The United States has been getting its economy in order, creating opportunities for stronger growth and a continuation of its long-running bull market.
But, apparently, that’s not enough to prevent a smack down of U.S. markets because of political turmoil in Italy. Thanks to Italy, the Dow Jones Industrial Average fell as much as 505 points on Tuesday before finishing the day down 391.64 points, or 1.58%.
Who cares about Italy? Italy is the third largest European country and current turmoil could lead to withdrawal from the Eurozone. That, on top of Brexit, could shake up the entire continent.
Italy’s troubles have been simmering for some time, but now the government has blocked the formation of a coalition government between the hard right League Party and the hard left Five Star Movement. Both parties were united on one issue — taking Italy out of the European Union.
Without Italy in the European Union, the euro could be threatened and the European Central Bank would be less influential — it might not be able to damage the continent’s economy to the point of making the Federal Reserve Board seem rational.
A “Colony of Germany”
Leading Italy is like playing musical chairs sans the chairs, so it’s not surprising that another election will be taking place in the wake of the latest crisis. President Sergio Mattarella appointed Carlo Cottarelli, a former International Monetary Fund official, to lead a caretaker government until a new election can take place.
That led a Five Star leader to say that Italy is now a “colony of Germany.”
Anti-EU politician Nigel Farage said President Mattarella was “bullied” to take the action he took. He said Italians “question what the euro has done to their economy. They feel they are a victim of the European Union’s immigration policies. As a result of all this, they voted in a new government, only to find that bullying and hectoring from the European Commission has been listened to by the Italian President.
“In the last 48 hours, their democracy has been traduced. In the past you have managed to bully the Danes, you bullied the Irish, you bullied the Greeks into submission. I suspect with Italy today you have now bitten off more than you can chew. Bring on more elections and bigger eurosceptic victories.”
Italians Being Italians, LeBrecque Says
The post-Memorial Day crisis might not have made such an impact if it had not occurred at what many consider to be the beginning of the slow summer season. Volume was low, and, as Leon LaBrecque, managing partner and chief executive at LJPR Financial Advisors, said, “The Italians have been having political crises as long as there have been Italians.”
Of course, it’s not the first time Europe has sunk U.S. stocks. The “sovereign crisis” has been going on practically since the days of the Roman Empire and it wasn’t long ago that tiny Greece was the mouse that roared.
Now it’s just a bigger mouse doing the roaring.