HERE we go again. Financial markets don’t much like uncertainty. Thanks to Italy’s politicians, in recent days they have had plenty. By May 30th some calm had returned: it seemed possible that a pair of populist parties, the Five Star Movement and the Northern League, would form a government after all (see article). Markets had been in turmoil for two days, unsettled by a farcical back-and-forth between the populists and the country’s president, who had rejected the parties’ choice of a Eurosceptic economist as finance minister. The politicians may have done the markets a service, by shaking them out of complacency. Investors may have returned the favour, by shaking some sense into the politicians—at least for now.
Italy is perennially slow-growing and groans under public debt of around €2.3trn ($2.7trn), or 132% of GDP. The drama…Continue reading