Italy: a coming Black Swan?

Quite a day for Italy, a brief recap of the recent events:

UniCredit was two hours ago down over 8%, well beyond the 6.5% when it was halted at by the Milan Stock Exchange Authority and it keeps falling.
Banco Popolare was halted and unhalted and is now down 6%.

Spread on Italian Bonds reached historical highs to 245 with 10 years bonds up to 5.36%, a doom and gloom threshold was set only few weeks ago to 5% by most analysts.

Italian Stock Exchange closed down almost 3.5%

On the political side the situation inside the Italian Government is melting down faster than Unicredit stocks.

Tremonti the Finance minister is having an hard time passing an austerity package with an almost open riot inside the government who is unwilling to support cuts given the recent defeat in local elections and the crumbling popularity of Berlusconi. Tremonti has threatened to resign if the austerity package is not passed and Berlusconi signalled before today that he would gladly accept his resignations.

And if it was not enough Mr. Tremonti is now involved in a fraud and bribery investigation where a former aide Marco Milanese has been arrested and it has come out that the Roman residence of Tremonti (rental price 8000 euros per month) was paid by his former aide directly, the situation is evolving fast and Mr. Tremonti was interrogated today by judges in relation to this and other undisclosed issues.

One more among countless investigations and trials that are involving almost every member of the Government.

The only good news was Mr. Berlusconi interview yesterday where he expressed his intention to leave his party and not to run in the next election in 2013 but even that was promptly put in doubt.

The Government has avoided this time to go again with the usual "we fare better than the majority of Europe" and "everything is under control" propaganda to avoid adding insult to a dangerous crisis.

Mr. Berlusconi has assured that an austerity package will be passed before summer to calm down the markets, quite laughable considering his recent fights with Tremonti while pushing for tax breaks and loosened spending budgets.

Tension inside the Italian government is running viral with insults, fights, trials, arrests and corruption spreading and involving almost everyone.

Italian news are reporting arrests of local and national political and business figures every day now, with levels of corruption and bribery reaching new historical highs surpassing even levels seen in the late 80s during Tangentopoli (Bribesville was the chain reaction of arrests that put an end to the so called First Republic and brought Berlusconi on the political stage).
In the meanwhile the recession is biting hard with families' spending power collapsing, prices surging and unemployment and under-employment reaching scary levels especially among young people.
The recent economical turmoil on the bond and stock markets is clearly signalling a dangerous situation in Italy which is getting closer to Spain while in some cases has already overtaken it.
If markets will not receive a strong signal from the Italian government soon we could have chaos even before August.


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