Could Italy Rekindle The Eurozone Crisis?

THE narrative running through coverage of the euro zone seems to have shifted on the back of recent policy moves. Last week's coordinated liquidity intervention gave a significant boost to equity markets. European Central Bank head Mario Draghi kept the momentum going a day later, by suggesting that should euro-zone leaders reach an agreement on fiscal integration, "other elements might follow", a seeming reference to stepped up ECB bond-buying.

Société Générale's bearish strategist Albert Edwards devotes a fair amount of space to Italy in his latest strategy note out this morning. Edwards notes that while European stocks look cheap, Italian stocks look especially cheap on traditional valuation metrics.

On June 1, former Italian Prime Minister Silvio Berlusconi said "Italy should dump the euro unless the European Central Bank agreed to inject more cash into the economy". One day later Berlusconi said the idea Italy should dump euro was a "joke".

ROME — The front-runner to become Italy’s next prime minister warned Friday of a Greek-style social and economic meltdown unless austerity measures were maintained. Final rallies in Rome, Naples and Florence ahead of Sunday’s general election brought a flurry of last-minute appeals to a deeply-disillusioned nation. Polls suggest as many five million Italians have not made up their minds which party to support in the election, which will be held over two days in a country hit by a series of corporate and political scandals.

When Mario Draghi (now ECB President), had oversight of the Italian bank system as Bank of Italy Governor, the Italian bank Monte dei Paschi di Siena (Italy's third largest bank) hid information on the derivatives transactions between 2006 and 2009. This information is just now out, and shares of the bank have plunged 22% in a few days. Mario Draghi ought to be under fire, but he says it's a "Matter for the Italian Authorities". The Mish translation is "It's a Matter for the Italian Authorities, to Sweep Under the Rug".