ‘Populists’ Don’t

May 31, 2018 (EIRNS)—Yesterday, Moody’s rating agency announced a review of 12 Italian banks: Unicredit, Intesa Sanpaolo, Banca IMI, Cassa Depositi e Prestiti, Mediobanca, Banca Nazionale del Lavoro, FCA Bank, Credito Emiliano, Credit Agricole Cariparma, Cassa Centrale Raiffeisen, Invitalia, and Banca del Mezzogiorno. This follows the May 25 announcement of a possible downgrading of Italian debt. As a result, there was a run on Italian bonds and the 10-year yield jumped to 3%. This means an increase of Italian debt. The media has started a terror campaign about the threat of an Italian default.

Indeed, it is the European Union and the financial markets worshipped by the EU that are pushing Italy to fail, by increasing its debt. So-called populists want to avoid a default by regaining sovereignty over that debt.

Why on Earth is Italy, with a 130% debt-to-GDP ratio and a deficit below 3%, considered a credit risk, when Japan, with close to a 250% debt-to-GDP ratio and a 10% deficit, is not? Simple: Japan’s debt is entirely domestic. Japan’s government debt is a credit owned by its citizens.

Italian debt used to be like Japan’s, until bank deregulation and the euro were introduced. Today Italian debt is 50% domestic, 25% held abroad, and 25% in the hands of the European Central Bank (ECB). It would be manageable except that it is denominated in a foreign currency, the euro. If Italy wants to monetize its debt (ultima ratio, but a legitimate one to avoid a default), it must borrow money from the ECB. So, Italy has no deterrent, unless, in a crisis situation, it submits to the hated Troika (European Commission, the ECB and IMF), which would add a foreign occupation to the foreign currency.

German CSU Member of the European Parliament (MEP) Markus Ferber did warn on German TV that in the event of a crisis, “the Troika would have to march into Rome and take over the Ministry of Finance,” although he then conceded: “But Italy’s debt would blow up Europe’s borders.”

The “populists” in Rome want to avoid a default, by leaving the euro.