Archive for the ‘EU’ Category

Trust

November 10, 2011

Nouriel Roubini, who lived for 20 years in Italy, has the day’s best post on the evolving Italian crisis. The concluding paragraph is a reasonable summary of what is required by Italy’s Euro partners to keep it in the currency bloc at this point:

‘Only if the ECB became an unlimited lender of last resort and cut policy rates to zero, combined with a fall in the value of the euro to parity with the dollar, plus a fiscal stimulus in Germany and the eurozone core while the periphery implements austerity, could we perhaps stop the upcoming disaster.’

What Roubini does not spell out is why this is unlikely to happen. When all the talking is done, it is a simple matter of trust.

Northern Europe does not trust Italy to push through the reforms that would make the effort and expense worthwhile.

The Matilda problem that I highlighted back in August is coming home to roost.

My own thought for the day is Article 54 of the Italian Constitution:

Those citizens to whom public functions are entrusted have the duty to fulfil such functions with discipline and honour.

It seems the last Euro-era chance to interpret that line in a more mundane and literal fashion may fall to Mario Monti.

Studying the classics

November 9, 2011

They say you can learn from the classics. So here are my bullet points on the heroic struggles of Europe’s ancients.

 

How Greece did it:

1. Get money from EU in return for reforms.

2. Tell EU/IMF you need to hold referendum in order to get population on board.

3. Abandon referendum when rest of Europe says this is devious and should have been discussed up front.

4. Bicker and look ridiculous.

5. Leave Euro and return to Third World.

(6. Feel really bad when Turkey joins EU and takes commitments seriously.)

 

How Italy could do better.

1. Tell EU you need to hold referendum in order to get population on board.

2. Form government of national unity. Agree comprehensive package of labour market, justice system and fiscal reforms with EU/IMF to be overseen by IMF.

3. Don’t bicker. Hold referendum in January.

4. Implement reforms under IMF oversight.

5. Remain in Euro and begin to be respected member of First World instead of being resident joke member.

(6. Not have to feel bad when Turkey joins EU and takes commitments seriously.)

 

But which option to go for?

Rodin's epic representation of the Italian politician

The song of a lost nation

November 9, 2011

Here’s a new song to sing to keep up spirits as we wait for Italy to fall into the abyss:

IMF, IMF, IMF

IMF, IMF, IM-E-EFF

IMF, IMF, IMF

AYE EMM FFFF

 

Because even though the country is among the richest in the world, it can’t look after itself.

And take a look at the bio of David Lipton, who the IMF had already scheduled to go to Rome next week (before Italian bond yields hit 7.5% this evening). This guy appears to have the cv from hell. He worked at disaster bank Citi in the run-up to the global financial crisis. He (presumably) filled his boots at hedge fund Moore prior to that. He was part of the Clinton financial deregulation road to hell  team in the 90s. Which came just after he had worked with Jeff ‘did I say that?’ Sachs to provide restructuring ‘advice’ to developmental superstate Russia in the 1989-1991 period. Maybe there really is a God. And he really has lost patience with Italy.

Seven

November 9, 2011

Time for Giuliano Mignini to investigate. The yield on Italian debt has hit seven percent. Which is the same as the number of deadly sins committed by the Italian prime minister. Every week, which in turn has seven days. And today is only just more than seven days after Halloween, the diabolical festival when Raffaele Sollecito and Amanda Knox, give or take a day, hatched their Satanic ritual murder plot. In Perugia. Whose name has seven letters.

It is soooooooo obvious that everything in the whole world is a conspiracy. How can anyone be expected to take action when confronted by forces beyond our control?

Frankly, they can’t. Which is why Italy’s professional class is doing nothing as the country goes down the tubes.

Let Rome burn!

The images will at least form a good backdrop for a Dolce and Gabbana advertising campaign. Sicilian peasant chic — combining glamour, stoicism and passion — is surely the perfect day-wear for the modern cataclysmic financial crisis. Not to mention a great metaphor for a society living on bullshit.

Prime Minister Nero putting in a bunga-bunga order last night.

Worth a read:

Nouriel Roubini reposts what he said about Italy at Davos in 2006. Roubini’s analysis led to a bizarre racial outburst from finance minister Giulio Tremonti, the former professor of ethics who was recently busted renting a Rome apartment for cash.

Oh mamma, can this really be the end? (Nth reprise)

November 8, 2011

Only in Italy do markets bounce, the currency strengthen, and gold weaken when the leader of political ‘right’ says he will step down (in order, as the traditional Italian formulation has it, to spend more time with his bunga-bunga girls).

Of course Sil hasn’t said when he will go.

As if to remind us that whatever the Greeks can do badly, the Italians can do at least as badly, this limp political comedy will continue.

Meanwhile, the IMF has been invited to Rome, which will give staffers a pre-change-of-government chance to reflect on what actually needs doing to keep Italy in the Euro. Most economists quoted in the press focus on the need to deflate. But this is impractical — Italians couldn’t take the deflation any more than Greeks could. No society can watch its real incomes shrink by a quarter or a third in order to make economists’ graphs look the way they ought to.

The only real way forward for Italy is very serious structural reforms which unlock fairly quick productivity gains and hence growth.

There is no theoretical reason why this cannot happen.

However, the job that will confront the IMF if it is called in to run a programme — which I continue to believe it will be — would exceed anything it has undertaken before.

Not only the labour market and outsize public sector need to be overhauled, but the entire justice system has to be reworked.

Can a foreign agency do such things outside the settlement terms of a catastrophic war? I suspect not. Which leaves two choices. Either give Italy German money and accept the country will not change and will remain a fiscal burden on the centre. Or kick Italy out of the Euro and refocus the group on a more northerly European caucus of states that can actually deliver political, social and fiscal integration.

In the end, it is all politics.

Shaggy dog

October 27, 2011

It’s another fudge from Europe. The European Financial Stability Fund has been ‘theoretically’ expanded through approved leverage to perhaps Euro1 trillion. Private holders of Greek bonds will ‘theoretically’ take a 50 percent hair-cut, though no details have really been agreed. Silvio Berlusconi has delivered a letter ripe with fulsome promises of structural reform in Italy, to add to lots of other fulsome promises he made before.

It was clear in recent days the markets were ready to accept some more thin European gruel as ‘good news’. Corporate earnings in the US continue to be strong and the latest US GDP figures suggest the American economy is slowly crawling away from the abyss. The very slow improvement in the US macro numbers is the bigger economic story, albeit less trumpeted in the press.

The European train wreck waiting to happen has been moved back down the line. But not far. In the absence of any substantive structural change in Italy, a train wreck there will be. The base case remains remains an Italian fiscal crisis and IMF intervention in the absence of any EU capacity to address the problem.

In the mean time, Italy’s negotiating position can only be strengthened by the ECB’s continued purchases of its debt (EU debt socialisation by the back door) and by the Greek debt hair-cut (What about us, another ‘young’,  ‘peripheral’ European state?). Time to write about something else for a while.

Next day update:

Porco cane! Rome auctions some debt this morning and the market still wants 6 percent (FT sub needed)… In fact the cost of Italian public debt has gone up to a new record. Is it possible that people outside the Italian elite are less stupid than they thought?

Un-modern family

October 24, 2011

You’ve got a big mummy who hasn’t aged that well but has cash. Your dad is a bit flash but somewhat light-weight and ineffectual. And you are still sponging off your parents despite the fact you are 75 years old.


Sound familiar? That’s right, it’s the Germany-France-Italy relationship.

The sight of Frau Merkel and Sarko-I-can-do-a-serious-face-too chastising Big Baby Silvio Berlusconi is like watching some super-sick sitcom that makes Modern Family seem like straight play.

Sil is going to have an emergency cabinet meeting (FT sub) to talk about really really really doing something to sort out Italy’s structural problems.

I am soooooooo excited.

Betchuartooo.

 

Mum and Dad are questioned about Sil:

Here is the presser where a journalist asks in French if Mummy Merkel and Daddy Sarko find Sil’s promises about what he is going to do convincing. The facial expressions are priceless. There have been a couple of hundred thousand page views already.

Sunday bloody Wednesday

October 20, 2011

Italian debt yields are back over 6 percent. So France and Germany react by announcing that Sunday’s last-chance saloon summit on European debt and economic restructuring will go ahead, but won’t reach any decisions. Instead there might be another summit on Wednesday. Or Thursday. Or next weekend. Maybe Sarko and Merkel are hoping the markets will really fall apart so they can be seen to be forced to do something. This is the most likely endgame. But of course if they are forced by a market crisis, France and Germany will react with a bail-out package rather than a new political agreement that puts the EU on a sustainable track to being the world’s most desirable economic bloc to live in. That would involve a political and institutional agreement, not a conclave of thieving banker types trying to structure the EFSF in a sufficiently complex way that the world is conned into thinking that all is well.

While pondering this, I check the press at the end of the day and am saddened to discover that Berlusconi is dead. ‘Maverick dictator with little regard for reality’ says the headline of the obit in the FT (sub needed). It is a bit tough to say of a deceased G8 leader that he ‘had a grandiose vision of himself and of his country’s place in history’. None the less, Italians certainly ‘were impoverished and repressed by his policies but nonetheless forced to pay homage to the illusion that he was a political visionary’. However, surely the FT has got it wrong with the claim that Berlusconi was born in a tent near Sirte in 1942? Wasn’t he born in Milan in 1936?

 

 

 

 

Flummoxed

October 11, 2011

The latest remarks of European leaders about the EU crisis, and the markets’ positive response, leave me at a loss to understand what is going on. The idea seems to be that having a bit more argument about the shape of a Greek debt write-off, and moving forward with the recapitalisation of banks, is all that needs to be done.

The rhetoric assumes that this is a financial crisis. It isn’t. At heart this is a political crisis of the EU. It requires two societies — Greece and Italy — to decide whether they are going to adjust to the requirements of EU- and Eurozone membership. There are good arguments why both these states might want to cut and run. If they really cannot adjust their institutional frameworks to allow them to compete at European levels, they are better off outside the union.

But whatever is decided, the problem is a political one with only political solutions. Martin Wolf (FT sub needed) seems to think the same.

 

 

And mayonnaise all over

October 6, 2011

In the finest traditions of the Italian judiciary, the presiding judge in the Sollecito-Knox appeal — Claudio Pratillo Hellmann — has been giving interviews to the press.

You can guess what he said: this has been a terrible mess, creating appalling trauma for innocent people, in particular the Kercher family. We really have got to get an independent prosecution service set up — like the CPS in the UK — and start following our rules about criminal investigations. Plus, we need a full public enquiry into the whole thing, not least the conduct of the police, why no tapes of the Knox interviews were ever produced, allegations of physical attacks on journalists, and so on. And don’t even get me started on Mignini…

But of course I am joking. What Hellman really said (let me stress I have not had time to read the original text in Italian but John Hooper is a serious correspondent) is that it is quite possible Sollecito and Knox were party to the murder, that Mignini is at the top of his game, and that the issues are really very complicated.

Many open-minded Italians will forgive Hellman because his brave decision to do the only sensible thing and have the forensic ‘evidence’ looked at by more serious people decided the outcome of the case. He is likely just covering his fanny, as they say in America. But in covering his fanny he is ensuring that everything will stay the same. Which means that people less interesting, less white, less attractive and less well funded than Sollecito and Knox will continue to get stitched up unnecessarily.