Tag Archives: EU

Italy challenges the Western order, by Frank Sellers

Italy doesn’t like its debt, its immigrants, or the EU, and thinks perhaps Europe’s ought to loosen up towards Russia. This is all contrary to the EU playbook. From Frank Sellers at theduran.com:

With a massive influx of immigrants from across Africa and the Middle East, and growing poverty, Italy voted in a populist government representing policies which would seem to virtually overturn the postwar European order.

The austerity measures which have been imposed upon the Italian people have pushed more and more of them down into poverty, with the poverty rate doubling over the course of the past decade.

Relative to migration, Italy is one of the Southern European countries taking the brunt of the migrants who are flooding into Europe by the thousands, helped along by various NGOs which seek to alter the demographic makeup and economic and political order of Europe under the guise of humanitarianism.

The present economic metrics tend to perceive the profits of multinational corporations as a gauge of the health of the economy, rather than the economic situation on the ground level, faced by the Italian citizen. All of these and more are things which this new government has a view towards radically changing.

To combat Austerity, which may be tossed out the window, the option on the table is to review treaties to which Italy is partied which impose or advise them. Rather than gutting the population for the money which the government needs in order to cover obligations to multinational financial interests, a proposal was broached of launching a universal basic income, reduction in the pension age, as well as a flat tax system.

And while the migrant policy is still evolving, it has had a view towards repatriating the migrants which are already within Italy’s borders. Italy has already flexed its will on the migrants issue over refusing a ship full of migrants port in Italy, forcing it to set sail for Spain.

Foreign policy aims at softening the approach towards Russia by eliminating sanctions and by putting the focus on improving relations, benefitting Italy both by allowing a resumption of trade, and the perspective of Russia’s will and capacity to help get a handle on the situation in the Middle East, which is part of what prompts the migration issue, due to the region’s instability.

What this could mean is that an already strained relationship between Italy and the EU could be put to the test, or altered in a significant manner if these proposals are put into play after the fashion in which they were introduced during the elections cycle.

To continue reading: Italy challenges the Western order

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The Gently Rotting Debt-Ridden EU, by Alasdair Macleod

The EU is essentially Marxist in its orientation, and tolerates dissent about like Joseph Stalin used to. From Alasdair Macleod at goldmoney.com

The EU as a political construction is in a state of terminal decay. We know this for one reason and one reason alone: its core principle is the state is superior to its people. A system of government can only work over the longer term if it recognises that it is the servant of the people, not its master. It matters not what electoral system is in place, so long as this principle is adhered to.

The EU executive in Brussels does not accept electoral primacy. It shares with Marxist communism a belief in statist primacy instead. The only difference between the two creeds is Marx planned to rule the world, while Brussels is on the way to ruling Europe.

The methods of satisfying their objectives differ. Marx advocated civil war on a global scale to destroy capitalism and the bourgeoisie, while Brussels has progressively taken on powers that marginalise national parliaments. Both creeds share a belief in an all-powerful executive. The comparison with Marxism does not flatter the EU, and suggests it has a limited life and that we may be on the verge of seeing the EU beginning to disintegrate. Despite economic evolution in the rest of the world, like Marxian communists Brussels is stuck with a failing economic and political creed.

It has no mechanism for compromise or adaptation. A rebellion from Greece was put down, the British voted for Brexit, which is proving impossible to negotiate, and now Italy thinks it can partially escape from this statist version of Hotel California. The Italians are making huge mistakes. The rebel parties forming a coalition government want to stay in the EU but are looking to exit from the euro. Putting aside the impossibility of change for a moment, they have it the wrong way around. If they are to achieve anything, they should be exiting the EU and staying in the euro. Let me explain, starting with the politics, before considering the economics.

To continue reading: The Gently Rotting Debt-Ridden EU

“The ECB Is Basically Giving The Finger To Italy”: Is Draghi Risking Everything To Teach Rome A Lesson, from Tyler Durden

One of the more consequential dramas on the world stage in what happens between Italy’s new government and the ECB and EU. It’s like Greece a few years ago, but Italy is much bigger and more important within the EU. From Tyler Durden at zerohedge.com:

Perhaps the most perplexing market-moving event of the past 48 hours, was the 1-2 punch of a Tuesday Bloomberg report that next Thursday’s ECB meeting is “live” in that policy makers anticipate (at long last) holding a discussion that could conclude with a public announcement on when they intend to cease asset purchases (QE), coupled with a slew of ECB members overnight coming out with unexpectedly hawkish comments.

Of these, the ECB’s otherwise dovish Peter Praet said inflation expectations are increasingly consistent with the ECB’s aim, and added that markets are expecting an end of QE at end of 2018, this is an observation and input that is up for discussion and that “it’s  clear that next week the Governing Council will have to make this assessment, the assessment on whether the progress so far has been sufficient to warrant a gradual unwinding of our net asset purchases.”

Other ECB hawks such Hanson, Weidmann and Knot doubled down on the central bank’s sudden QE-ending jawboning pivot, saying that the ECB could lift rates before mid-2019 due to “moderately” rising inflation, that market expectation of end of QE by end of 2018 is plausible, and that the ECB should wind down QE as soon as possible.

The market response was instant, and it not only pushed both German and Italian yields sharply higher…

… as well those of US Treasurys, but spiked the EUR while sending the USD lower, and unleashing today’s euphoric stock surge.

Now, it is hardly rocket surgery that without ECB support, Italian bonds are toast. After all, as we have shown and predicted since last December, without the only marginal buyer of Italian debt for the past 2 years – the ECB – Italian yields would soar, leading to a prompt default by the nation which would suddenly find itself drowning under untenable interest expense.

To continue reading: “The ECB Is Basically Giving The Finger To Italy”: Is Draghi Risking Everything To Teach Rome A Lesson

Three critical lessons from Europe’s recent mini-meltdown, by Simon Black

Italy illustrates the important, and disturbing, interlinkages in the global financial system. From Simon Black at sovereignman.com:

Trying to trace the origins of the latest political crisis in Italy is like… well… trying to trace the origins of the decline of the Roman Empire.

There simply is no good starting point.

You can’t talk about the decline of Rome without a lengthy discussion of how destructive Diocletian’s Edict on Wages and Prices was in the early 4th century.

But you’d have to go further back than that and discuss all the lunatic emperors preceding him, all the way back to Caligula.

But you can’t talk about Caligula without bringing up the effects of the civil war between Octavian and Marc Antony… which was a direct result of the previous civil war between Julius Caesar and Pompeius Magnus.

Before long you’ve gone back in time more than 500 years trying to figure out why the Roman Empire collapsed.

Modern Italy isn’t so different. After all, this is a country so unstable that it’s had 64 governments in the seven decades since the end of World War II, averaging a new government every 14 months.

That has to be some kind of world record.

And to accurately diagnose how Italy ended up in such dire financial and political turmoil, you’d have to go back a -very- long way.

But for the sake of brevity, we’ll just go back to March. Italy held elections, and the “5-Star Movement” political party won the most seats… but not a clear majority.

This required them to establish a coalition with other political parties, which took weeks of haggling and negotiating.

But finally the 5-Star Movement was able to hammer out a deal and present a formal plan to Italy’s head of state, President Sergio Mattarella.

The President of Italy is almost purely a ceremonial role, like the Queen of England. But he does have the authority to reject key government appointments, including Prime Minister and Finance Minister.

And that’s exactly what he did– specifically opposing the nominee for Finance Minister, an economist named Paolo Savona.

Savona is a huge critic of the euro, and President Mattarella thought him too dangerous for the post.

Again, while the origins are more complicated than that, this is the basic plotline behind the most recent crisis.

Late Thursday night the Italian government announced a compromise, supposedly bringing an end to the uncertainty.

But to me, none of that matters. What I find -really- important is what an enormous impact this soap opera had across the world. And I think there are three critical lessons to take away:

1) On the day that the finance minster was rejected, financial markets worldwide tanked.

To continue reading: Three critical lessons from Europe’s recent mini-meltdown

Italy, the ESB and Europe’s Populist Fantasyland, by Daniel Lacalle

There is no law that says a government has to live beyond its means and go into debt, even though that’s what most of them do. From Daniel Lacalle at dlacalle.com:

The populist coalition in Italy has presented an “economic” program and a threat to the European Union that makes Greece look like a walk in the park.

Let us start with reality.

Italy’s economic problems are self-inflicted, not due to the Euro.

  • Italy has seen more governments since World War II than any other country in the European Union.
  • Governments of all colors have consistently promoted inefficient dinosaur “national champions” and state-owned semi-ministerial corporations at the expense of small and medium enterprises, competitiveness and growth.
  • Labor market rigidities remained, leaving high unemployment and differences between regions.
  • A perverse incentive financial system, where banks were incentivized to lend to obsolete and indebted state-owned companies in their disastrous empire-building acquisitions, inefficient municipalities, as well as finance bloated local and national government spending. This led to the highest Non-Performing Loan figure in Europe.
  • A nightmare legal system that makes it virtually impossible to repossess assets from bad debt, led non-performing loans through the roof and malinvestment to soar.
  • A thriving export and small enterprise ecosystem were constantly limited by taxation and bureaucracy. This made the thriving companies smaller and actively looking to set activities outside of Italy.

Because of this, government spending continued to rise well above revenues. As Italy -like Spain and Portugal- decided to penalize high-productivity sectors with rising taxes, revenues fell short, while expenditures continued to rise. Italy, like so many peripheral countries, created a massive “crowding out” effect of the public sector against the private. It is not a coincidence that most citizens in Italy, like Spain or Portugal, prefer to be civil servants than entrepreneurs.

It is no wonder that, while private companies managed to survive and improve “despite government”, debt and non-performing loans soared.

Now they blame the Euro. As if the same crowding out would not have happened outside.  The only difference is that outside the Euro the government would have destroyed savers and citizens through constant “competitive devaluations” that were the cause of the economic weaknesses of the past. Constant devaluations did not make Italy, Spain or Portugal more competitive, they made them perennially poor and perpetuated their imbalances.

To continue reading: Italy, the ESB and Europe’s Populist Fantasyland

 

Why the Eurozone and the Euro Are Both Doomed, by Charles Hugh Smith

One currency cannot serve nations with diametrically opposed economic goals. From Charles Hugh Smith at oftwominds.com:

Papering over the structural imbalances in the Eurozone with endless bailouts will not resolve the fundamental asymmetries.

Beneath the permanent whatever it takes “rescue” by the European Central Bank (ECB) lie fundamental asymmetries that doom the euro, the joint currency that has been the centerpiece of European unity since its introduction in 1999.

The key imbalance is between export powerhouse Germany, which generates huge trade surpluses, and its trading partners, which run large trade and budget deficits, particularly Portugal, Italy, Ireland, Greece and Spain.

Those outside of Europe may be surprised to learn that Germany’s exports are roughly equal to those of China ($1.2 trillion), even though Germany’s population of 82 million is a mere 6% of China’s 1.3 billion. Germany and China are the world’s top exporters, while the U.S. trails as a distant third.

Germany’s emphasis on exports places it in the so-called mercantilist camp, countries that depend heavily on exports for their growth and profits. Other (nonoil-exporting) nations that routinely generate large trade surpluses include China, Japan, Germany, Taiwan and the Netherlands.

While Germany’s exports rose an astonishing 65% from 2000 to 2008, its domestic demand flatlined near zero. Without strong export growth, Germany’s economy would have been at a standstill. The Netherlands is also a big exporter (trade surplus of $33 billion) even though its population is relatively tiny, at only 16 million.

The “consumer” countries, on the other hand, run large current-account (trade) deficits and large government deficits. Italy, for instance, has a $55 billion trade deficit and a budget deficit of about $110 billion. Total public debt is a whopping 115.2% of GDP.

Spain, with about half the population of Germany, has a $69 billion annual trade deficit and a staggering $151 billion budget deficit. Fully 23% of the government’s budget is borrowed.

To continue reading: Why the Eurozone and the Euro Are Both Doomed

Italy and the euro cannot be saved by mass-immigration, by Gefira

In the fantasy world of Europe’s powers that be, declining birth rates would be offset by migration from the Middle East and Africa. It hasn’t worked out as planned. The migrants have few skills, don’t know the languages, and often prefer to live off European welfare states rather than contribute to them. From Gefira at gefira.org:

The ongoing euro crisis has never been and will never be solved. The native European populations are shrinking and this will have a consequence for the economy, production and public finance. The demographic decline is the single most important economic phenomenon. We do not doubt that the annual visitors to the Global Economic Forum in Davos are fully aware of it: they know that the European and East Asian populations are decreasing and that 18 of the 20 top economies will never experience sustainable growth again. The economic press and mainstream analysts somehow do not get it and still believe that countries that will see their native population shrinking by 30% in the next thirty years can increase their GDP.

Italy is the next epicenter of the demographic crisis. The ongoing euro problems and the orchestrated mass migration into Italy are closely related. Italian population began to dwindle last year, a situation that has never happened in modern history. Without immigration, the Italian working-age population will drop by at least 30% before the middle of the century. If the productivity does not change and even if the Italians are able to balance their budget, the consequences are unsolvable.

The Italian GDP will be smaller and smaller in proportion to the fall in the number of the working-age population. Every working-age person in Italy is burdened with a sixty-thousand-euro public debt and that amount will grow on average by nearly a thousand euros a year because more people are leaving the working force than entering. The debt to GDP ratio will be 200 percent by mid-century. We did not yet factor in the outflow of young people that are looking for employment in other European countries.

This scenario gives a good indication of the problem Italy faces. In the coming years it is expected that the productivity will go up, but the same holds good for the national debt which increased by 15 percent since 2012. All Western economies have arrived at the point where productivity has to compensate for the decline in their populations. Italy is the world’s ninth economy and is on a trajectory that in the long run will end in an economic implosion comparable to the 1998 financial crisis in Argentina, number 21 on the world GDP list.


To continue reading: Italy and the euro cannot be saved by mass-immigration