Thread by @FerdiGiugliano

1 - There is a lot of confusion over why Italy’s President #Mattarella chose to veto Paolo Savona as finance minister, leading to the collapse of a possible 5 Star-League government. Here’s a short thread explaining what he said last night. #Italy

2 - The main problem was Savona’s explicit support for a ‘Plan B’ to leave the euro - which he did not withdraw before receiving the nomination. This plan had to be secretive, according to a set of slides he co-authored in 2015.

3 - If you are an investor in Italian bonds and you think the finance minister may have a secret plan to leave the euro, what you do? You sell your government bonds, as you fear you will be paid back in a less valuable currency (Lira). This causes a self-fulfilling crisis.

4 - The president didn’t say Italy can never leave the euro. He said that it should do so ‘after an open and deep debate’. In other words, the government should seek a mandate to leave the euro, not sleepwalk out of it.

5 - The issue is that the neither the 5 Star Movement nor the centre-right alliance (which the League was part of) campaigned on an explicit platform to leave the euro. ‘Ital-exit’ wasn’t even on the 5 Star-League coalition agreement.

6 - Mattarella asked for an alternative finance minister who would not cause a self-fulfilling crisis *by its very appointment*. He/she would have been coherent with the parties’ popular mandate and the coalition agreement. The parties did not provide any name.The govt collapsed.

7 - The lesson I take from yesterday is that Mattarella will *not* always block attempts to leave the euro. He wants the parties to seek an explicit mandate to return to the Lira. Such is the importance of the decision that Italians have to take it openly.

8 - The trouble is that 5 Star and the League are very unlikely to campaign on an ‘Ital-exit’ platform ahead of the next election. They will campaign on a ‘Europe must reform’ program. So even if they win, we will not have the mandate Mattarella is asking for. What then? (END)

My @bopinion piece building on this thread. "Italy’s Nightmare Has No End In Sight". bloomberg.com/view/articles/…