Italy is in the final days of a long referendum campaign. Because it can’t argue its case based on its own merits, the Yes camp relies on a psychological terror by instilling fear about the economic fate of the country. Prime Minister Matteo Renzi’s strategy, inspired by his American consultants — to be honest, they have not been very effective here — aims to mobilize those citizens whose pockets are not totally empty. Its target is what Renzi has called the “silent majority.”
Moreover, he has always believed that the referendum will be won by the right. He’s not the only one, considering the generous help he receives from various endorsement deals — last but not the least, the OECD — and numerous, well-targeted international press campaigns.
The Financial Times jumped aggressively on the subject, predicting the failure of eight banks if Yes loses. The Daily Telegraph insists on the ridiculous argument that Italy would be in danger of leaving the euro. The Sunday Times business section took a position along the same lines. Figaro Economie informs us of the disquiet in the financial markets, comparing the possible No victory to Brexit. In Italy’s economic newspapers, they add the dreaded failure of the imminent Vienna Summit on cuts to oil production. It has nothing to do with the referendum, but it is thrown into the game.
In reality, none of this has any basis in reality.
Certainly the financial markets will not remain as still as statues of salt against the outcome of the Italian vote. But the latter certainly will not determine any major upheavals. Standard & Poor’s has already said the same. The analysts at Goldman Sachs reiterate it saying that, as everyone in the industry knows, the referendum “risk” has already been added to the estimations — that is “priced in” — to avoid any shakes in the coming days. We must look elsewhere to understand any recent changes in the financial markets.
The victory of Donald Trump, for example, has sparked one of the largest transfers of financial assets in history, with the displacement of some $500 billion in 48 hours from bonds into stocks, sending Wall Street surging. And most of those funds were divested from Europe — starting with the less promising countries, like Italy — to reach the other shore of the Atlantic Ocean.
The protective wing of the extension of Draghi’s quantitative easing will have to do.
Wolfgang Munchau, of the Financial Times, is readjusting his projections in comparison to his position a few days ago and calls on European governments (those will upcoming elections: Austria, France, Holland and Germany) to resolve the problems of an out-of-control financial system, rather than “insulting the voters.”
The Financial Times mentions the eight Italian banks at risk, and of course those are already known to be in serious trouble. Both the supervisory bodies and the government bear a heavy responsibility on the situation. The story of the Monte dei Paschi di Siena is symptomatic, where Renzi’s unscrupulous adventurism emerges. If it is not rescued, yes, it could infect the entire European system.
But the President of the Council preferred a private solution, fearing the reactions of investors as those seen during the intervention of Banca Etruria and the other three sisters of doom. According to well-informed sources, he was advised by Vittorio Grilli, former Minister of Monti and now European leader of JP Morgan, based on assurances given in person by Jamie Dimon, CEO of the U.S. banking giant and possible Treasury secretary in the Trump administration. From there, the cumbersome operation in tandem between JP Morgan and Mediobanc was originated.
Yet Soros had told him: To win the referendum, the banking problem must be resolved first. But Renzi understood the opposite, and now the situation appears dire. But the No campaign will not be at fault here.