|Italy's new Prime Minister Giuseppe Conte|
... the newly constituted government, of the anti-establishment Five Star Movement and the anti-immigrant League, still left open the question of whether the reaction of financial markets to Italy’s political chaos this week had chastened them, or whether it simply had led them to disguise their hostility as the price of admission into power.For good measure, or to conform to superficial reporting conventions, he adds that the coalition parties "also want to lift sanctions against Russia and for Italy to move closer to its president, Vladimir V. Putin, who once said he didn’t need to meddle in the Italian elections because it was all going his way."
Populist leaders in Europe and across the Atlantic looked on with delight as they gained a powerful ally in the heart of Western Europe. European leaders in Brussels, already worried about Poland and Hungary, now fear a threat to European unity from within its core. [my emphasis]
That treatment carelessly conflates the Italian coalition with the authoritarian regimes in Poland and Hungary and makes them sound like stooges of Vladimir Putin. It's a sloppy presentation.
And does the "paper of record" now just assume that it's the role of "financial markets" to "chasten democratically elected governments? Any lazy formulation.
EU Commission President Jean-Claude Juncker made it clear to Italians what the attitude of the EU leadership is, speaking like an English colonial viceroy (Stephanie Kirchgaessner Daniel Boffey, Juncker: Italians need to work harder and be less corrupt Guardian 05/31/2018):
Days after the Italian president, Sergio Mattarella, defended Italy’s place in the eurozone against the country’s populist leaders, the president of the European commission said he was in “deep love” with “bella Italia”, but could not accept that all the country’s problems should be blamed on the EU or the commission.Believe it or not, that actually is diplomatic wording! Translated from EU-speak, it basically means: "Italy will do what the EU Commission, Angela Merkel, and the financial markets order them to do. Everybody knows that Italians (and Greeks and Spaniards and Portuguese and Irish people) are lazy and corrupt. More importantly, if you try to depart one iota from Herbert Hoover/Heinrich Brüning economic policies in good times or bad, we will crush your miserable, inferior little country."
“Italians have to take care of the poor regions of Italy. That means more work; less corruption; seriousness,” Juncker said. “We will help them as we always did. But don’t play this game of loading with responsibility the EU. A country is a country, a nation is a nation. Countries first, Europe second.”
Although Italy's not so little.
The new Italian government faces the same basic dilemma that the Syriza government faced in Greece in 2015. To provide Angela Merkel and the EU to release them from stone-conservative neoliberal economic policies, they have to be willing to credibly threaten to leave the eurozone. Which means that if Merkel and the EU refuse to make reasonable concessions, the Italian government really would have to be willing to take Italy out of the eurozone.
But there's definitely a dark side to the new Italian government. They are taking a xenophobic line, like the governments in Hungary and Austria, among others.
So they are supposedly prepared to take a run at forcing a realistic adjustment of one of the EU's two chronic problems, the poor construction of the eurozone, which falls seriously short of being an "optimal currency area." Given the stubborn resistance of Germany and other northern European governments, that's not likely to happen, sad to say.
Bill Mitchell explains why the Financial Markets as such are not the cause of the euro's problems in (The assault on democracy in Italy Billy Blog 05/30/2018). He explains that the EU has a mechanism to save bondholders from taking a bad on their bond holdings, he writes:
The ECB clearly signalled a willingness to buy unlimited quantities of government bonds if there was the risk of insolvency.But the other chronic EU crisis, mass immigration of refugees, which also had an acute moment in 2015, is still there. The immigration wave isn't stopping. The EU countries badly, badly need an EU-wide plan for processing, housing, and integrating refugees, a plan based on some kind of reasonable burden-sharing among the member states. They also need to have adequate emergency services for refugee waves like the one that came in 2015. Xenophobic governments aren't going to get there.
But this intervention required that the countries succumb to a fiscal austerity package that ensured their growth prospects were minimal.
And the combination just meant that the next crisis was just around the corner.
The SMP gave way to the more recent asset-buying programs, which have seen huge volumes of government debt (other than Greece) accumulate on the ECB’s balance sheet, which have funded fiscal deficits and kept the Eurozone intact.
The interesting point is that while the ECB eventually dealt the private bond dealers out of the game they waited a time (in each episode) for those dealers to express their market preferences.
Why? It is obvious. They wanted to create a sense of public debt crisis – let the spreads of the Member State bonds rise against the German bund – to make it clear that Germany’s position was sound and the example and the rest were out of control rabble with excessive deficits.
Then they could have it both ways.