Trump's actions make German politicians of all stripes more committed to Europe. Mainstream German parties realize they need the EU more than ever.
The Italian government will do whatever it takes to remain in the Euro. When others outside of government talk about Italexit and the like, it is meaningless. That's the message Tria is sending.
At some point, the ECB will likely be called into action. And they will give Italy an ultimatum on the fiscal front, just as they did with Greece.
This post was originally published on Patreon on 30 May 2018 Yesterday I said that I believed the Italian meltdown presented a buying opportunity because it was not existential. And today, calm has returned, actually sooner than I had…
Fiscal policy space is limited first and foremost because of the threat of default. So governments are forced to act pro-cyclically.
For now, think of Italy as a short-term risk-off trigger that has limited longer-term impact. To me, this presents a buying opportunity.
As a member of the euro area, Italy has no monetary sovereignty. The only thing keeping its debt yields low is the implicit backstop of the ECB. But because of the political turmoil, this backstop is now in question. And Italy could default…
Policy divergence is the driver of market vulnerabilities. The longer the US stands alone in tightening policy, the greater the stress on the financial system.
Since Emmanuel Macron’s election as French president in May 2017, hope has lingered that a mythical friendship between France and Germany will help complete the gaps in the euro area architecture. As this column discusses, however, history…