How To Short Europe With ETFs As Political Crisis Worsens

After expanding at the fastest pace in a decade, the European economy has lost its momentum this year due to a slowdown in business activity in many parts of the region. This has resulted in a major setback to European Central Bank’s (ECB) plans of winding down its bond-buying stimulus program. The central bank has halved its massive €60 billion per month asset buying program at least until September.

The political chaos, especially in Italy and Spain, has also dented investors’ optimism lately.

Italy Crisis: A Major Risk

The latest round of political development in Italy has escalated the ongoing crisis and brought back memories of the 2011-2012 euro debt crisis that had huge implications on the single currency. This is because Italy, which is without a government since inconclusive national elections on Mar 4, hit another roadblock. after the effort to form the first populist government in coalition with the anti-establishment Five Star Movement and the far-right League has collapsed.

President Sergio Mattarella rejected the choice of a euro-skeptic as finance minister, which could provoke "Italy's exiting of the euro.” The move led to calls for Mattarella’s impeachment and thus, a former International Monetary Fund economist Carlo Cottarelli was officially appointed as an interim Prime Minister to restore political order and end an 11-week deadlock.

The likelihood of another election reignited fears of referendum on its euro membership, raising concerns over the fate of the European financial system and its common currency. However, early reports suggest that Italian populist parties renewed talks to form a government and fresh elections could be avoided. But this again might not turn out to be successful.

Growing Woes in Spain

The heightened risk of a snap election in Spain also raises questions about the future role of country in the European Union. Prime Minister Mariano Rajoy will face a vote of confidence on Jun 1 in response to a corruption case involving the ruling Popular Party.

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