Italy’s president, Sergio Mattarella, asked Renzi to stay on as prime minister. Renzi agreed to do so until a budget is in place, likely later this week.
The vast majority of the population wants an immediate election, but Mattarella wants another technocrat. Voter be damned, Italy’s 4th consecutive technocrat prime minister is coming up. I am available, and waiting a call.
The first mission of the new technocrat will be to pass legislation that will make it much harder for Beppe Grillo’s Five Star Movement (M5S) to get into power. Voters be damned again.
Exit Stage 3 Delayed
Please consider Renzi agrees to delay resignation until after budget vote.
At a meeting in the presidential palace in Rome, Mr Renzi expressed his intention to resign after suffering a bruising defeat in a constitutional reform referendum held on Sunday. But Sergio Mattarella, the Italian head of state, asked him to freeze the resignation until the budget is approved, according to a statement from Mr Mattarella’s office.
One Italian official said the budget could be approved within a week, after which Mr Mattarella would begin the formal talks on picking a new prime minister. The 2017 budget law has been passed in the lower chamber but not yet in the senate.
The two populist leaders with eyes on Mr Renzi’s job — Beppe Grillo, head of the Five Star Movement, and Matteo Salvini, leader of rightwing Lega Nord — have called for immediate elections, though Mr Mattarella is unlikely to go that route.
Instead of calling elections, Mr Mattarella is expected to choose a technocrat to take over as prime minister. Among the likely candidates are two senior figures in the country’s establishment: Pier Carlo Padoan, finance minister, and Pietro Grasso, president of the Italian senate.
Mr Renzi’s comprehensive defeat could also have consequences within his Democratic party that may complicate the transition process. There is increasing speculation that he may be forced to quit as leader of the centre-left party. Mauro Baragiola, a political analyst at Citi, said the party was at risk of splitting into pro- and anti-Renzi camps following the referendum.
Mission Number One
As a Defeated Renzi Falls on His Sword, the primary mission of the new technocrat is to screw Beppe Grillo. The financial times offers this color commentary blast of Grillo:
Mr Renzi’s successor will steer through parliament substantial revisions to a badly misguided electoral law that came into force in July. The changes will almost certainly remove clauses that award bonus seats to the party that wins parliamentary elections.
In this way they will block the anti-establishment Five Star Movement, which is within shouting distance of the Democratic party in opinion polls, from seizing control of the legislature. For anyone disturbed by the movement’s half-baked notions of withdrawing Italy from the eurozone, and bemused by the utter mess that it is making of governing Rome after its municipal election victory in June, it will be a relief that Mr Renzi’s defeat offers a way to keep the keys of national power safely from the Five Star Movement’s grasp.
Don’t Worry, Be Happy
With worries over Beppe Grillo about to be shoved to the back burner, Jeroen Dijsselbloem, president of the eurogroup, says he is confident Rome can deal with the poll result’s financial fallout.
Dijsselbloem says No Emergency Intervention Needed.
European financial markets have “so far reacted quite calmly” to Italian voters’ rejection of constitutional reforms and no emergency intervention is needed, the head of the group of eurozone finance ministers said as the euro and bank shares rebounded from morning lows.
Jeroen Dijsselbloem, president of the eurogroup, said he was confident Rome had “strong institutions” that could deal with the financial fallout from the referendum vote, and expressed confidence Italy’s struggling banks would weather the storm.
“If this is the market reaction, it doesn’t seem to require any emergency steps,” Mr Dijsselbloem said in response to a question about whether the European Central Bank should intervene ahead of a eurogroup meeting in Brussels.
Count the Lies
“Italy is a strong economy, is one of the largest economies in the eurozone, it’s a country with strong institutions,” said Dijsselbloem.
If you scored strong economy and strong institutions as lies, you scored it like I did. If you did not peg strong economy as a lie, you are in fantasyland. And of course, Italy is the third largest economy in the eurozone.
State Bailout Coming Up
The referendum makes it likely Italian banks will be able to raise required capital. Thus, Monte dei Paschi Readied for State Bailout.
While financial markets responded relatively calmly to the referendum result, people briefed on the situation said the political upheaval made it “more difficult” to secure a €1bn investment from Qatar on which Monte dei Paschi’s €5bn capital-raising plan hinges.
Senior bankers fear that a failure to shore up the bank, which was the worst loser of this summer’s European bank healthcheck, could damage already jittery investor confidence about Italy’s overall banking sector, which is hobbled by €360bn of bad loans and weak profitability.
JPMorgan Chase and Mediobanca, advisers to Monte dei Paschi, have been working with Pier Carlo Padoan, Italy’s finance minister, to persuade the Qatar Investment Authority to pump money into Italy’s third-largest lender. But hope is fading that they can secure a deal by this week’s deadline.
Without the cornerstone investment from Qatar, the other parts of the complex plan to fill the bank’s €5bn capital shortfall are likely to collapse.
“They are desperately seeking to accelerate a solution but it is being done too late. This problem should have been resolved months ago,” said one large investor in Italian banks. “If Monte Paschi’s deal fails, you are only going to see prices going down across the sector,” this person added.
Under that scenario bankers see an expected €13bn equity raising at UniCredit, Italy’s largest bank, being priced at a low valuation, and midsized lenders Carige, Banca Popolare di Vicenza and Veneto Banca potentially struggling to raise the at least €3.5bn in additional capital they need.
With €360 billion in nonperforming loans, much of which is worthless paper, it’s amusing to see everyone worried about ability of various banks to raise €1 or €5 billion here or there.
Monte dei Paschi has already burnt through €8bn raised in the past four years, it’s ridiculous to pretend that another €1 from Qatar will do anything but delay the problem a few months.
M5S, Northern League Coalition?
Even if new anti-M5S legislation is passed, the nannycrats are not out of the woods. Both the Northern League and M5S are anti-euro.
In the past Beppe Grillo has avoided coalitions, but politics makes strange bedfellows. The two parties are talking, thus the urgency of mission number one.
Mike “Mish” Shedlock
