This week, the amount of government debt of Italy at the end of June was published: 1,972 billion euros. By this time it must have exceeded 2,000 billion euros ($2.4 trillion).
Mario Monti, the Prime Minister cum Minister of Finance, toured the capitals of Europe to obtain support for Italy, indicating that Italian sentiment would turn anti-Euro without such help. He chose Berlin to accuse Germany of profiting from the European sovereign crisis. Needless to say, it immediately backfired. It was, to put it bluntly, particularly stupid. In an interview with the Wall Street Journal he stated:
What we ask is that European authorities certify Italy's good conduct by translating that into interventions to keep spreads within reasonable limits. I have often told Merkel that, if this isn't done, she risks finding herself before an Italian parliament that repudiates Europe, monetary stability and the euro and is not friendly toward Germany.
What is worse, however, is that he sent completely contradictory messages: he said that the European crisis was reaching the end of the tunnel.The reality is much scarier: Italy is facing 500 billion euros of refinancing and deficit financing between now and the end of 2013. The measures taken by the Italian Government did not translate into an interest rate decrease, let alone a debt decrease.
When he states that Italy does not need a bail out he is right: not that Italy is not in need, but that there is no way the current resources, even if they were entirely allocated to Italy, would be sufficient to bail the country out.
Consolidate the Italian debt.
What is currently missing, however, is a serious crisis debt management. It would be perfectly possible to launch a consolidation bond issue, open to holders of 2012 and 2013 debt. With a maturity of 5 years and an interest rate of 5 percent it would not require any haircut from the banks and it would help the country bridge the reimbursement gap of the next two years.
But Italy is scared to propose what would be a voluntary transaction. Should there be an increase in its refinancing rates, it would be a disaster.
This lack of debt management might create the perfect conditions for a European tornado that would affect global markets everywhere. France would definitely be next.
The main source of discontent for the investors is not only those facts. It is the benevolent way with which the Italian Treasury is handling the problem, shortening the maturities of its bonds,and not increasing its refinancing risk.
We are talking about actions, not words. E la nave va...
Follow Georges Ugeux on Twitter: www.twitter.com/Ugeux