The finance world is freaking out about Italy

Five Star Movement

Okay, so things are a bit of a mess in Italy, and ‘the markets’ (i.e. finance professionals, bankers, traders, etc) are freaking out just a tad.

What it means: Italy had an election in March. Two parties came out on top: Five Star, and the League. They’re described as ‘anti-establishment’ and ‘right-wing’ – neither comes from the classic mold of party politicians, neither likes the EU.

Other than that they don’t have much in common with each other, but they decided to form a coalition anyway. Which worked out, until they elected a finance minister called Paolo Savona who is very anti-euro, calling the currency a ‘German cage’. Italy’s president wasn’t happy about the choice, and rejected it (cuz in Italy, he can). The coalition couldn’t agree on a replacement, so they broke down.

Governments get a lot of their money from ‘bonds’, which are kind of like shares in a business but for countries. Since all this happened, a lot of people have sold off their Italian bonds, because they’re nervous about what’s going to happen next in italy and whether they’d ever be able to cash in on their money.

In an attempt to save the day, the head of the European central bank (the one that manages the eurozone), Mario Draghi, said he’d buy up all the bonds other people were selling to stabilise things again (like some mad financial game of hot potato). That calmed everyone down a bit – it’s all a question of confidence, and they were basically like, “Ok – if Draghi’s chill, I’m chill.”