The scale and complexity of the crisis Italy is sinking into is being underestimated both for Italy itself and for the European Union. This is illuminated by the absence of President Napolitano on a visit to Germany that had been arranged when elections were expected next May, and was not cancelled because so great was the conviction that the Monti-Bersani axis would win comfortably.
Yesterday Mario Monti was still prime minister and was holding unscheduled meetings with the Governor of the Bank of Italy, the Minister of Finance, the Cabinet and, it is reasonable to presume, spoke to Mario Draghi. The Head of State, interviewed in Munich, said he was still considering the results of the elections and looking forward to listening to the Parties' reflections on the results. He added that it was not part of his duties to comment on electoral results.
Considering that the capitalisation of the Italian stock exchange fell by 17 billion euros yesterday, the spread is now over 350, yields on ten year bonds are over 490* [see update] we might expect to have someone appointed Prime Minister and beginning negotiations with other parties to obtain votes of confidence in both Houses when the new Parliament meets. It is astounding that even the lists of those elected are not yet confirmed.
Italy has voted perfectly clearly: no more austerity, lower taxes, the drastic reduction of the size of the state at every level of governance and, vehemently, for the removal of Mario Monti from office. And what have we got? Mario Monti still prime minister, the Head of State out of the country, and a proto-communist pretending to being a negotiator of first resort with neither mandate nor electorally-conferred authority.
When the markets wake up fully to the levels of conflict between the elites and the vote of the people, and the unmarked routes to any resolution of these conflicts, Italy's debt and her borrowing costs will result in Germany going towards elections with Italy going towards default.
4 billion euros of ten year bonds taken this morning at 4.83%; risen from 4.17% in January, and the highest since last October.