Big Old Problem Just Re-Erupted on Eurozone’s Southern Flank

Italy’s fiscal health is once again in serious decline.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

On Wednesday, Italy’s coalition government slashed its growth forecast for the Italian economy in 2019 to 0.2% – the weakest forecast in the Eurozone – from a previous forecast of 1%. Italy is already in a technical recession after chalking up two straight quarters of negative GDP growth in the second half of 2018.

The government’s budget for this year was based on the assumption that the economy would expand by 1% this year. Now, it seems the economy may not grow at all; it could even shrink.

One direct result of this is that Italy’s current account deficit for 2019 will be substantially higher than the 2.04% of GDP Italy’s government pledged to stick to late last year. And that can mean only thing: another standoff between Rome and Brussels over the direction of fiscal policy is in the offing.

Italy already boasts the largest public debt pile in Europe in nominal terms, clocking in at €2.14 trillion, as well as the second largest in relative terms after Greece’s twice bailed out economy. Rome just forecast that public debt would hit a new record high of 132.6% of GDP this year. That record is unlikely to last very long given Italy’s stagnating economy and the government’s determination to cut taxes, reduce the retirement age and introduce a citizens’ basic income.

The biggest problem with Italy’s economy is that many of its problems are chronic and deep seated. Many of them date back to the adoption of the euro, in 2000, or in the case of Rome’s massive addiction to public debt, to the 1980s. As the OECD points out, real GDP in Italy is still well below its pre-crisis peak. Italy is also the only OECD country where incomes (as measured by GDP per capita) are no higher than in 2000. By contrast, in France, Spain, the UK and Germany they have risen during the same period by 13%, 17%, 21% and 23 respectively.

The IMF now envisages Italy’s public debt ratio ratcheting up to 134.4% of GDP in 2020 to 138.5% in 2024. As the debt increases, so too will the interest payments on the debt. That is unsustainable, especially with much of that debt scheduled to fall due in the next few years. In 2019 alone, Italy has an eye-watering €250 billion of bond redemptions to fund, which is roughly the equivalent of all Eurozone bond maturities this year.

And now Rome doesn’t even have the ECB to rely on to buy up over half of the bonds it issues. Of course, in these yield-starved times investors will gobble up higher yielding Italian bonds, at least for a while. But a risk that those yields will climb too high, at which point bond vigilantes will take matters into their own hands, as happened in 2012 when the yields on Italy’s 10-year bonds soared to 7%.

Before that happens again, something will have to give. If Italy had its own currency and were in control of its own monetary policy, it could try to inflate the debt away — whatever that might do to its own currency. But it isn’t and it can’t. Alternatively, it could, like Greece, default on its debt, with dire consequences for holders of that debt, including Italian households and domestic and foreign banks.

The one other option open to Rome is one that has also already been tried, with limited success, by Greece — i.e., to slash public spending, hike taxes, privatize public assets, squeeze the informal economy, and impose a harsh austerity regime. This is the path recommended by the OECD, but it would virtually guarantee electoral suicide for Italy’s coalition government partners which will do whatever they can to avoid alienating the very voters who gave them their first real taste of power.

In other words, none of these classic solutions are realistic options for a country as big and as systemically important as Italy. That the country is now being run by two relatively nascent anti-austerity parties that are not wholly enamored with the European project and as such are willing to face down diktats from Brussels, at least up to a point, further heightens the risk of conditions spiraling out of control.

Italy is home to an extremely fragile financial sector with the highest NPL ratio and lowest return on assets of any of the major European economies. The French government has already warned that an economic recession in Italy could pose as great a risk, if not greater, to the EU than Brexit.

And it makes sense for the French government to be worried. The economies of both Italy and France are tightly interwoven, with annual trade flows of around €90 billion. More important still, French banks are, by a long shot, the largest foreign owners of Italian public and private debt, with total holdings of €311 billion as of the 3rd quarter of 2018, according to the Bank for International Settlements. If Italy defaulted, French banks would take an almighty hit to their balance sheets. By Don Quijones.

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  54 comments for “Big Old Problem Just Re-Erupted on Eurozone’s Southern Flank

  1. MF
    Apr 11, 2019 at 4:42 pm

    Has anyone ever seen a government budget that plans for economic shrinkage? Even during recessions, all we ever seem to hear is “green shoots” and “just turned the corner.”

    • Saltcreep
      Apr 11, 2019 at 5:14 pm

      MF, as I see it the problem is that any ponzi scheme requires ever more new money entering, and any widespread sign of weakness is potentially the end. Once any contraction is broadly understood the whole thing implodes.

      My mind spins every time I hear our central bankers and politicians step up and start talking about how ‘strong’ our economies are, at the same time that any slight wiggle in asset valuations actually causes our super fragile and massively overleveraged markets and economies to veer towards collapse…

      • Dale
        Apr 11, 2019 at 8:33 pm

        The central banks have been keeping Wile E Coyote suspended in mid air for quite a while now. Every day they don’t normalize reduces proportionately the chance that they ever can normalize, and increases the probability of a disastrous fall.

    • char
      Apr 13, 2019 at 8:37 pm

      If you have an inflation of say 2% you need a lot of shrinkage to have a nominal shrinkage. Germany does it in East Germany but doing such things in a colonial relationship is easier.

    • nick kelly
      Apr 14, 2019 at 7:32 pm

      ‘Deputy Prime Minister Matteo Salvini has called for the central bank’s leadership to be removed for failing to prevent Italy’s banking crisis. This week, he threatened to seize control of the country’s gold reserves and sell them to fund further government spending. ‘

      From AEI site.

      In the last day or so the head of the IMF has warned Turkey to respect the independence of its central bank. The Turkish leader had criticized its hikes in rates to defend the embattled currency.

      How odd that Turkey gets a rap on the muzzle from the IMF but the lunatics in Italy don’t.

  2. Rosebud
    Apr 11, 2019 at 4:55 pm

    I recommend Italy and Italians meditate this coming Full Moon on the work of Giovanni Virginio Schiaparelli, especially how this astromer connected comets to meteor showers, using very basic equipment. Through this mind excercise, the fiscal challenges will become more easily solved.

  3. Rowen
    Apr 11, 2019 at 5:01 pm

    Even with immigration, Italy’s population has had a -300K population change in 5 years. Absent exporting or wealth redistribution, I’m not sure how you can have growth when the population is literally shrinking.

    • Jonathan Vause
      Apr 11, 2019 at 6:46 pm

      impovements in productivity?

    • Javert Chip
      Apr 11, 2019 at 6:48 pm

      Yup, wealth redistribution to Italy’s aging, shrinking & unproductive population is what’s needed to solve the problem of an aging, shrinking & unproductive population.

      At the very least you have to admit this would fill the highways out of Italy with the moving vans of wealthy (and previously Italian) citizens as they “relocate” their wealth to other nations.

      • zoomev
        Apr 12, 2019 at 8:09 am

        Obviously we need a global banking agreement where one country can claw back the income earned during the life span of citizen regardless of where they live…your wealthy itialians can live whereever they want, but not their money.

        • RagnarD
          Apr 12, 2019 at 1:40 pm

          As I hear, the Chinese govt is perfecting the infrastructure for just such a policy. And any and every other policy that requires Skynet like capabilities.

          Utopia Ahoy!

    • MC01
      Apr 12, 2019 at 12:55 am

      I have been to Italy recently (for those who haven’t bothered to death yet I am part Italian myself). Do you want to know how this country can have growth? Same way France (my other mother country: pity me) did: unreported inflation.

      Real estate is the prime driver of economic growth in Italy, a sector so massive it accounts for 9-10% of the GDP (there are conflicting data), and it has gone into full-blown overdrive since Draghi decided to bail them out in 2016. Prices have shot up an average 7% per year ever since, which when you consider the growing unbalance between North and South gives steady double digit real estate inflation in the wealthiest areas of the North.
      However here’s the thing: population has started to shrink even in those wealthy areas of the North. In short we have a rapidly growing stock of unsold real estate, we are literally running out of buyers but our economy depends on keep on selling houses at inflated prices…

      Immigration won’t come to the rescue. Italy is not the Bay Area or Vancouver: immigrants are not highly paid IT professionals or Chinese speculators and the average house in the North is half of a horrifying concrete cube at the side of a crowded road full of potholes going for 400 grands or more. Immigrants are also smart enough (surely smarter than the locals) to avoid being suckered into the real estate game: prices are high when you buy but selling is another thing completely. I have being trying to unload a property I have in Italy (part of an inheritance) for a year now and my experience radically differs from propaganda. I pity all the people about my age who have mortgages running in the hundreds of thousand for houses that may be worth a fortune on paper but nobody really wants. They are the ultimate bagholders: already my generation has not fallen for the home ownership scam as much as those who came before and younger people are way smarter than we are.

      • Cashboy
        Apr 13, 2019 at 11:22 pm

        I was living in Switzerland but 10 kms from Como, Italy until last year. I have seen real estate prices falling in Northern Italy so not sure where you are getting your information from.
        There is a two year waiting list for a safe deposit box in south Switzerland. There is a shortage of 1,000 Swiss Franc notes ( about US$1,000). I believe this is because of negative interest rates in Switzerland and the Swiss banks credibility gone (disclosing information to US government), Swiss francs as opposed to Euros that I believe is going to lose value in the future.

  4. Lemko
    Apr 11, 2019 at 5:19 pm

    Sugar Daddy ECB will end up owning half of Italian Banks by end 2020!

    Haha, forget Japanification, ECB is socializing debt and privatizing profits!

    They will never let them fail, it’s pretty clear Europe is Socialist for Corporations ( in the name of job stability )… Italy went into a recession from Q3-Q4 2018, while ECB was still buying there debt. There economy isn’t productive and is heavily reliant on debt, like the majority of Europe’s economies. The Tech Industry practically got left behind, except in Germany where they have a strong Robotics/Manufacturing setup. France economy is diversified but more on the banking and major multinationals side

    ECB took over Carige beginning of this year, trend isn’t gonna change anytime soon according to data

  5. Some Guy
    Apr 11, 2019 at 5:56 pm

    With their own currency, they could just have the central bank buy the debt, no big deal, a la Japan. As with Japan, no risk or likelihood of inflation.

    But without their own currency they are out of luck, just like Greece – the only way out is a massive internal devaluation or write-down, but there is so much debt, so little national cohesion and so much hostility from the European (German) institutions that this seems like an implausible path.

    The solution is obvious, leave the Euro, but they don’t have guts to take it, so they deserve what they get, still sad to see though.

    • Javert Chip
      Apr 11, 2019 at 7:00 pm

      re: Italy leaving the EU (CAVEAT: the following is all Fantasy Island stuff; at no time will any government in the EU actually do something reasonable):

      If you think Britain is having fun trying to Brexit, Italy is open to the same issues…

      EXCEPT

      …Italy owes over 500B euros of track 2 debt to the ECB (distributed to other Euro countries, the track 2 debt amounts to 27% if Italy’s 1.850T euro GDP (Note: Britain does not use the euro).

      • timbers
        Apr 11, 2019 at 7:40 pm

        Well….

        UK has it’s own sovereign currency. Whatever hell it goes thru by leaving the EU that is exactly N.O.T.H.I.N.G compared to what the EU can do to Italy because like Greece, Italy does not have it’s own currency.

        The EU can literally force most of Italy into actual mass death by starvation – just like the EU was slowing moving towards in Greece until she capitulated – by shutting off currency.

        The solution is obvious:

        Italy MUST re-establish it’s own sovereign currency if it is ever to escape the ECB dictatorship of the EU.

        • d
          Apr 13, 2019 at 2:07 pm

          “Italy MUST re-establish it’s own sovereign currency if it is ever to escape the ECB dictatorship of the EU.”

          To even come close to possibly doing that or leaving the Eu which under current rules is the only way for a euro country to leave the euro.

          Italy has to first clear its target II .5 T YES trillion euro debt.

          As they cant print it, they have to borrow it, and then they have to clear the target II debt that would develop in the 2 years of article 50 negotiations.

          That new Target II debt would dwarf the old .5 T as every italian would move every Euro possible out of the italian banking system, before the withdrawal/exit date.
          ,
          The Italian population, is the same as the greek population, they hate the Eu/EUR.

          They hate the ever devaluing Lira/Dracma even more. Which is why tipras could not win the referendum vote to leave the Eur under the excellent deal put forward by Germany. Even though he desperately wanted to.

          Which would have seen grece leave the Eur and simply have its Eu membership Suspended until its financial situation recovered (In reality suspended for ever).

      • Bankers
        Apr 11, 2019 at 10:26 pm

        Well it’s a service economy now you see, so generating 4bn of GDP moving goal posts ranks among one of the greatest marvels of creative modern economic thinking . I was particularly impressed by the manner in which the prime minister, as lone representative of British public opinion, single handedly managed to secure an extension on remaining in the European Union simply by waving a useless contract she had cooked up around parliament. Careful reading of the extension text however will be seen to notify that before its conclusion it might no longer apply, and without saying what would apply in its place – nothing maybe, certainly not a date for the UK to shove it mate. It must be quite fascinating treading into the political void with a whole nation on ones shoulders without knowing what one is doing, and “my goodness we both chose the same blue jacket isn’t that a coincidence my dear chancelloress, the media props certainly bode well as harbingers of our greatest folly on this fateless day. It is easter though, so let us hop off on holiday as crucifixion draws near. We’ll be back… tootaloo” .

        • HMG
          Apr 12, 2019 at 4:57 am

          Bankers Comments are always by far the best.

          He never fails to ‘hit the nail on the head’.

        • Bankers
          Apr 12, 2019 at 7:03 am

          I missed once and fractured a finger :-( , but that’s learning for you and at least we get ten shots till our hands are completely buggered. Thanks.

        • HMG
          Apr 12, 2019 at 2:29 pm

          Don’t for get you’ve got ten toes if you want to play on.

        • Bankers
          Apr 12, 2019 at 5:23 pm

          I have never felt so grateful for not having any piercings.

    • nick kelly
      Apr 11, 2019 at 7:30 pm

      You can’t compare the Japanese yen, an SDR reserve currency and arguably the hardest in the world (either 1 or 2) to whatever a new lira would be worth.

      The lira was already a second- tier currency in Italy before the euro. Real estate was priced in dollars. In a typical symptom of looming currency collapse, it had begun to issue very large denomination notes, the last a 500, 000 lira note.

      Given the state of Italy’s economy, a new lira might not be fully convertible, it might not be money outside Italy. There are only 17 fully convertible currencies. The yen is money anywhere.

      There may be more enthusiasm for a return to the lira outside Italy than inside. One sector that does not want to be paid in lira: Italy’s bloated, overpaid, inefficient public sector.

      BTW: the latest populist idea is to unilaterally print euros. Some would call this state counterfeiting or maybe just Modern Monetary Theory.

      • Javert Chip
        Apr 11, 2019 at 10:39 pm

        Now that is popcorn worthy.

        Another twist to the plot: life with a German head of the ECB.

    • fajensen
      Apr 12, 2019 at 3:08 am

      The obvious one true solution to a complex problem … sure. Some of us are old enough to remember the Lira and what Italy was like when they had the Lira. Leaving the EUR means interest rates of at least 10-15 % to make up for the continuous devaluations and the defaults every 5 years.

      Italy was always a dysfunctional mess because in Italy there is no widely shared idea of what ‘Italy’ means; Every Italian has their own personal version and they don’t agree on anything, especially not for the longer term. Instead of ‘country’, the Italians will organise around ‘Family’. It took Napoleon Bonaparte to make Italy into one country.

      You can see it if you go to Italy. The common spaces, like the street and the facades of the houses will look like shit, once inside the shops, one sees that they are clean, well maintained, the staff appropriately dressed in quality fabrics, they are knowledgable, the goods attractively displayed and so on. They got form, basically, they are professionals, no McJobs in there.

      Which shows that Italians worry a lot about what they control, which is what they own. The common stuff, no, not so much, although I hear that there has been protests in Rome about the garbage sitting everywhere because collections suck. Which shows maybe there is a change in the way Italians think.

      • RD Blakeslee
        Apr 12, 2019 at 7:54 am

        “Italy was always a dysfunctional mess because in Italy there is no widely shared idea of what ‘Italy’ means; Every Italian has their own personal version and they don’t agree on anything …”

        An acquaintance of mine is a classical pianist who has played extensively in Europe, over the years.

        She does not perform in Italy, claiming that the Italians lack discipline to the extent that a organizing a concert is “problematical”.

  6. Unamused
    Apr 11, 2019 at 8:09 pm

    Austerity policies starting when Italy adopted the the Maastricht Treaty of 1992 caused consumer demand to decline to the point where debt increased faster than economic growth, turning Italy into a debt peon with no way out. It took about thirty years.

    There’s an article at economicprinciples.org on why and how capitalism needs to be reformed, but really, it’s too late for Italy, and it’s too late for the rest of the world because it follows the same model, more or less. I decided to waste time and effort commenting on it anyway, mostly because I like to blather but also because I like to rub it in, not because there’s a whelk’s chance in a supernova that human civilization can avoid its unhappy destiny.

    Capitalism could only be reformed by having workers own the means of production under a system of strict regulation where the role of banks would be reduced to that of public utilities. Similarly, ecocide could only be avoidable by accounting for environmental assets. Also similarly, population can only be controlled by empowering women.

    All three conditions would have to obtain in order for civilization to be sustainable, and none of the three will be, so it will not. Those who have power in the world want things to be the way they are, and they care less about the consequences than about their privilege, despite some bleatings of concern. Reform that would be sufficiently radical to save civilization would desperately cruel even if it were possible. It may have been possible to eventually establish a world order that is just, prosperous, peaceful, and sustainable if the necessary policies had been established after WWII, but that isn’t what TPTB wanted, so it never happened, and now it never will.

    Agent Smith was right about people. And it accounts for the Fermi Paradox.

    “Capitalism is the extraordinary belief that the nastiest of men, for the nastiest of reasons, will somehow work for the benefit of us all.”

    – John Maynard Keynes

    “We’re not going to make it, are we?” John Connor asked. “People, I mean.”
    “It is in your nature to destroy yourselves,” said The Machine.

    Remember this, and keep it with you, always.

    • MC01
      Apr 12, 2019 at 1:36 am

      That’s a stock accusation by Italian politicians out for a cheap scapegoat and, as usual, completely wrong.
      The euro has allowed consumer demand in Italy to grow far faster than average wages: just look at the hundreds (may be thousands) of malls that have been built in Italy during the XXI century when before they were occasional oddities. Or look at how car sales grew between 2002 and 2010. Or do we want to talk about real estate? Yet wages keep on stagnating, squeezed between high unemployment and low productivity.

      “Austerity” is an excuse every bit as lazy as “Brexit” which allows Italian politicians (and their voters) to avoid recognizing not merely their own mistakes but that without a single currency Italian consumer spending would have continued its previous modest growth.
      Do we want to speak about “austerity”? Let’s talk on how those same Italian authorities who daily lament lack of resources to fix literally crumbling infrastructures have no problem to keep on pledging billions for a completely useless high speed train (Ansaldo, the main contractor, is a wholly owned subsidiary of Hitachi so the claim to benefit Italian firms sound a bit hollow), or to keep zombie Alitalia alive. Or how they built not one but several “mini air forces” to fly themselves and their cronies around.
      On these issues the “big bad EU” remains silent while the “big bad ECB” is not merely keeping the taps of free money open but has long taken a sledgehammer to them and is not looking at ways to increase both flow and pressure. Yes, “austerity” is really a bad thing.

      • Unamused
        Apr 12, 2019 at 12:04 pm

        Um, austerity policies do not affect the privileged. And the poor do not make economic policy.

        Have you read Veblen’s “Theory of the Leisure Class”? That might explain it for you.

        • MC01
          Apr 13, 2019 at 1:03 am

          I have heard and read this “the small guy is a completely innocent victim of a sinister conspiracy” angle so many times I have even stopped reminding people the idea started during the Third Republic when what can only be called a large scale industry in propaganda and mystification sprung up. But I’ll repeat myself one more time.

          In the Third Republic “they” were mostly the English, the German Protestants, the Freemasons… basically anybody Revanchists, Cryptomonarchists and Conservative Catholics found disagreeable. These sinister individuals had found somehow found a way not merely to keep France down, but to continuously brainwash the masses into compliance.
          As nobody had any idea how this was even possible, a cottage industry in the equivalent of fringe websites sprang up, exposing anything from ancient Hindu magic rites to advanced mind control tecniques developed by the then fledging field of psychiatry.

          People avidly read, listened to and believed to this junk because it gave them a sense of not being in control and that bad things happened because of a sinister conpiracy well beyond their control. Nothing that could be done about it but lament their fate. And buy the latest book exposing how Freemasons controlled the French economy of course. ;-)

      • char
        Apr 13, 2019 at 8:56 pm

        You need a high speed rail network to connect people with the rest of Europe. Planes as a mass transit system will in Europe be gone in 30 years time. Besides high speed rail is almost profitable. Something unheard of in mass transit systems. Al others are deeply in the red.

    • Jos Oskam
      Apr 12, 2019 at 1:40 am

      @Unamused
      You have probably already seen this article:
      https://www.ineteconomics.org/perspectives/blog/how-to-ruin-a-country-in-three-decades
      It drew my attention as it was written by a compatriot of mine.
      There seems not to be a reasonable way out of this. I would rather not think of the unreasonable ways in which things could progress…

      • Bankers
        Apr 12, 2019 at 8:55 pm

        Seeing as no-one seems to be following this much now I’ll chip in to hopefully round off the discussion, re. unamused also. That article is good in terms of wages and exports, it shows the deregulation of the labour market in an effort to compete while in a stronger currency and against German technological and wage levels. Obviously it did not succeed by the resulting loss of use of capacity. The fiscal consolidation was actually a freezing of spending (imolaoggi.it/wp-content/uploads/2015/10/debito-pubblico2015.png) -use www. before all of these – , which was going to be nescessary unless beating Japan had been thought of (datocms-assets.com/312/1513358490-jjj.png), though public spending as % of gdp did go down (though still high) post ’92. So on that side I don’t see austerity so much as market liberalisation and currency/trade woes having the effect of reducing demand from Italy. However, there is another side to this, and unamused can label it conspicuous expenditure or whatever. Here is Italian disposable income (tradingeconomics.com/italy/disposable-personal-income), that shows there was money and domestic demand (just not so much for Italian products maybe), and here is an example of how (ceicdata.com/en/indicator/italy/household-debt). You’ll also note that euro area government spending to gdp matches Italy’s path for same also. So maybe now anyone will understand what MC01 is saying a bit better also. There was much money flowing into the hands of Italians via debt, it did not come from manufacturing so much and was owed to and spent outside of Italy ultimately. Still it is how to ruin/spoil a country in three decades, or maybe just one really.

        • Unamused
          Apr 13, 2019 at 10:54 pm

          =>There was much money flowing into the hands of Italians via debt

          The result of austerity. What do people do when they have to have the money and can’t earn it? They borrow it. From loan sharks.

          How can you post such an involved comment, running around the root cause, and still not get it?

        • Bankers
          Apr 14, 2019 at 8:31 am

          Well, it can also be understood that high government spending is austerity for individual endeavour, including in the shadow economy, due to monetary inflation and over involved legislation. That high rates gave a form of price stability to property in terms of low price , likely resulting from higher repayment costs or avoidance of those by hard earned cash in hand bargaining power, as well as minimal consumer debt for the same reason (high interest is very visible on any statement, and lending standards tend to be cautious under that regime speaking from knowledge of countries that are/were so) , provided room for predatory finance once rates were lowered. The resulting inflation of property prices moved money into the hands of owners, agents and construction, through to the wider economy. People “chose” this, from 2000 Euro to GFC was boom time… and it was celebrated by buying German cars and anything else from anywhere that was either cheaper or “better”. Pent up demand from the 90s maybe also, the country could have been primed, but the “choice” was of locals as far as as a whole that is how they reacted to low rates and stabler currency. It ruined the local economies though as periods of high inflation have their limits, even at ZIRP, and consumer orientation as well as expectation, social fabric, economic integrity are left hanging once the initial boost tapers off.

          It is an old argument between classical economists, monetarists, tradition and political leaning, and I had started on a much longer explanation that revolved around those, but we end up discussing the definition of money and how it is understood and controlled, and by who, and why, which is too long for here I think. Either way I think we can agree that unsound financial methods and related profiteering are part of the basic problem.

        • HMG
          Apr 15, 2019 at 11:42 am

          Bankers

          I am still trying to follow the thread.

          But it is getting rather complicated.

        • Bankers
          Apr 15, 2019 at 12:06 pm

          Yes I know, it is all very convoluted. As I was living in some of these countries during the whole period we are talking about, and from that know quite well the sequence of events, how average people acted as well, what happened to local economies, and so on, I am trying to merge that or integrate that wth with the policy choices and banking changes that were going on at the same time, to so give a broader view. The thing is that it is not possible to just say “it was rates” or “it was this policy” or “it was overanimated consumption” etc., as all of these interacted in many ways. So it is very difficult to draw this picture and it is very complicated. The reason I started to try to, beyond just labelling Euro and EU construct as the most obvious reasons for Italy ending up in a rut , is that austerity was being blamed as sole cause, and it most definitely wasn’t. Anyway I’ve had more than a fair say on this thread, if you run out of crosswords to do you could probably decrypt what I was trying to say – it does make logical sense , but I think I would have to expand far more than I can do here to include the full definition needed for easier understanding. Appreciated.

    • RD Blakeslee
      Apr 12, 2019 at 8:00 am

      “Capitalism could only be reformed by having workers own the means of production under a system of strict regulation where the role of banks would be reduced to that of public utilities…”

      That statement is a perfect oxymoron; it simply calls communism, capitalism.

      • Unamused
        Apr 13, 2019 at 10:57 pm

        =>That statement is a perfect oxymoron; it simply calls communism, capitalism.

        Tell that to all the overpaid CEOs getting government handouts. They LOVE “communism”. They LOVE socialism. But only for themselves. Much too good for the common people.

      • HMG
        Apr 15, 2019 at 11:44 am

        We already live in a half Communist and half Capitalist world anyway.

    • Bankers
      Apr 12, 2019 at 8:40 am

      As MC01 says, this is not austerity.

      Keynes version of capitalism also ignores property rights as fundamental in respect to being both the limiter and enabler of private/personal endeavour, and that would include money vs. state controlled allocation of its value (and associated hybrid privileges).

      Only one entity has a true monopoly on the use of force remember, and it acts on the private in the name of the public, supposedly to defend the private in its public setting, so Hegellian.

      But the problem to my view is of having handed financial control of the country to outside of the country , of having taken the option of drawing on the combined value of Euro to fund own spending via debt in what is effectively in a foreign currency. EU and Germany and France, knew and know debt is the Italian way , and take, and plan to take, full advantage of the resulting disorder. They would not have participated in this project were it not for the possibility of such opportunity.

      At least with national currency rates can be more closely aligned to national economic reality and accounting – if government screws up then they are out. You can’t kick out the ECB as it does not present itself to election, you have to chose a not corrupt party that will kick out the ECB, meaning kick out the entity that has supplied so much easy money… haha and you’ll have to wait till they try reclaiming money no one has, and then national assets, and then anything else, before the few left say “Hey!”.

      Such a social event, all welcome and so on.

      • Unamused
        Apr 13, 2019 at 11:01 pm

        =>As MC01 says, this is not austerity.

        Sure it is. You’re just trying to excuse the Ruling Class that imposed it on the disempowered minions and load up the thread with a lot of bs obfuscation.

        • Bankers
          Apr 14, 2019 at 8:53 am

          What is forcefully imposed is debt via taxation, which is your government spending, the reduction of which you call an imposition. That debt is also the money used by the financial world to work its ways.

          What is not clear about this?

    • nick kelly
      Apr 13, 2019 at 11:32 pm

      You are commenting on a product of capitalism.

  7. Ididsa
    Apr 11, 2019 at 10:22 pm

    “The one other option open to Rome is one that has also already been tried, with limited success, by Greece — i.e., to slash public spending, hike taxes, privatize public assets, squeeze the informal economy, and impose a harsh austerity regime. This is the path recommended by the OECD, but it would virtually guarantee electoral suicide for Italy’s coalition government partners which will do whatever they can to avoid alienating the very voters who gave them their first real taste of power.”

    Well said. The social ramifications of running a country on excessive debt relative to GDP. Austerity.
    Trump needs to look at this closely. Excessive Debt has social consequences for a country! You can’t simply declare bankruptcy (6 times) and make it all go away….

    • char
      Apr 13, 2019 at 9:04 pm

      Austerity only works in countries where people can’t leave. Italy would loose its population like what happened to the Baltics so debt per person would shoot up.

  8. fred flintstone
    Apr 11, 2019 at 11:17 pm

    Italy will never be able to stay in the euro. They cannot compete with Germany, US or China unless they depreciate their own currency. So Europe will split creating one heck of a mess. For the US some good some bad. Bad in the political instability that could result in commies taking Italy or Greece. Good in that the worthless pieces of paper called dollars will retain central bank reserve status for a long long time since the euro will be history and the morons running the central banks will never accept gold because it cannot be inflated.

    • nicko2
      Apr 12, 2019 at 12:59 am

      Ugh… the Greek economy is actually improving.

      • Robert
        Apr 12, 2019 at 3:32 pm

        This year, Greek shares have grown so far ~20%.

  9. HR01
    Apr 12, 2019 at 1:16 am

    Don,

    Thanks for the piece.

    Italy won’t be alone in failing to hit budgetary targets. All the EU headed for trouble as tax receipts continue to drop.

    Recession not going away. ECB only concerned with maintaining the facade that the banks are solvent. TLTRO-III loans will be used to repay maturing TLTRO-II loans (which mature next year). Latest statement from Draghi indicates that the ECB will gladly sit on its hands the rest of the year and watch the wheels come off.

    Yet the lunacy in bond markets reigns supreme. Last November, Italian 10-year sovereigns were yielding 3.5% and today they’re about 100 basis points lower. Spain and Portugal even nuttier with yields around 1%.

    Peak insanity cannot be far off.

    • Steve Clayton
      Apr 13, 2019 at 12:08 pm

      Insanity is Deutsche Bank-Commerzbank merging, if that doesn’t happen Unicredit who have huge TLTRO II loans with the ECB are interested. Talk about bad buying bad. Madness.

  10. Nikola R.
    Apr 12, 2019 at 4:51 pm

    Italy is probably systemically important, not systematically.

  11. whatever
    Apr 14, 2019 at 11:06 am

    We’ve seen Europe united before–most recently with Bonaparte and Hitler. Both ended. Life went on. Things will collapse and start anew. In Europe and in the US, we happen to be living through a collapse phase. Just because the sky is falling do we have to run around screaming the sky is falling? Buck up. Something new will emerge. Whoever said it was going to be all Margeritas and Mai-Tais? Stop navel-gazing and enjoy what you can during the decline. Your grandkids will be fine. You, maybe not so fine.

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