Italian drama – a 5 star review

It certainly feels like it’s time to dust off the euro-area crisis playbook from the 2010-12 period. Italian President Mattarella’s recent decision to veto the M5S/LN’s choice of finance minister, Paolo Savona, has seen the end of talks for a coalition government. This means new elections with likely emboldened anti-establishment parties. Markets have been unnerved, with Italian 10yr bond spreads breaching 300bp at one point and 2yr yield levels breaching 2.5% – because ECB depo rates are at -0.4% investors are getting very concerned about Italy’s fiscal position.