Italy Politics Will Shake The Market
With the focus on Trump’s Trade War and its potential fallout in other emerging markets, traders forgot about the Italy and the Eurozone. Yesterday the Italian Government agreed to a 2019 budget deficit target of 2.4% of GDP that could bring it into direct conflict with the European Union. It will now begin its passage through Parliament before being presented to EU by 20 October 2018.
This blog believes that the current Italian government is
likely to trigger a renewed existential crisis in the Eurozone
Compared with other countries in eurozone , Italy has recorded almost no growth
since the formation of the euro at the beginning of 1999. Italian real GDP has risen by only an
annualised 0.4% since 1Q99 and is up only an annualised 0.1% in real GDP per capita terms over the
While pundits are worried about Trump-triggered trade war, rising interest rates or overvalued
Wall Street FANG stocks Ths blog believes that a systemic event in financial markets is more likely to be
triggered by Italy and the Eurozone . Still, they are all interconnected phenomena since, for example, a renewed focus on the existential risks in the Eurozone is likely to put renewed downward pressure on the
euro which will then lead to strong US dollar.
This will in turn make it more challenging emerging countries to pay their debts. Similarly, an escalation in trade wars are likely to drive the US dollar higher.
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