Italian Bonds Slide After Italy's New Prime Minister Spooks Markets With "Radical" Plans

The eye of the hurricane may have passed over Italy and the winds are again starting to pick up speed, because shortly after Morgan Stanley laid out what a worse case scenario for Rome could look like (ugly, read here), Italian bonds started selling off again, with 2Y yields rising to session highs following Italian premier Conte's inaugural speech in which the populist premier spooked markets by reiterating that the new populist government will pursue a radical policy program, and highlighting legislative priorities that will be extremely costly - including the right to universal income, minimum wage, overhauling the healthcare system, prioritizing social rights, and so on - all without saying just how these will be paid for (spoiler alert: much more debt).

Conte also said that a new flat tax would be introduced, even if no timeframe has been provided, and there was no mention of avoiding the hike in sales taxes which is currently planned for 2019, or canceling the "Fornero" pension reform.

Amusingly, in the speech Conte also said that he plans on reducing public debt, although in light of the surge in spending which will not be financed with increased revenue, it is not clear how that can be achieved. As Bloomberg economist Stephanie Flanders notes "Italy cannot convincingly cut its public debt as a share of GDP without reasonable growth in nominal GDP (real growth plus inflation). Even the more optimistic forecasts do not point to nominal GDP growing much faster than 2.5% in the foreseeable future. By contrast, the average cost of its public debt is 3.1%."

A much more important chart is the following from Morgan Stanley showing what would happen to Italy's debt/GDP if interest rates rose even modestly from their artificially low levels.

As a result of Italy politely reminding the world that nothing has changed since the start of last week when the world woke up to the reality of a populist government in Europe's 3rd largest economy, Italian 2Y yields have spiked....

... with the move starting to seep across the Atlantic, sending the dollar to sessions highs...

... and 10Y yields back to lows.

Via Reuters, here are the key excerpts from Conte's speech (link to full speech here), highlights ours:

INTRODUCTION

“Today we come before you to ask for your trust not only in a government team, but also in a project for the change of Italy.”

“I do not think this is simple novelty. The truth is that we have brought with us radical change, of which we are proud.”

“I take on this task with humility, but also with determination, with the awareness of my limits, but also with passion.”

“The political forces that make up this government have been accused of being ‘populist’ and ‘anti-system’ ... If ‘populism’ means the ruling class listens to the needs of the people ... (and) if ‘anti-system’ means to aim to introduce a new system, which removes old privileges and encrusted power, well these political forces deserve both these epithets.”

EUROPE AND PUBLIC FINANCES

“We want to reduce the public debt, but we want to do it by increasing our wealth, not with austerity that, in recent years, has helped to make it (public debt) grow.”

“Italian public debt is fully sustainable today. However, its reduction must be pursued, but with a view to economic growth. Fiscal and public spending policy should be geared towards the pursuit of the objectives set for stable and sustainable growth.

“In Europe, these issues will be strongly pushed forward with the aim of changing its governance, a change already at the centre of reflection and discussion in all EU member states.

“We are optimistic about the outcome of these discussions and confident of our negotiating power, because we are facing a situation in which Italy’s interests ... coincide with the general interests of Europe, with the aim of preventing its possible decline. Europe is our home.”

PENSIONS AND CITIZEN’S WAGE

“The government’s goal is to provide income support for families most affected by socio-economic hardship. The support ... will be conditional on vocational training and job reintegration. We propose, in a first phase, to strengthen the employment centres.”

“We will also take action to help pensioners who do not have enough income to live in a dignified manner.”

“We need to cut the pensions and annuities of parliamentarians, regional councillors and employees of constitutional bodies ... The so-called ‘golden pensions’ are another example of unjustified privilege that must be opposed. We will intervene on pensions that exceed 5,000 euros per month when the sum has not been covered by the contributions paid.”

TAXES

“Our tax burden, combined with an excessive amount of bureaucracy, has a negative effect on the relationship between taxpayers and the state, and on the competitiveness of our country.”

“The goal is the ‘flat tax’, which is a reform with fixed tax brackets and a system of deductions that guarantees the progressiveness of the levy in full harmony with the principles of the constitution. This is the only way to bring about a drastic reduction in tax evasion, which will have benefits in terms of greater tax savings, greater consumer spending and investments, and increasing the tax base.”

IMMIGRATION

“We will end the immigration business, which has grown out of all proportion under the cloak of fake solidarity.”

“We will forcefully seek the overcoming of the Dublin Regulations in order to obtain the effective respect of the principle of equal distribution of the responsibility to set up an automatic system of obligatory re-distribution of asylum seekers.”

“We are not and will never be racists. We want procedures that determine refugee status to be certain and speedy, in order to effectively guarantee their (refugee) rights.”

FOREIGN POLICY

“First of all, we intend to reaffirm our convinced membership of NATO, with the United States of America as a privileged ally.”

“We will support opening up to Russia ... We will push for a review of the sanctions system, starting with those that risk humiliating Russian civil society.”

Fonte: qui

With Mike Pompeo, Trump Is Heading Into Dangerous Waters

Pompeo's promotion means a more hawkish, muscular American foreign policy in which force is used more readily and confrontation with Iran is likely

On Tuesday, US President Donald Trump fired Secretary of State Rex Tillerson and appointed the hawkish CIA chief, Mike Pompeo, to replace him.

Tillerson, who’d come to government service as the CEO of Exxon-Mobil, one of the largest energy companies in the world, often butted heads with Trump’s free-wheeling, chaotic style of decision-making regarding foreign policy.

Tillerson had also been severely criticised by both veteran US diplomats and members of Congress over his plans to vastly downsize the State Department and his inability to fill critical ambassadorial posts.

Trump’s inner circle

Pompeo served four terms in the House of Representatives representing Kansas, and is a member of the Trump inner circle. He is known to cater to Trump’s peculiar briefing style in which he dispenses with written material and receives his daily briefing in oral form with plenty of Powerpoint slides.

Pompeo holds extreme views on critical national security issues like Iran. While Tillerson spoke approvingly of the P5+1 nuclear deal, Pompeo attacked it mercilessly and derided the clerical regime. He tweeted: “I look forward to rolling back this disastrous deal with the world’s largest state sponsor of terrorism.”

He is known for taking positions which adhere slavishly to those of Israeli Prime Minister Benjamin Netanyahu. In further comments about the nuclear deal, Pompeo said:

“[It] won’t stop Iran from getting a nuclear bomb and places Israel at more risk. [The] theory that post-sanctions Iran will moderate is a joke – they want to annihilate Israel, now buying Russian missiles.”

No Iranian leader has ever explicitly called for the “annihilation” of Israel. When Iran’s leaders have offered seemingly bellicose statements about Israel, it is always in response to direct threats by Israeli leaders against Iran. Further, the nuclear deal was never meant to stop Iran from ever obtaining a nuclear weapon. It was meant to delay that process for a decade or more, which it has done.

Pompeo also raised a criticism of the Iran deal which had been dismissed out of hand by the Obama administration as unreasonably draconian:

“Ceasing to call for the destruction of Israel should have been a condition of the Iran Deal – along with release of innocent American hostages.”

This represents the Israeli “kitchen-sink” approach to torpedoing negotiations: you throw every possible demand into the kitchen sink knowing your interlocutor will object. Then you walk away blaming him for the impasse. That offers you the opportunity to adopt a more aggressive approach against him.

Islamophobic views

Pompeo’s nomination is opposed by the leading national Muslim-American group, the Council on American-Islamic Relations (CAIR), which noted his harshly Islamophobic views. He received a major award from ACT for America, an organisation designated by the Southern Poverty Legal Center as a hate group.

CAIR released this statement:

“Those, like Mr Pompeo, who have expressed Islamophobic views and have been associated with an anti-Muslim hate group…should have no role in our nation’s government, let alone at the highest levels of policy-making,” said CAIR national executive director Nihad Awad. “These appointments have the potential to harm our nation’s image and our relations with key players in the international community.”

Returning to the nuclear deal, Trump himself has not cancelled it. But with Pompeo’s promotion, the world can expect an elevation in the hostile rhetoric from the White House, and now State Department, against Iran.

Not only might the nuclear agreement be cancelled, but the US may support actual military action either against Iran directly or against its forces fighting in Syria. It’s conceivable that the US might intervene more forcefully in Syria, as has Russia.

Interestingly, Netanyahu visited the White House last week and had talks with Trump. Presumably, Syria and Iran were high on their agenda. An Israeli journalist writing in Maariv discussed the threat represented by several major corruption scandals besetting Netanyahu.

He alluded to the possibility of a military confrontation with Iran regarding Syria, which could be a prelude to new elections.

Separately, a confidential Israeli source told me that the nation’s security cabinet met last weekend to deliberate on a “major military operation” in Syria, presumably to confront the forces of Iran and its regional ally, Hezbollah. It’s reasonable to assume that Netanyahu, at the least, sought Trump’s approval for the attack; and at the most sought American participation in it.

All of this means a more hawkish, muscular American foreign policy in which force is used more readily and more aggressively. Tillerson’s dismissal may also lead to the sacking of other figures in the Trump national security team who haven’t adapted to the Trump “style”.

Among them could be National Security Advisor HR McMaster, who lately has been regularly reported as on his way out. Though McMaster has been known too as a hawk on Iran and North Korea, he has been pragmatic and buttoned-down in his approach to national security. This has conflicted with Trump’s fly-by-the-seat-of-his pants approach.

Another hardline, anti-Islam addition

The addition of another hawk such as John Bolton into the mix (he has been touted as a replacement for chief of staff John Kelly or McMaster, should he be fired) could send US foreign and national security careening into uncharted waters. Bolton is known for his strident anti-Muslim views.

Bolton was particularly popular among a small but influential group of hardline anti-Islam activists, the “counter-jihad” movement, who believed the US government was being infiltrated by Islamists and that Islamic law was quietly taking over the US legal system.

He has been allied with arch-Islamophobe, Pam Geller, and wrote a forward to her book espousing her crackpot views. He was one of the Bush administration officials who trumpeted the false claim that Iraq’s Saddam Hussein had nuclear weapons.

He also shares Pompeo and Trump’s harsh views on Iran. In a 2015 New York Times op-ed he advocated a military attack by Israel and/or the US on Iran’s nuclear facilities:

“Time is terribly short, but a strike can still succeed. Such action should be combined with vigorous American support for Iran’s opposition, aimed at regime change in Tehran.”

Clearly, Bolton does not believe in diplomacy. Rather, he prefers war and the aggressive projection of American power as the best means of securing American interests in the world.

With the accession of figures like Pompeo and Bolton to positions of power in the Trump administration, we face a nightmarish Dr Strangelove scenario. As you may recall, that film ends with an air force officer gleefully riding a nuclear bomb as it drops on its Russian target.

*

Richard Silverstein writes the Tikun Olam blog, devoted to exposing the excesses of the Israeli national security state. His work has appeared in Haaretz, the Forward, the Seattle Times and the Los Angeles Times. He contributed to the essay collection devoted to the 2006 Lebanon war A Time to Speak Out (Verso) and has another essay in the collection Israel and Palestine: Alternate Perspectives on Statehood (Rowman & Littlefield).

The original source of this article is Middle East Eye