Mark Gilbert , Columnist

Italy Ain't Over Till the Bond Vigilantes Sing

They're more worried about a spending free-for-all than Italy leaving the EU.

May 31, 2018 at 8:30 AM UTC

Mark Gilbert is a Bloomberg Opinion columnist covering asset management. A former London bureau chief for Bloomberg News, he is author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”

Souvenirs for sale in euros, but for how much longer?
Photographer: Victor Sokolowicz/Bloomberg

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“Italy’s fate does not lie in the hands of financial markets,” European Commission President Jean-Claude Juncker said this week. The bond vigilantes might have something to say about that.

When Italy adopted the single European currency at the start of 1999, it did so at a rate of 1,936 lire to the euro. So here’s a thought experiment: If the incoming government were to abandon the euro and reintroduce the lira at that value, where would it trade the following day? And just how high would the nation’s cost of borrowing for 10 years, currently about 2.8 percent, end up rising to?