{"id":34199,"date":"2012-12-10T14:26:48","date_gmt":"2012-12-10T19:26:48","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/12\/hes-back-what-silvio-berlusconi-means-for-italy-and-the-euro-crisis\/"},"modified":"2012-12-10T14:26:48","modified_gmt":"2012-12-10T19:26:48","slug":"hes-back-what-silvio-berlusconi-means-for-italy-and-the-euro-crisis","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/12\/10\/hes-back-what-silvio-berlusconi-means-for-italy-and-the-euro-crisis\/","title":{"rendered":"He\u2019s Back: What Silvio Berlusconi Means For Italy and the Euro Crisis"},"content":{"rendered":"

By The Sizemore Letter<\/a><\/p>\n

\"\"<\/a>Part of me really missed the guy.\u00a0 There was something naturally endearing about Silvio Berlusconi.<\/p>\n

Perhaps it was his ability to charm women 50 years his junior or his complete disregard for the conflicts of interest involved with being your country\u2019s national leader and<\/em> one of its richest men and<\/em> the owner of its most influential media group.\u00a0 Or maybe it was his willingness to change the laws of his country on a regular basis to protect himself from criminal prosecution or the fact that he ruled Italy\u2014the third most powerful country in continental Europe\u2014like a mafia don.\u00a0 Through it all, naughty ol\u2019 Silvio seemed to prove that, with a few winks and nods, a ton of money and a total lack of shame or scruples, a guy really could have everything he wanted in life.<\/p>\n

On a serious note, I was not happy to see Mr. Berlusconi reappear on the political stage. It is a potential disaster for Italy, the Eurozone, and investors around the world.<\/p>\n

Berlusconi\u2019s party withdrew its support for Italy\u2019s technocratic prime minister Mario Monti\u2014the one political figure in Italy that both the international bond market and the other leaders of Europe took seriously\u2014prompting Monti to turn in his resignation over the weekend.<\/p>\n

Not surprisingly, Italian stocks sold off Monday morning \u2014 the iShares MSCI Italy Index (NYSE:$<\/span>EWI<\/a>)<\/strong> had lost more than 3% before recovering slightly by midday \u2014 the euro fell, and Italian bond yields shot up.\u00a0 And across the Mediterranean, Spanish stocks fell, and Spanish bond yields rose.<\/p>\n

The market is not happy about Silvio Berlusconi\u2019s return.\u00a0 The fragile peace we\u2019ve had for much of the past year has been due to a belief that we finally had an adult running Italy.\u00a0 Bond yields had been steadily dropping as a sign of confidence in Mario Monti and his austerity reforms.\u00a0 An Italy without Monti is the same dysfunctional Italy that ran up debts of 120% of GDP while showing no real GDP growth in over a decade\u2026proverbially fiddling while Rome burned.<\/p>\n

Berlusconi will not win the upcoming election.\u00a0 His party is a tattered mess, and most Italians are sick of the man.\u00a0 And Mario Monti may yet stage a comeback, either as the head of a centrist movement or as a finance minister in a center-left government headed by Pier Luigi Bersani.<\/p>\n

But Berlusconi\u2019s presence is enough of a distraction to have the markets worried.\u00a0 My fear is that he rattles the bond market out of its complacency and creates another self-reinforcing cycle of loss of confidence leading to higher yields and vice versa.<\/p>\n

It\u2019s too early for me to recommend dumping European stocks just yet.\u00a0 Thus far, the market seems to have confidence in ECB President Mario Draghi\u2019s ability to keep the entire dog and pony show together with creative monetary policy, and Europe\u2019s leaders are slowly muddling through to a political solution to the debt crisis.\u00a0 But given the ability of investor sentiment to turn on a dime, I would recommend tightening stop losses.\u00a0 Or at least start keeping a closer eye on your European stock holdings.<\/p>\n

SUBSCRIBE <\/a><\/strong>to Sizemore Insights<\/em>\u00a0via e-mail today.<\/p>\n

This article first appeared on InvestorPlace.<\/a><\/p>\n

The post He\u2019s Back: What Silvio Berlusconi Means For Italy and the Euro Crisis<\/a> appeared first on Sizemore Insights<\/a>.<\/p>\n

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