All roads lead to Rome, as the saying goes. Which makes sense, since all those cans that the Eurocrats have been kicking down all those roads are landing in the Eternal City.
Not to go all Zero Hedge on you, but Italy is the end of the road. There is no more delaying, no more bluffing. This is it. If Italy goes down — and it is getting perilously close — the sovereign-debt crisis will boil over. Why the markets don’t fear this more is a mystery.
We know the Italian government is collapsing. Prime Minister Silvio Berlusconi, by the latest headlines, has agreed to step aside. This is an exceedingly bad time for a leadership vacuum. Also, by now, most people have been clued into the fact that Italian bond yields are well inside the danger zone, near levels that took down Greece, Ireland and Portugal.
That’s all bad. But the biggest problem is that Italy has no firewall. This is critical. Greece, Ireland and Portugal were all small enough to bail out once their problems became overwhelming, even if a new funding vehicle, the European Financial Stability Fund, had to be created to do so.
But Italy is the world’s eighth largest economy. There’s a reason, in the words of so many, that the Eurocrats last month all of a sudden seemed to “get it.” That reason was Italy. They were scrambling to erect a wall around Italy, to protect it from the Vandals and Huns that threaten to sack not just Rome, but the whole of Europe.
Yet the rally-inducing “comprehensive plan” unveiled in October to save Europe remains nothing more than some notes on paper. The critical part here wasn’t cutting Greek debt, but raising enough money to “ringfence” Italy.
They haven’t found it. The Chinese turned them down. The IMF turned them down. There is no new money in the EFSF; there is no levered-up super fund. Forget three months. There is nothing in place now, today, and Italy is on the verge of a meltdown now, today.
This is getting worse, not better, but the markets continue to have blind faith that somehow, some way, the Eurocrats will come through with a solution. Find a silver bullet. Discover a miracle cure. Get the Chinese on board.
It’s fine to hope for something like that, but make no mistake, the hour is getting late. Very late.
HT to Paul Vigna via Marketwatch