by John Ward
There are two things required in any commentary about the econo-political-financial situation of Italy at the moment. The first is a sense of reality (unblurred by spin) about what has actually taken place here; the second is an analysis (rather than EC lalalalalah) of how things can easily get much worse for the Fine burghers of Brussels.
What has happened.
While technically, Italian President Mattarella is within his rights to turn down any Minister, there are several factors that constrain him – or ought to. It is a long-standing convention of the Italian Constitution that the President doesn’t overrule a popular majority and remains above Party politics. His argument for turning down the Coalition’s nomination for Finance Minister – “that it is for the good of Italy not to exit the euro” – is a sample of one opinion with which many (for example, the Greeks) would take issue. It further shows blatant bias in favour of the cabal that put him in place – the EC – which is not, research shows, an Italian institution. And he has no mandate at all for such a move…whereas the Coalition obviously does.
As the man said, patriotism is the first resort of the scoundrel. Using it to squash democracy is an appalling mistake, and could lead to his impeachment. But knowing little myself about the procedures surrounding impeachment, it’s not something I can comment on.
What I can say for certain is that in choosing a former IMF technocrat (also with zero mandate) in the shape of Carlo Cottarelli, 63, a former executive director of the IMF has crossed what may be a bridge too far. Not only is he a card-carrying globalist monetarism fanatic (nicknamed “Mr Scissors” for his strict approach to state finances) he is currently the boss of the Observatory on Italian Public Accounts at Milan’s Catholic University since October. He is not an elected official in any shape or form.
So in summary what we have is an EC-installed, unelected President mandating an unelected IMF cutter who follows the Berlin/Frankfurt line on austerity – that is, the diametric opposite of the Coalition’s stated policy of Keynesian economic expansion….for which the Italian People voted by a clear majority.
How and why things could get a lot worse.
Yesterday, German Chancellor Merkel ignored the obvious and far from silent coup taking place to tell her adoring subjects that “The government hopes, in the interests of our close European partner Italy, for a stable government”. Being a former DDR apparatchik herself, one assumes she takes such morally perverted subterfuge in her stride. One can also assume, however, that behind the scenes she is up to her neck in it. Most German newspapers took a predictably technocratic view.
French President Macron praised Mattarella’s decision, to turn down the popular choice and install a monetarist banker instead, as “a suitably responsible move”. But then he would say that, having spent most of his working life at Rothschild Bank….and used banking donations to build a Presidency from scratch in eighteen months flat.
The French media, meanwhile, is full of pompous opeds calling the crisis, variously, a squabble and ‘a tragedy whereby the voters were willing to believe in the ruinous policies of the fledgling Coalition’.
So the main movers in the European Fascist Union are all agreed once more that the People made a mistake, and need to be pointed in the right direction for their own good. I hope at least some Remaindeer are reading this post, but even if they are, I doubt these facts will do much more than bounce off their Klingon clarity-shields
However, reality does intrude sooner or later in the economic field, even if it doesn’t in the delusional mindsets of the Big Blocheads. There follow just a few to be going on with.
The chaos in the eurozone generally has caused money to flee Europe for the US – a phenomenon exacerbated by the Fed’s more recent bullishness on rate rises. The ezone’s liquidity problems are so bad now, Draghi has quietly removed the data from the ECB’s website. The Italian President’s decision is bound to make that even worse, for the simple reason that it may well take several months to organise another election. Yesterday, the world’s stock markets saw a sell-off, which could easily continue on a drip basis over the uncertainty now surrounding the EU’s 4th biggest economy….alongside the Brexit of the 2nd biggest economy.
We are now only 15 days away from the next Fed rates meeting. Some US observers yesterday were speculating that – in the face of a rising dollar and eurozone chaos – that the Fed responds by maybe having second thoughts about the trajectory of Fed policy – the Fed might respond by having second thoughts about the trajectory of its rate-hike policy. This is what I would expect, but it isn’t what Trump and his best new pal Jamie Dimon want. The general feedback I got yesterday was “the Fed will raise in June and in September for sure”.
Not only is that going to turn the trickle of available ezone finance into the Gobi Desert, it is also going to have an effect I’ve been banging on about for some some months now: Dollar denominated debt.
Such has already moved the Venezuelan and Argentine situations on from crisis to insolvency. But Italy has by far the biggest debt in the ezone at €2.3 trillion. This represents 132% of GDP last year – well above the 87% average among other eurozone members.
So for Italy (and Brussels, whatever it says in public) this is a kick in the teeth followed by a kick up the backside. It’s certainly a headache for Mario Draghi, who was expected to announce in September that the ECB will bring asset purchases to an end. He is already struggling to prop up Bond prices, and they must be set to increase in the light of probably economic strife and political bitterness.
This three-pronged pincer movement against Italy’s ability to borrow cannot be overestimated. And the two places where jitters will be more visible than most is Germany and France. These are the two original founders of the Common Market as was, and they have the biggest exposure to the cost of an ECB bailout for Italy. Spookily, they’re the ones approving wholeheartedly of the victory of Mammon over democracy. Just fancy that.
In round figures, the Germans have put up 17% of the ECB capital, and France 14%. While having to bail out Italy would be a serious blow to Berlin, in Paris it would be a disaster. To be blunt, French finances simply couldn’t cope with it.
Given that the EU is a massive trading partner for Washington, it is hardly surprising that – across the board this morning – the closed ranks of the US business stations and sites like CNBC, Bloomberg, CNN et al are all carrying a denialist nerve-calming approach: “the chances of Italy quitting the euro are slim to zero” they say, which is true up to a point. The point at which it becomes a profoundly daft view is when the euro itself becomes no longer viable, and/or Mario’s printer has to go into overdrive to pay for the original hubris of Monnet and Delors.
Let rain pour into puddle, get pond. Throw brick into pond, get ripples. Have no dykes around pond, drown.