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The Financial Times reports EU Rejects Italian Budget in Unprecedented Rebuke.

Polite "Screw You"

The EU gave Italy three weeks to submit a new budget. Italy promptly ignored the EU's demand with a firm, but polite "Screw You" message.

> ​Italian leaders said the government would “not give up” on its plans. “We know that, if we were to surrender, we would quickly return to the pro-bank and pro-austerity ‘experts’,” Luigi Di Maio, deputy prime minister and leader of the Five Star Movement, said on Facebook. “And so we will not give up. We know that we are on the right track. And so we will not stop.”

The BBC has additional comments of note in its report Italy budget: European Commission demands changes

> "This is the first Italian budget that the EU doesn't like," wrote Deputy Prime Minister Luigi Di Maio on Facebook. "No surprise: This is the first Italian budget written in Rome and not in Brussels!"

> His co-deputy PM Matteo Salvini added: "This doesn't change anything."

> "They're not attacking a government but a people. These are things that will anger Italians even more," he said.

Big Threat

So far, Italy has downplayed threats of leaving, but did mention them. In contrast, Greece made huge threats and failed to act.

The Greek government never had support of the people to leave the Euro.

Italy doesn't either, at least as of a June 15 Bloomberg article: Italian Support for Euro the Lowest Among Peers.

But with every EU confrontation, support for the Five-Star (M5S) and Lega (LN) coalition rises as shown by the latest polls.

The combined total is nearly 60%. Both parties are Eurosceptic.

The difference between Italy and Greece is huge, not only because of the size of the countries, but also because the populist support.

Upper Hand

Who has the upper hand?

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It depends on how far Italy wants to take it. If Italy is willing to leave the Eurozone, then Italy far and away has the upper hand.

In a series of four Tweets, Tom Luongo, @tfl1728, agrees.

Luongo referred to my article "One Size Fits Germany" Math Impossibility, Get Your Money Out of Italy Now!

Here are the key charts.

ECB's One Size Fits Germany

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Target2 Imbalances

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  1. Italy owes creditors, primarily Germany, nearly 500 billion Euros.
  2. The more pressure the EU puts on Italy, the higher Italian bond yields are likely to rise.
  3. The higher Italian bond yields rise, the more likely debt downgrades will come. Moody's currently has Italy just one notch above junk.
  4. If Italy is downgraded to junk, its bonds can no longer be used as collateral for ECB support.
  5. Lega and M5S will blame Brussels and the ECB, and the Italian people will likely buy that story.


This is how one slowly careens towards a Eurozone exit while publicly gaining support for the process.

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Mike "Mish" Shedlock