This past week in Italy saw the two primary victorious populist parties from the early March elections reach a binding coalition agreement that will increase spending on the Italian poor all the while dramatically cutting taxes. It represents a real slap in the face to the establishment politics and policies of the European Union. Italy is the first major economy and founding member of the EU to go over to the anti-EU populists. It likely will not be the last one. The euro swung wildly as investors tried to ascertain if the Italian president actually means to veto the plans of the populist coalition in forming a government.
This is only the latest example of why you need a gold IRA. Gold makes imminent sense these days because it protects against market turbulence like we are witnessing in Italian bonds and stocks. These important markets will easily impact the rest of Europe and could quickly spread their contagion across the pond to the U.S. markets as well. Time to look into what gold goes in an IRA while you still have some breathing room in the midst of this latest developing geopolitical chaos in Europe.
Italian Populists Come to Terms to Govern the Third Largest Euro Zone Country
Markets were recently caught off guard almost as much by the agreement deal reached between bitter right wing rivals the Northern League and left wing champions the Five Star Movement as they were by the populists stunningly convincing popular victory at the polls in early March. It has been an agonizing two months of watching bitter back and forth bickering between the two parties as they sought to hammer out an accord that would make it possible for them to co-govern Italy.
In the end, it all came down to an intense and tense ten days of fraught negotiations that saw Five Star movement head Luigi Di Maio settle his outstanding disputes with League boss Matteo Salvini. They posted their joint program online and put it to the Italian people to vote on it. The program flies in the face of traditional EU politics and policies with its call for a stringent review of the budget rules for the EU, promise to undo pension reforms (which increased the minimum age of retirement), and call for a complete reversal of Russian economic sanctions.
As much as the platform is revolutionary for Italian politics, it is also costly. Former International Monetary Fund high ranking official Carlo Cottarelli stated that this ambitious agenda will likely run as high as 126 billion euros (or around $150 billion). Topping off their thoroughly non-traditional approach to governing, the two parties have nominated a politically untested and unknown law Professor Giuseppe Conte to be the Italian prime minister.
Italian Bond Yields Respond Vigorously
The response from nervous Italian and European bond and stock markets was pronounced. Italian bond yield have been gyrating wildly higher. The Italian 10 year spread versus Germany’s bunds has widened by as many as seven big basis points to as high as 173 basis points between the two pairs of European bonds.
It was this imminent prospect of the first anti-EU populist government ruling a founding member of the block that sent shock waves across an EU still trying to soldier on into the painful post-Brexit reality. The group barely managed to survive the Euro Zone debt and sovereign bond crisis of 2012 only to emerge wounded in its efforts to challenge American President Donald Trump’s America First policies.
Now a totally untested in government Florence University law Professor Conte will be the new prime minister for the non-traditional Italian coalition ruling government. Aside from proving himself in the role personally, he will have to oversee a coalition (fraught with tensions) that possesses a bare majority in the Italian Senate. All the while, Conte will be forced to navigate the treacherous Machiavellian morass of Italian government and politics. It will not deliver an easy or predictable outcome for Italy and Europe.
The markets hate such instability most of all. This chart below shows how Italy’s borrowing costs are now greater than those of developing Southeast Asian country Indonesia:
Italy is no stranger to chaos in its governments and politics. The parliamentary democracy has witnessed the rise and fall of 18 prior parliaments and fully 64 individual governments since the conclusion of the Second World War. Governments fall every time they lose a single vote of no confidence.
Rumors of the Populist Agenda Have Terrified Italian Markets
In the past two weeks, the League was forced to put down disturbing reports plaguing the markets that it was looking for a 250 billion euros (or nearly $300 billion) write down of the country’s massive national debts. The credible source for this report came from the Huffington Post Italy. It may be that this policy was part of an earlier rough draft platform the Post obtained around May 14th.
If so, it has been dropped for the present. The Economic Spokesman of the Northern League denied such reports had ever been under consideration or in the rough draft. It remains to be seen what anti-fiscal reform and EU policies the two parties will advance once they are in absolute power here.
The report also claimed that the two parties were seeking a new mechanism that would enable present member nations to leave the Euro Zone. Rocketing bond costs did not phase Northern League Leader Matteo Salvini, who announced that changing Italian bond yields do not intimidate him whatsoever.
Yet once again, that report proved sufficient to force borrowing costs in Italy significantly higher the day it was revealed. Investors are already skittish about lending the new Italian government more money. This fear was reflected in 10 year Italian paper at two month long highs of 2.003 percent and two year bond paper yields rising to .007 percent.
Investors are increasingly concerned that this political breakthrough between the Five Star Movement and the Northern League will mean additional fiscal backsliding. Given what we know of these two parties and their stated agendas, they are right to be worried.
As the Third Largest Economy in the Eurozone Italy Matters Hugely
The long held in check fear of European Brussels bureaucrats of a ruling populist government in one of the three or four largest and most important EU countries has at last been realized. The governing elite ignored the cries of the men and women on the street too long. Now it has come back to haunt them with brutal force.
Italy’s government and financial condition matters enormously not only for the future of the European project and still-reeling EU, but also for the entire world. As a G7 nation with an enormous and toxic banking system, the third largest Euro Zone country and fourth largest overall economy in Europe also possesses the second greatest percentage of public debt to GDP. This 130 percent ratio puts it second only to Greece.
Yet the absolute debt of the Italian government is enormous and far more potentially devastating to the world than Greece’s could ever dream of becoming. Add in a deadly cocktail of hundreds of billions more in bad Italian bank loans hamstringing their balance sheets. Now you have a sure recipe for a true financial disaster that could even be a major trigger for the next Global Financial Crisis and worldwide Great Recession.
Gold is the financial lifeline that you need to safeguard your retirement portfolio today. Now you know why you need to invest in gold. You should start thinking about your storage options for future gold holdings right away. The IRS has specific requirements for Gold IRA rollover rules and regulations as well.