Good morning, it's Paul here.


Italy again

Italy is being much more widely covered in the UK media now. Certainly it's the main topic that I'm reading up on, and thinking about. - in terms of how it may affect my portfolio. The political aspect of it all is only of passing interest. I'm more focused on how it could decimate my portfolio, and what action I can take to protect myself. So just to clarify, Twitter is the place to rant about the political stuff. Stockopedia is the place to have sensible debate about the markets & financial impact of various scenarios which might play out re Italy. It's all guesswork at this stage.

The more I think & read about Italy, the more I feel that the so-called populist parties are making promises they can't deliver on. They want to stimulate the Italian economy by dramatically increasing the budget deficit (more spending, and tax cuts), which would breach Eurozone rules.

Italy knew what it was signing up for, when it joined the Euro. Plus, if Germany allows Italy to breach spending rules, then other countries may well follow suit.

There's a fascinating account from Varoufakis in "Adults in the Room" of a (recorded) meeting of the Euro Group. He said that France, Portugal, Spain, Slovakia, etc, were so terrified of sanctions being imposed on them, that they made a great show of support and loyalty towards Wolfgang Schaeuble - who comes across as a monstrous bully in the book - but I suppose that is inevitable given that the author was the one being crushed.

What's even more interesting, is that both the Euro Group, and the IMF, knew full well, and openly admitted to Varoufakis, that they knew the Greek bail outs would not work. The agenda wasn't about helping Greece though, it was about saving the French & German banks which owned a lot of the Greek debt.

We already know from the Greek experience, that the main decisions are made in the Euro Group, and the ECB. Both are completely dominated by Germany. Their standard approach is to withdraw support for any recalcitrant member. The nuclear option, if the rebel state still won't fall into line, is to close their banks by switching off their liquidity. This is combined with aggressive briefing against individual opponents (and pushing for their removal/replacement) to undermine strong…

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