The Ghosts of the Debt Crisis Still Haunt Europe: Balance of Power

(Bloomberg) --

The idea of Italy losing control of its gigantic debts is the nightmare scenario that haunted European leaders throughout the financial crisis that threatened to tear the euro region apart over the past decade.

Italy’s 2.3 trillion euros in liabilities has led officials across Europe to question whether the euro area would be capable of rescuing its third-biggest economy.

The European Central Bank’s quantitative easing program has worked hard to allay those concerns, pumping more than 2 trillion euros into the bond market over the past three years to ease financial tensions.

But Italy wound up right back where it started this week, with 10-year yields at their highest since 2014.

The ruling populist coalition has shown scant concern for the investors who’ll have to finance its tax cuts and benefits or the warnings from the rest of Europe of the price of budget decadence.

“I don’t give a damn” about threats from outsiders, Deputy Prime Minister Matteo Salvini said today on Canale 5 television. “I answer only to Italians.”

With voters in the north as tired of bailouts as those in the south are of budget rules, the politics of solidarity have only become more complicated. The question is how intense the market pressure has to get before the Italian government comes into line.

The Ghosts of the Debt Crisis Still Haunt Europe: Balance of Power

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What to Watch

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  • Britain and the European Union will begin a frantic week of diplomacy today aimed at thrashing out the final shape of the Brexit deal. U.K. Prime Minister Theresa May will give her speech at the annual Conservative party conference in Birmingham just before noon.

  • U.S. Secretary of State Michael Pompeo will travel to Pyongyang on Sunday to meet with Kim Jong Un and prepare for a second summit between Trump and the North Korean leader.

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The Ghosts of the Debt Crisis Still Haunt Europe: Balance of Power

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