Italy the Next to Reconsider EU?

Italy the Next to Reconsider EU? by James Politi. Italy’s anti-PC populists are rising enough in the polls to threaten winning government, and maybe lead to Italy abandoning the euro.

The populist Five Star Movement has emerged as Italy’s leading political party, overtaking Matteo Renzi’s ruling Democratic party (PD) in four separate opinion polls that have exposed the growing vulnerability of the country’s centre-left prime minister.

The primacy of the Five Star Movement, which is led by the sardonic comedian Beppe Grillo and has called for a referendum on ditching the euro, reflects a shift in public opinion against Mr Renzi that will heighten fears of a return to political instability and uncertainty in the single currency’s third largest economy.

Several big Italian banks are on the verge of bankruptcy — indeed they probably already are, but authorities are looking the other way while rescue talks go on. But Italian Prime Minister Matteo Renzi says German megabank Deutsche Bank is in worse shape:

In a surprising admission of reality, none other than Italy’s prime minister Matteo Renzi, “went there” and slammed Deutsche Bank as the true “derivative problem” facing Europe.

As Reuters adds, speaking at a joint news conference with Swedish Prime Minister Stefan Lofven, Renzi said other European banks had much bigger problems than their Italian counterparts.

“If this non-performing loan problem is worth one, the question of derivatives at other banks, at big banks, is worth one hundred. This is the ratio: one to one hundred,” Renzi said

So just like that the Mutually Assured Destruction doctrine is activated, because now that Deutsche Bank’s dirty laundry has been exposed for all to see, Renzi’s gambit is clear: if Merkel does not relent on bailing out Italian banks, the collapse of Italian banks will assure the failure of Deutsche Bank in kind.

All the banks are entwined by derivatives. If any big bank dies, it could easily trigger a chain reaction that brings down Europe’s banks and also the rest of the world’s banks. For Australian readers, in 2008 Westpac and NAB were bailed out by the US Federal Reserve, even while Treasurer Wayne Swan was telling the public our banking system was fine. Massive bank failure would be one way to fix the huge debt problem the world has, though I wouldn’t recommend it.