Mes up and down.
There is a lot of talk about the Mes in the Italian newspapers, knowing full well that when Italy has rejected its birth, the Mes itself will be dead, while the dances on the Italian debt will open. This is probably the time the hawks will be able to kick Italy out of the eurozone. And if it doesn't, the disaster will be even worse.
In the event of an Italian debt crisis, there were two tools available. The first was the Mes, which will probably be rejected by the parliament, in the second instance we must hope that a "Troika" will form again, with the EU, the ECB and the IMF (as for Greece), in the third instance it should be the ECB , which won't.
What does it mean? It means this: once the Italian parliament has rejected the Mes, placing a tombstone on any debt mutualisation mechanism, we will first see the rating agencies lower the public debt rating.
Secondly, we will see big funds like BlackROck shorting Italian debt at a huge yield. At that point, any auction the government makes will fail because it doesn't offer enough, and clearly the games will be done: a Greek crisis will start again.
What are Italy's opportunities at that point?
- That the ECB buys any amount of debt.
- That the Troika be reformed with the IMF, the ECB and the EU
- Let the Mes be used to save the country.
Why did I cross out two out of three possibilities? Because we are well aware that the IMF, according to the declaration of its top management, will never again join any Eurozone bailout.
I crossed out the Mes because the Italian parliament will sink it, and when you try again to ask for debt mutualisation, you will hear the answer "but YOU rejected the Mes".
It remains the ECB that buys debt: however, the ECB no longer has a mandate to do so, while it has a mandate to raise rates to stop inflation.
But even if the ECB buys debt, it won't be easy, and everything will depend on its board. Who will ask for guarantees and reforms.
In practice, that is, by sinking the Mes you will place yourself 100% in the hands of the ECB, for the simple reason that you will have nothing else.
What would happen at that point? It would happen that – perhaps – the ECB would intervene provided, let's say, that:
- Some countries buy all the contents of the “CDP” box.
- Some countries buy all or almost all of the valuable content of the "State Property" box, including the beaches and related concessions.
- Let a property sheet be made that brings down the price of luxury properties, to come and buy them at a bargain price.
Under these conditions, the nations that are part of the board of the ECB could give the go-ahead for the purchase of Italian public debt by the ECB, in significant quantities.
The "Italy is too big to fail" argument makes no sense: long before the default situation, the Italian government will accept any conditions set. Bankruptcy will NEVER be reached because much sooner all the economic powers of Italy will bring down the government and accept surrender.
Whether it goes exactly like this, or in a more fictional and dramatic way depends only on the narrative that the usual masters of finance will choose, which happens to be owned by all the newspapers and media.
But the point is simple:
sinking the Mes means that, in the event of a debt crisis, Italy would remain in the hands of the ECB. If the intention was to take power over the country from the ECB, the exact opposite has just been done.
So get ready, because the ECB will stop buying Italian debt starting in March, and membership of the MES will be discussed at the beginning of the year.
After that, reality will knock on the door.