I had intended to write this post yesterday morning. However, after the bank scandal in Italy and the surprise drop in US GDP, I waited a day. The gist of what I intend to say here is that Italy is in the process of decoupling from Spain. The Monte Paschi scandal certainly complicates this thesis a bit. But I think there are valid reasons for the decoupling.
What precipitated the post was an article in Spanish newspaper El Pais on yield movements. The article notes that the differential between Spanish and Italian yields is at its highest level since the European sovereign debt crisis began. Here’s the snapshot they used to present their case:
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For now, the focus is on France and Spain with me expecting France to ‘converge’ to Spain due to difficulties in housing in France. Italy, which does not have these difficulties, should diverge from Spain and continue to pull away from the periphery as Ireland has done.