02-12-2017, 01:37 PM
Concerns over the future of the European Union have increased as several key elections approach and issues surrounding sovereign debt remain. Italian, French and Greek government bond yield spreads over the German bund have reached new highs amid market nervousness that Europe could be back in a state of crisis. "Somehow the market is there already," Beat Wittmann, partner at Porta Advisors told CNBC on Wednesday.
European crisis: The markets are already there, says analyst
Any country leaving the euro zone would need to settle its claims or debts with the bloc's payments system before severing ties, European Central Bank President Mario Draghi said. The comment - a rare reference by Draghi to the possibility of the currency zone losing members - came in a letter to two Italian lawmakers in the European Parliament released on Friday.
Any country leaving euro zone must settle bill first: ECB's Draghi | Reuters
As of today, Italy can still switch half of its €1.9 trillion of traded sovereign debt to lira under the legal prerogative of Lex Monetae on roughly neutral terms, but the argument is that this calculus will shift as new debt with collective action clauses (CACs) displace the old bonds. Mediobanca's premise is that Italy is heading into a perfect storm as a host of troubles come to the boil and the Italian treasury runs out of buyers. The European Central Bank will soon start to wind down its programme of bond purchases, while new rules on tangible equity will force Italian banks to slash holdings of government bonds by €150bn. This will take place against a background of US monetary tightening and the Trump reflation shock. Everything is combining to push up real interest rates for an Italian economy still stuck in a low-growth deflationary trap.
The cost of leaving the euro is rising every month for Italy