Commenting on how the next Italian election could turn into a referendum on membership of the euro, Chris Payne, Managing Director at GWM Investment Management, said: “We are seeing a European-wide sell-off and financials, in particular, have been under pressure on concerns that the next Italian election could turn into a referendum on membership of the euro. Even a weaker Euro and Pound have failed to provide some price stability, as is often the case, and the consensus appears to be that Cottarelli will struggle to gather support to pass a budget, resulting in snap-elections when both anti-establishment parties could return with a larger representation in parliament.
“Italy has the third highest public debt in the world and so this has really spooked the bond markets. The spread between Italy’s 10 year-bund and its German counterpart is now at its highest since September 2013 and we are now seeing a significant reallocation into safe haven assets, driving gold prices and the Japanese yen higher. Italian bond moves are largely isolated but contagion risks are mounting.”
