Frexit or Italeave? European Countries Set To Follow In the Footsteps Of Britain

At long last, the tyranny of the global financial elite has been slammed good and hard. You can count on them to attempt another central bank based shock and awe campaign to halt and reverse the current sell-off. But it won’t be credible, sustainable or maybe even possible.

The central banks and their compatriots at the European Commission, IMF, White House/Treasury, OECD, G-7 and the rest of the Bubble Finance apparatus have well and truly overplayed their hand. They have created a tissue of financial lies; an affront to the laws of markets, sound money and capitalist prosperity.

So there will be payback, clawback and traumatic deflation of the bubbles. Plenty of it, as far as the eye can see.

On the immediate matter of Brexit, the British people have rejected the arrogant rule of the EU superstate and the tyranny of its unelected courts, commissions and bureaucratic overlords.

As Donald Trump was quick to point out, they have taken back their country. He urges that Americans do the same, and he might just persuade them.

But whether Trumpism captures the White House or not, it is virtually certain that Brexit is a contagious political disease. In response to today’s history-shaking event, determined campaigns for Frexit, Spexit, NExit, Grexit, Italxit, Hungexit and more centrifugal political movements will follow.

Smaller government — at least in geography — is being given another chance. And that’s a very good thing because more localized democracy everywhere and always is inimical to the rule of centralized financial elites.

The combustible material for more referendums and defections from the EU is certainly available in surging populist parties of both the left and the right throughout the continent. In fact, the next hammer blow to the Brussels/German dictatorship will surely happen in Spain’s general election do-over on Sunday (the December elections resulted in paralysis and no government).

When the polls close, the repudiation of the corrupt, hypocritical lapdog government of Prime Minister Rajoy will surely be complete. And properly so. He was just another statist in conservative garb who reformed nothing, left the Spanish economy buried in debt and gave false witness to the notion that the Brussels bureaucrats are the saviors of Europe.

So the common people of Europe may be doubly blessed this week with the exit of both David Cameron and Mariano Rajoy. Good riddance to both.

At the same time, the anti-Brussels parties of both the left (Podemos) and the right (Ciudadanos) are certain to make further gains. But even then, the Spanish government will remain splintered and paralyzed. It won’t be strong enough or willing enough to execute Brussels’ inevitable dictates in the event that the drastically overvalued Spanish bond market goes into a tailspin and requires another EU intervention.

And that’s the next leg of the Brexit storm. Sovereign bond prices throughout Europe have been lifted artificially by the financial snake-charmers of Brussels and the ECB. The massive rally in Spain’s 10-year bond after Draghi’s “whatever it takes” dictate was not due to Spain becoming more credit worthy or the fact that its unemployment rate has dropped from 26% to a mere 20%.

The whole plunge of yields from 7% to a low of 1% about a year ago was due to a front-runners’ stampede. That is, the fast money buying on repo what the ECB promised to take off their hands at ever higher prices in due course. They were shooting the proverbial ducks in a barrel.

But as global “risk-off” gathers worldwide momentum, look-out below. There will be no help from the ECB. That’s because the ECB will soon be embroiled in an existential crisis as the centrifugal forces unleashed by Brexit tear apart the fragile consensus on which Draghi’s lunatic monetary experiments depended.

Moreover, Spain is by no means unique. Italy’s 5-Star movement, which just came off winning 9 out of 10 mayoral contests, including Rome, will surely now be energized mightily. Its Northern League ally has already called for a referendum on exiting the euro.

Needless to say, Italy’s fiscal circumstances are far more dire than even Spain’s. And the prospects that its bonds are money good at last week’s 135 basis points of yield on the ten-year are between slim and none. Either the threat of an exit or a 5-Star/populist coalition government would send the front-runners who scarfed up Italy’s bonds running for the hills.

Since Italy owes upward of $2 trillion on it government accounts alone, its bond market is an explosion waiting to happen.

During the last financial crisis our elite rulers cried “contagion.” The first domino has fallen. There will be more.

Regards,

David Stockman

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