There are not many 81-year olds capable of striking fear into financial markets – but Paolo Savona appears to be one of them.
The economist and university professor is the man Italy’s new Prime Minister, Giuseppe Conte, wishes to name as his finance minister – but investors fear the appointment could ultimately lead to Italy leaving the eurozone.
Mr Savona, who has previously worked at the Bank of Italy, was industry minister when, in the 1990s, Italy agreed to join the single currency.
At the time, he was enthusiastic about the euro, but has since sceptical about the single currency and has called it a “flawed project”.
In his latest book, he has described Italy’s decision to join the euro as “a historic error”, singling out Germany for particular criticism.
Suggesting that there is a direct connection between the policies of Kaiser Wilhelm II, who provoked the First World War, Adolf Hitler and Angela Merkel, Mr Savona has argued that, having failed to conquer Europe militarily during the Second World War, Germany is now trying to do so via the euro.
He has written: “The euro? It is a German cage. Germany has replaced the will of military power with economic power.
“The EU is spoiled by an innate injustice. We need to resort to a Plan B to leave the euro if we were forced.”
Standing in the way of his appointment is Italy’s President, Sergio Mattarella, who has the power to veto ministerial appointments and who has made clear he does not want to see Mr Savona appointed.
On Thursday Mr Savona won the support of Matteo Salvini, the League’s leader, who wrote on Facebook: “He is an economist respected in the whole world…but what has he done wrong? He has dared to say that the EU as it stands is not working properly.”
All of this has further rattled investors. They were already nervous at the prospect of a coalition between two parties united by very little other than euroscepticism and are now starting to pull out their money.
According to the financial data provider, EPFR Global, investors have pulled a record $280m from Italian funds during the last week. The previous record was set when, in the summer of 2014, Italy was slipping into its third recession during the financial crisis.
There are also now signs that the concerns are spilling into the wider market. EPFR says a total of $4.4bn has been withdrawn from European equity and bond funds during the last week. It means that, across Europe as a whole, stock markets look set to suffer their first weekly fall since March.
Italy’s main stock index, the MIB, is meanwhile set to complete a third weekly loss.
It has fallen by almost 8% during the last three weeks and is now back at levels seen at the beginning of April.
Within that, there have been some particularly precipitous falls for Italian banking shares, which dropped by almost 2% on Friday morning.
Shares of UniCredit, the country’s largest lender, are down by 13% during the last month while Intesa Sanpaolo, another major lender, is down by almost 17%.
On the bond market meanwhile, yields – which rise as the price falls – of 10-year Italian government bonds today hit 2.463%, a level not seen since March last year.
There are certainly fears in Rome that the new government may be underestimating the damage that financial markets could do to Italy, the world’s third-most indebted nation, if they lose confidence in its governance.
Pier Carlo Padoan, the outgoing economy minister, told the newspaper Il Sole 24 Ore: “We worry about Europe, but any infraction proceedings (over excessive government spending and borrowing) take months to develop, while the response of the markets comes in just a few seconds.”
Emphasising that point have been comments today from leading international banks.
Goldman Sachs told clients: “The new coalition government proposes measures which our economists see as likely to widen the budget deficit and lead Italy’s national debt to rise again.”
And economists at Citi added: “We expect rallies (in Italian government bonds) to be sold as long term investors exit. The wobble turns to a true crisis if the Italian government challenges German hegemony.”
For now, investors look set to continue pulling their money out of Italian assets.