Europe’s soft coup d’etat in Italy is a watershed moment

Italy’s pro-euro elites have overreached disastrously. President Sergio Mattarella has asserted the extraordinary precedent that no political movement or constellation of parties can ever take power if they challenge the orthodoxy of monetary union.  

He has inadvertently framed events as a battle between the Italian people and an eternal ‘casta’ with foreign loyalties, playing straight into the hands of the insurgent Five Star ‘Grillini’ and anti-euro Lega nationalists. He unwisely invoked the spectre of financial markets to justify his veto of euroscepticism. Taken together, his actions have made matters infinitely worse.

Risk spreads on 10-year Italian bonds jumped almost 30 basis points to a four-year high of 235 on Monday as investors woke up the horrible implications of constitutional convulsion: a rolling crisis through the summer that can only end in fresh elections that resolve nothing.

Much had been been made of falling bank bank equities over recent days. They are falling even harder now. Banca Generali was down 7.2pc, and Unicredit down 5pc.

Whether or not it is a ‘soft coup’, it is certainly dangerous territory. President Mattarella stated openly that he could not accept the Lega-Gillini finance minister - Paulo Savona - because his past criticisms of the euro “could provoke Italy’s exit from the euro” and lead to a financial crisis.