Italy's "clown" will not be attracted to the Euro in big trouble

Italian Parliament elections was announced. Two camps of the center-left coalition and the center-right coalition failed to get an absolute majority in the Senate, the star movement "party for the first time to participate in national elections in the electoral vote of the House and Senate are third. At this point, the Italian political arena form the three pillars of the situation, neither party may be dominant, the success of any party in power, both have to compromise with their most hated rivals.

Media predicted that in Italy this rambling, compromise is bound to a long and complex cycle, this cycle is bound to give the recovery in the euro area has brought many uncertainties.

At the moment, the sound of singing empty Italian economy after another. Even some people will this situation be compared with the Greek general election last year, the uncertain situation caused the rapid depreciation of the euro. However, analysts here say that the uncertain political situation in Italy, not only will not affect the economy of the euro area, but rather is a rare opportunity to do more.

Euro trembling before the line

Italy is famous clown kingdom, a professional clown school, and many tourist attractions have special temporary street stage for clowns. The ancient Roman times, the clown is the culture of the Apennine peninsula, an integral part.

Interestingly, the three factions forces after the election, there have been two "clowns". One temple master gods right coalition leader Silvio Berlusconi, a walking itinerant level the veteran star sport Party Grillo. Their appearance, the colorful Italian politics to become a real joy circus.

The two clowns tossing uncertain political situation in Italy, once the speculators flocked fled. Italy 10-year bond yield rose 0.5 basis points at once, has reached a level of 4.88%. German 10-year bond yields fell 0.1 basis points to reach a level of 1.46%.

Italian and German government bonds yield spread widening, look, this seems to be the euro and the euro zone economy is not a good news. Sovereign rating agencies are also eager and ready to re-shot, lowered Italy's sovereign credit.

Interestingly, a day after the lapse of the Milan stock market showed a significant upward trend, has 5% of the stock index in the fall on Tuesday, all of a sudden recovery of 1.8% of the lost ground, and kill a Parthian shot. At the same time, with the Fed Bernanke speech Dongfeng, the euro start the trembling small step amble higher.

Analysts believe that no matter how frustrating, Italy's "clown" who they are aware of their own bottom line, that can not affect the European Central Bank President Mario Draghi announced in September last year, plan direct currency trading (OMT), which is precisely what the euro does not may go too soft the bottom line.

Of OMT's political significance

OMT is the limited direct currency trading program to buy sovereign bonds of euro area member states. Strict sense, it is a financial rescue mechanism, which is a minimum limit conditions set by the EU member states in deep debt crisis. Simply speaking, Italy must tighten their belts in front, to be eligible for a step by step to get the European Central Bank to buy Italian government bonds in the secondary market opportunities.

OMT is an infinite amount of operation means that the ECB will use Banknote Printing to meet the huge potential financing needs of all countries of the euro zone, will be "unlimited" financial resources to pull down the high debt countries bond yields, high debt country out of the crisis very good survival opportunities. ECB plays a "lender of last resort". In other words, the essence of the OMT capital in fiscal sovereignty in exchange for survival.

To win this chance for survival, former Italian Prime Minister Monti has reached an agreement with the European Union in 2013, the year the Italian financial austerity, the Italian government's primary surplus reached 4.8% of gross domestic product (GDP). If realized, this would be an amazing progress, because of the previously estimated 2.9%.

Sovereignty and money

Which is more important?

Monty design scientific and reasonable, but the Italian people do not buy it.

Italy's general election results show that voters to the reform-for-cash OMT loudly say "NO!" Previously, investors have been in the gambling center-left coalition wins, and Monty alliance came to power again. After the election, Berlusconi blaze from feeling glad, did not show the slightest meaning to adhere to Monti's reform route. From a common sense point of view, this is bound to guide domino effect within the euro area, leading to the euro down further. Point of view but from the reaction of the market, this assumption does not seem to exist.

The real purpose of the voters is bargaining with the EU, the price tag of the hands of the entire Italian financial sovereignty.

In their view, Italy is the stability of the euro area have already paid too much consideration. European government bond crisis, the ECB has actually become a control powerful institutions of the European financial market as a whole, provides a "can be expected and the platform for structural reforms in the euro area. In order to maintain this platform to promote the integrity and unity of the euro zone, the ECB can at all costs. Is also seize the European Union psychological, Italian voters dared use of ballots odds, to seek to obtain a higher price tag.

Rome "La Repubblica" in an editorial: Italy, the euro has always had a special episode. In their eyes, the euro efficient business world, a sign of a clean, healthy Europeans identity highlights. They do not want to return to the lira era. Because that symbolizes backward, conservative, greed, and corruption. Euros, although expensive, but at least it allows Italian politicians scruples.

Voters understand that, even if the sale of the country's sovereignty, but also expensive.

The Euro want to soft is not easy

Italian voters understand the market from the point of view of simple, convinced that the European Union and Drudge will not be abandoned Italy. But investors want to see more concrete evidence, the courage to make the next step to judge. Italian sovereign government bonds, credit default swaps market the (Sovereign CDS), is a calculation the ECB will best compass.

In the past five years, the sovereign credit default swap market has been public less concerned about the corner. However, its impact on the foreign exchange market has played a decisive role. CDS is the protagonist of the interest rate market. Environment of economic uncertainty, the CDS market sovereign bonds of European countries considered to be a relatively safe place, especially since November 2011, the European Central Bank issued a ban on naked shorting CDS directive to reduce the national debt speculators use CDS arbitrage opportunities and a weak euro.

June last year, the Drudge at all save the euro, "the oath, so that investors see potential business opportunities here. European Central Bank this tree shade, from around the world a lot of money quickly focus to the country's sovereign bonds CDS market, so that Italy, Spain and Greece, Southern Europe, Asian countries, bond yields are down, directly contributed to the bond sales.

However, a lot of liquidity aggregation, and to invest only in one direction, the CDS market has accumulated a growing uncertainty. Any sign of trouble, will lead to the consternation of investors. According to the Imperial University finance professor Klien estimates, the total amount of the CDS contract with the Italian government bonds of about $ 406 billion, accounting for a quarter of the entire Italian sovereign debt total. Especially Italian debt crisis emerged when many institutions for security needs, its investment into the CDS market, where problems, the sheer scope of the worldwide.

Is, therefore, the president of the European Central Bank, Mario Draghi, the 27th speech to appease the market, said the ECB is not ready to withdraw from the policies introduced during the crisis to help the euro zone economy.

Analysts pointed out that, after the debt crisis, the EU to resolve the debt problems of southern European countries, rely on the injection of liquidity ways, with the power of the market to establish the number of firewalls in the entire euro area market, including the previously mentioned ESM-OMT mechanism. Market with the EU's determination to CDS financing funds around the world gathered to southern European government bond market, the formation of a you have me, I have a strong defense system. In the current uncertain market environment, this is a prosperity, a loss for both the complete portfolio. This combination of support is precisely the strong euro. Euro only go forward, in order to bring the parties to finally get profitable outcome.

Two Italian politics clowns, it is impossible to break through the line of defense.