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1.Market Observations, 8.Was Sticky

5 June 2018 (AFR) – Europe on edge after palace takeover in Italy

(5 June 2018, AFR, p35, by James Politi and Rachel Sanderson)

‘As Italy’s financial elite gathered last Tuesday morning in Palazzo Koch, the 19th century building in central Rome that houses the Bank of Italy, they had every reason to be glued to the words of the governor Ignazio Visco. Italian shares were plunging and bond yields were rising sharply — as a stand-off between Italy’s establishment and upstart political parties enveloped the eurozone’s third-largest economy and raised questions about the very future of the EU. In a speech, Mr Visco, the 68-year old Neapolitan economist, offered some reassurance about the solidity of the Italian economy, now in its fourth full year of economic growth, and insisted the country’s “destiny” was in Europe. But he also warned that the country ran a “serious risk” of frittering away the “irreplaceable asset of trust” if it made the wrong moves in the weeks ahead. “We are on razor’s edge,” says one senior Italian banker. By Friday, the immediate crisis had been averted, with the afternoon swearing-in of the populist government led by the anti-establishment Five Star Movement and the far-right League at the Quirinal Palace in Rome. But the final week of the longest political stalemate in Italian postwar history has also demonstrated the potential for major ructions in the near future, from the prospect of another swift and acute loss of confidence in Italy’s finances to the looming confrontation between the new government and Brussels.’

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