By Don Quijones, Spain & Mexico, editor at WOLF STREET. His blog: Raging Bull-Shit.
“I’m not part of that system that has destroyed this country.”
It’s not easy being a national leader of a Eurozone country. What with all the unpopular new laws and legislation emanating from Brussels and Frankfurt and the financial markets poised on a knife edge, the pressure can sometimes be unbearable. Even a small misstep could have disastrous consequences.
For any national leader who wishes to cling to his or her job, there are four basic rules of survival:
- Always be nice to German Chancellor Angela Merkel.
- Never call – or even threaten to call – a national referendum on any issue.
- Never criticize or call into question the actions of the Troika, or any of its three constituent members, the European Commission, ECB, and IMF.
- Never mention – or even entertain – the idea of exiting the euro.
But today the Italian Prime Minister Matteo Renzi veered dangerously off-message: he broke rule number three. But wasn’t the first national leader to have broken the rules.
The Price of Transgression
The first offender was then Greek Prime Minister George Papandreou, who, in Oct. 2011, broke rule number two when he announced his government’s intentions to hold a referendum on the terms of a new Eurozone bailout deal. Within two weeks Papandreou was replaced by former Greek central banker and ex-Goldmanite Lucas Papademos. To make matters worse, news surfaced that his mother owned a Swiss bank account with €550 million of undeclared funds. A painful price for a moment of courage.
The second offender was Italy’s then Prime Minister Silvio Berlusconi in September 2011. He’d dared to discuss in private meetings with Eurozone leaders, presumably Merkel and France’s Nicolas Sarkozy, Italy’s withdrawal from the Eurozone. By December, Berlusconi was out, replaced by technocrat Mario Monti, a former central banker, European Commissioner, and ex-Goldmanite.
The message to other national leaders was clear: “don’t even think about jeopardizing ‘The Project.’ Since then, discipline was restored in the ranks, and no political leader dared cross either of the four lines. Not until today when Italian Prime Minister Matteo Renzi chose the occasion of an interview with the Financial Times to veer dangerously off-message and willfully break rule number three:
Never criticize or call into question the actions of the Troika, or any of its three constituent members.
Making Dangerous Enemies
The target of Renzi’s criticism was ECB Chairman Mario Draghi, arguably the most untouchable of the Troika’s representatives (and Goldman Sachs’ senior representative in Europe).
Renzi’s out-of-turn talk was the latest escalation in a war of words that broke out with Draghi’s insinuation (read: threat) that Italy, after falling back into recession, had not done enough to reform its labor market, bureaucracy, or judicial system. The result, he said, is an “unfavorable climate for investment.” In other words, what Italy needs is a short, sharp dose of Troika-administered internal devaluation – an intervention that merely serves to accelerate a country’s debt spiral while enriching well-connected international investors.
Renzi seems to have other ideas. “Our model is not Spain, but Germany,” he told the FT.
He came to office in February promising to pull Italy out of a slump that has lasted more than a decade. Progress has been slow, however, and his signature achievement to date remains a tax break of €80 a month for low earners. It is hoped that the next few months will see the passage into legislation of far-reaching judicial reform, but there are no guarantees.
And with little to show in terms of fiscal or labor reform, business leaders are getting tetchy, the FT reports:
Italy’s business leaders, desperate for reform, have been big supporters of Mr Renzi, noting his energy and determination. But they have voiced fears that he is a micromanager who relies too much on a few trusted friends when he needs experienced advisers to match his political ability.
The IMF Mole
One such “experienced advisor” is Italy’s Independent Spending Review Tsar, Carlo Cottarelli, who spent most of his working life at the IMF. In his last role he served as the director of the Fund’s Fiscal Affairs Department – perfect preparation, one assumes, for his current position in charge of Italy’s public spending.
However, Cottarelli is meeting resistance, primarily from Renzi who intends to take control of the spending cuts himself. “It’s Renzi who’s going to decide where we are making cuts… not a technocrat,” Renzi told the FT in the third person form.
Renzi also threatened to take on Italy’s business lobbies:
Rome is a city full of lobbyists. Italy is used to relationship capitalism. I’m not part of that system that has destroyed this country. I’m alone with the 40 per cent of the Italians who voted for me, with the 11 million Italians who voted for my party, and only with these and with my team, will this country change.
This is not the first time that Renzi has unleashed a shot across the Troika’s bow. In July, he declared that the Troika would never come to Italy and that he would not raise taxes.
Renzi’s public defiance may be born of principle, arrogance, or naivety, or a combination thereof; worse still, it may be a carefully crafted sound bite for public consumption. Alternatively, it could be the product of a very astute calculation: namely that he actually holds a much stronger position than many believe. As the EU’s third largest economy, Italy’s weak economic performance is as much, if not more, of a headache for Brussels as it is for Rome. With over €2 trillion of public debt – representing 133% of its GDP – Italy is not only too big to fail, it’s too big to save.
What’s more, deposing Renzi may prove much more difficult than getting rid of Berlusconi. After all, even for a country boasting a modern political history like Italy’s, four unelected leaders in two years is probably a little excessive; people might actually start wondering what happened to their democracy.
If the Troika were to pull off another bloodless coup, it would almost certainly have to be followed by national elections. And the main beneficiaries of those elections would likely be Berlusconi’s PdL Party and Beppe Grillo’s Five Star Movement – two parties that would like nothing more than to write the epilogue in the euro’s short history.
So the Troika may be forced to put its plans for Italy on ice – at least for now! And as the plotters of coups retire to the drawing board, Italy’s debt continues to grow while its economy slowly shrinks. In the meantime its brave (or perhaps just crazy) young leader wants a thousand days to make the political and economic changes he thinks his country needs; he’ll be lucky if he gets a hundred. By Don Quijones. An exclusive for Wolf Street.
Through crude use of statistics, the Spanish government makes a mockery out of tragedy. Read…. How Government Masks the Plight of Spain’s Lost Generation
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Nice post, but G. Papandreou and Silvio Berlusconi both left in autumn 2011 NOT 2012. Correct the errors.
Also: Mario Monti had NEVER been a central banker, not even a banker. He had been teacher and chairman of Economy at Bocconi University in Milan, before and after his job as European Antitrust Commissioner.
As a fan of Wolf Richter’s blog, whose posts I linked some times, I’ld like not to find errors in it. Not even about Italy.
Apologies Marbru, it was my fault. It won’t happen again!
Thanks, marbu. I corrected the errors. I should have caught them when I was reading it but didn’t. I wrote a lot about the debt crisis at the time, and something should have jumped out. Sorry.
Which made me think just how time flies. This whole debacle seems to have happened just a few months ago….