Euro Crushed by Italian Exit Polls
The fear that the Italian Election would not work out in Goldman-Sachs’ favor had Euro-bulls running to the hills. As the news that Silvio Berlusconi’s center-right party will have received enough votes for a hung Parliament hit the newswires the Euro hit the floor and is currently trading down near $1.305. Since this is a destabilizing event from the standpoint of the sovereign bond holders who are now, rightly, worried that Italy does not really want to stay in the Euro under the European Commission’s terms Gold and the Euro decoupled.
The fear is that the Center-left coalition does not have a clear majority in the Senate with Mario Monti’s mostly hated party. That would remove the EC’s hand-picked technocrat from power and set up months of worry that the inevitable next round of elections would repeat the same result or worse. Berlusconi is one of the few Italian politicians who has the ability to force a deal that would work in the average Italian’s favor versus that of the country’s sovereign bond holders who refuse to take less than par for their
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This result also makes it much harder for ECB President Mario Draghi to keep the Euro strong which was playing directly into improving the economy via cheap energy and Asia-Pacific imports from places like Thailand and China. We will see how this plays out, but for right now, the worst possible outcome for the EU and the current monetary system has come to pass.