Bannockburn Global Forex, 22/10
The bad loan burden at Italian banks, the indebtedness of the government, and what has been political paralysis makes for a poor backdrop for the current clash.
The populist-nationalist government of the Five Star Movement and the League have made electoral promises that the country can ill-afford. For the northern business, the League has pushed for lower taxes and a liberal tax amnesty. As champion of the poor south, the Five Star Movement wants aid package and a limited tax holiday. Both parties want to roll back the pension reform.
These type of policies repel rather than attract global savings, and Italian yields have jumped as has the premium over Germany, on the one hand, and Spain on the other.