I thought it might take the full two weeks. That is the time allotted by the European Union to accept or reject any nation's budget. I supposed that there would be agonizing and discussions and all manners of persuasion used before Italy's budget was flat-out rejected. After all, the EU has never rejected any country's budget before. It has always been a process. They have always tried the work-out solution first. Not this time though. This time it was a resonating, "No."
Yesterday, according to some economists at Deutsche Bank, Italy was squarely on a collision course with the European Commission. President Juncker said yesterday that there would be a "violent reaction" from other Eurozone countries if the Italian budget were to be approved. The German publication, Der Spiegel confirmed this when it reported that the "dispute between the EU Commission and Italy's populist government is entering the next round." EU Commissioner Guenther Oettinger stated that the EU Commission would reject Italy's 2019 budget plan, which is not compatible with EU rules.
It has been confirmed that Italy's budget for 2019 is not compatible with the commitments that exist in the EU.
- EU Commissioner Guenther Oettinger
The official rejection of Italy's budget in the form of a letter from Economic and Financial Commissioner Pierre Moscovici is due to arrive in Rome on Thursday or Friday. We have now entered a new Round of the stand-off. At precisely the moment that the EU's communication arrives will be precisely the moment when the fireworks show begins in Rome. We'll all see if we enter Dante's version of Hell but I can tell you that we have started down road and are past the front gates.
It was reported in the Press that Goldman said that Italy is not the only country to deviate from the EU's country-specific recommendations and be in breach of the fiscal rules. They also said that France is also non-compliant with the public debt rule. "That said, the French budget does not breach the expenditure benchmark rule; moreover, France can justify its deviation from the structural adjustment path on the basis of the structural reforms it is implementing," Goldman stated in their note.
This morning the 10 year Italian sovereign is trading at a yield of 3.58%, which is up 107.70% in the last three months, according to Bloomberg data. This is the highest yield level for the last month and it is signaling what is to come, in my opinion. We are entering a new Round in the battle between the EU and Italy's nationalistic government. I continue on with my warning, stay away from Italy and from the banks and corporations that reside there. This game isn't even close to being over.
I, answering in the end, began:
Alas, how many yearning thoughts, what great desire,
have lead them through such sorrow to their fate?
- Dante Alighieri
The question, you see, is whose fate is going to be put in jeopardy. It will either be the Italian's fate or the European Union's fate. It is going to be one or the other. There is virtually no compromise position between the desires of both parties. The people in Berlin and Brussels want to head in one direction and the people in Rome want to go in another direction entirely. There is virtually no way to bridge this gap.
On the surface it appears to be a question of money. Underneath the surface though, it is a question of ideology. Will the Italians govern Italy or are the decisions to be made in other countries for the good of the monetary union? Who rules? That is the premise of the most basic question and the premise for what is going to happen next.
Soon you will be where your own eyes will see the source and cause and give you their own answer to the mystery.
- Dante Alighieri, Inferno