The Italian dog that did not bark is one of the great untold market stories of the past month. The yield on Rome’s 10-year bonds is around 4.3 per cent, a level not seen since the end of January.
Chart: Italy’s 10-year bond yield (black line) over the past five years; blue line shows the yield on the German 10-year bund
(Chart courtesy Reuters)
The spread with the Bund, which has obsessed Italians since the market panic at the end of 2011, has narrowed to just above 300 basis points. It almost looks as if February’s inconclusive election and the accompanying political uncertainty do not matter. This is puzzling, so here are a few tentative explanations:
1) Mario Draghi’s magic. The pledge by the president of the European Central Bank last summer to do “whatever it takes” to save the euro is the single most important explanation for the relative quiet on Italy’s bond market. The Outright Monetary Transactions scheme, whereby the ECB will purchase unlimited quantities of debt of countries in difficulty, has so far proven a remarkably resilient firewall. Read more
Marseille may have been appointed the cultural capital of Europe, but it seems to be attracting more unsavoury activity too – “In the past two weeks, five killings have been recorded that police say are linked to gang wars for control of hashish sales in the city’s infamous high-rise slums.”
There were two big job vacancies in Rome last month. The Catholic Church began looking for a new pope after the shock resignation of Benedict XVI. Meanwhile, Italians went about the business of picking a new head of government who would end Mario Monti’s technocratic interlude.
The Vatican is not exactly known for its speedy decision-making. Yet it only took the conclave of cardinals a couple of days to elect Jorge Mario Bergoglio as the new head of the church. Pope Francis – as he is now – is already making headlines with his new message centred on the need for a humbler and more austere church.
On the other side of the Tiber, Italian politicians are still struggling to choose a new prime minister. Today and tomorrow, President Giorgio Napolitano is meeting party leaders and other institutional figures to talk about what to do next. But Italy-watchers do not expect white smoke to come out of the presidential palace any time soon.
Anthropologists are proving, through a mix of psychology and economics, that culture and environment have more influence over the way people think than previously believed (and more influence than some people feel comfortable with).
The spat between legendary journalist Bob Woodward and the White House shows just how weird Washington is, according Paul Farhi at the Washington Post.
Clown-turned-politician Francisco Everardo Oliveira Silva was elected into the Brazilian congress with a record number of votes in 2010. However, the joy of his campaign has given away to a weariness of the politician’s life: “You pass whole days here doing nothing, just waiting to vote on something while people argue and argue.”
1) The preliminary election results among the nearly 3.5 million Italian voters living abroad show a very different picture from the results within Italy.
The austerity measures and market-friendly stance of the ex-Prime Minister Mario Monti managed to convinced over 27 per cent of the votes of Italians living in Europe and in North and Central America, where his movement came in second after Pier Luigi Bersani’s Democratic Party (PD). Within Italy, fewer than one in ten Italians voted for him.
Worse, according to Krugman, Monti’s policies did not even work. As in the rest of southern Europe, the economy has shrunk and so debt-to-GDP ratios have risen. There was only one “piece of good news” in the Monti era – that “bond markets have calmed down.” However, Monti cannot claim the credit even for this, because it is “largely thanks to the stated willingness of the ECB to step in and buy government debt when necessary.”
As ever, with Krugman, the argument is forcefully made. But it misses out a crucial stage in the argument and therefore unfairly denigrates the role of Monti in stabilising the Italian economy. Remember, when Monti came to power, the steady rise in the interest rates that Italy was having to pay to finance its debt was eating up more and more of the Italian budget. There was a real prospect that Italy might simply be unable to finance itself through the bond markets – and that might have sparked a terminal crisis in the euro. Read more
Italians cast their ballots in a tight election, with Brussels, Berlin and the markets looking on. By Tom Burgis, Lina Saigol, Ben Fenton and Shannon Bond with contributions from FT correspondents across Italy and beyond. All times are GMT.
On this, the final day of polling in Italy’s 2013 election, we thought it would be worth highlighting five blog posts from the FT that will help provide the context you need to understand the results when they eventually emerge…
The New York Times has an in-depth report on the science of engineering junk food and the “bliss point”, the optimum level of sweetness. One ex-Coke employee says he is now paying his “karmic debt” for working there by selling carrots. After walking through an impoverished area in Brazil, he thought: “‘These people need a lot of things, but they don’t need a Coke.’ I almost threw up.”
As Italy’s increasingly surreal election campaign draws to a close, it is still hard to believe that Silvio Berlusconi, who exited government so ignominiously 18 months ago, may well garner enough votes with his coalition partners next weekend to deny the centre-left and Mario Monti an outright win.
Should that happen, as is probable, Italians are destined for more political instability. They may be back at the polls within a year or 18 months.
In that context alone, understanding the enduring appeal of Berlusconi – who failed to stem a decline of Italian economic competitiveness during his time in office and remains mired in corruption trials – can be baffling for an outsider. But go out on the stump with Italy’s veteran showman, as I did on Monday night, and it all becomes a little clearer. Read more
I have just spent a few days traveling across Veneto, Italy’s industrial heartland in the north east of the peninsula. One of the tasks I had set myself for this trip was to understand whether Italy’s economic crisis is fuelling euroscepticism.
Italy has traditionally been among the continent’s most europhilic countries. To the astonishment of outside observers – particularly those from the Anglo-Saxon world – Italians have seemed relatively at ease with the idea of handing more and more powers over to Brussels.
After the wave of austerity which has recently hit Italy, and which Brussels was at least partially responsible for, I expected this attitude to have become somewhat less positive. Veneto was an excellent testing ground for its resilience. This wealthy region is governed by Luca Zaia, from the Northern League, the most eurosceptic among Italy’s mainstream parties. Veneto has a strong export-oriented manufacturing sector, which can no longer rely on competitive devaluations as it did in the 1980s and 1990s, before Italy entered the euro.
This point was made to me by Roberto Brazzale, a food entrepreneur from the province of the city of Vicenza, who has off-shored much of his production of parmesan cheese and mozzarella to the Czech Republic. “We must exit the euro,” Mr Brazzale said. “And do it before our industrial base is completely wiped out”. Read more
He is not quite kissing babies yet but Mario Monti is throwing off his image as a fusty economics professor and former EU bureaucrat with his first election campaign spot.
The one-minute spot – released today on social network sites and local television stations – shows the human side of the 69-year-old, playing on the carpet with his grandchildren and promising a “together we can do it” better future.
Hammering home the message that the “old parties are not capable of reforming Italy”, the ad skips over the issue that Mr Monti’s centrist alliance includes two of parliament’s most veteran politicians.
If the campaign carries echoes of Barack Obama, could that be because Italy’s technocrat prime minister has hired two consultants from the old team led by David Axelrod, strategist for the US president?
The spot cleverly splices images of wads of cash changing hands and lines of official limousines as Mr Monti promises to crack down on corruption and wasteful government spending while promising economic growth, jobs and “responsible” tax cuts. Read more
But electoral considerations have trumped solidarity with France over Mali, forcing an embarrassing u-turn.
Mario Monti’s foreign and defence ministers last month pledged logistical help in the form of transport planes and refuelling for the French. “We are beside you, Paris,” newspapers proclaimed. But on Sunday, in Paris, Italy’s technocrat prime minister had to explain to François Hollande that no such support would be forthcoming after all.
Franco Frattini, former foreign minister and member of Silvio Berlusconi’s centre-right party, is particularly disappointed, having passed a resolution in parliament on January 22 – with support from members of the centre-left Democrats and the centrist UDC – that backed Italian logistical intervention.
“Because of the election campaign we run the risk of not fulfilling our European duties of solidarity,” Mr Frattini told the FT. Read more
A few weeks ago I was in Oxford for the screening of Girlfriend in a Coma, the film on Italy’s decline written by Bill Emmott, former editor of The Economist, and Annalisa Piras, an Italian journalist and filmmaker. The audience – consisting mainly of British Italophiles and young Italian researchers who had left the country’s decaying universities to find shelter in British academia – gave the documentary a warm reception. During the discussion I chaired after the screening, Emmott conceded that taking the movie to Italy would pose a far greater challenge. He joked that he and Piras would need bodyguards. Their movie is in fact a brutal exercise in truth-telling, aimed at holding to account those who have run Italy over the past two decades.
Italy’s first reaction has, indeed, proved rather unwelcoming. The Italian premiere of Girlfriend in a Coma, scheduled for February 13 at MAXXI, a museum of contemporary art in Rome, was suddenly cancelled on Friday. Read more
For those used to a democratic system with an established political dynamic – Democrats v Republicans in the US, or Conservatives, Labour and Liberal Democrats in Britain – Italy can seem strange. Some of the parties and alliances running in this year’s general election did not even exist in previous contests.
Mr Monti, long-time economics professor and former EU commissioner who was appointed technocrat prime minister in late 2011, has never run for elective office in his life, and it shows.
Enter David Axelrod, Mr Obama’s two-time campaign strategist, who responding to a report in Turin’s La Stampa, confirms to my FT Washington colleague Richard McGregor that his old firm AKPD Message and Media has been hired by Mr Monti. Mr Axelrod says he had been retained “to take a look and come in for a day to meet with Monti and his team, which I did.” He adds for transparency’s sake: “I no longer have an interest in AKPD.” Read more
Gideon became chief foreign affairs columnist for the Financial Times in July 2006. He joined the FT after a 15-year career at The Economist, which included spells as a foreign correspondent in Brussels, Washington and Bangkok. He also edited The Economist’s business and Asia sections.
His particular interests include American foreign policy, the European Union and globalisation.