Italy
Trembling on the Brink
Wolf
Richter www.testosteronepit.com
13
June, 2012
“I
believe, no,” is how Italian Prime Minister Mario Monti answered
the question if Italy would seek a bailout—lacking the bravado and
vehemence with which Spanish Prime Minister Mariano Rajoy had claimed
for the longest time that Spain wouldn’t need one. Until it needed
one. The question was hot. It followed the kerfuffle that ensued when
Austrian Finance Minister Maria Fekter had let it slip Monday that
Italy, given the high rates it has to pay on its debt, might also
need “support.”
Monti
was addressing restive German taxpayers on Bavarian public radio: He
understood that Germans were looking at Italy as “a merry and
undisciplined country,” but Italy was much more disciplined than
other countries, he said, and wasn’t all that merry.
Italy
is paying twice, he said: for the bailouts of other
countries and very
high rates for its own sovereign debt. Germany pays only once, namely
for the bailouts, because it pays practically no interest on its
debt. But he promised his German listeners: “The budget deficit
this year will be low, only 2%.” And next year, a surplus is
scheduled. “The country is changing,” he said.
A
full-fledged bailout of Italy is a theoretical construct, anyway. As
the third largest economy in the Eurozone, it’s too big to get
bailed out by the Eurozone. Of the 17 member states, five, if Cyprus
is included, are already being bailed out. Leaves 12, including
teetering Italy, to pay for them. If Italy falls, the two major
countries left standing to bail all of them out would be Germany and
France. An impossibility.
And
Italy is desperate. “Schnell, Frau Merkel,” screamed the
front-page headline of the Italian business daily Il
Sole 24 Ore.
“Hurry
up, Ms. Merkel,” an open letter to German Chancellor Angela Merkel,
was a plea to do what it would take to save Italy—and thus the
Eurozone. “Great Germany is losing its sense of history ... and
solidarity with European partners,” the article admonished, despite
the hundreds of billions of euros that German taxpayers already
committed to the bailouts. It called for immediate action, which
would be in Germany’s own interest, and had “at least three”
demands:
1.
European-wide deposit insurance. Problem: it doesn’t exist yet, and
no bank has paid into the fund; thus, it would be taxpayers,
particularly Merkel’s voters, who’d have to transfer their wealth
to bail out banks and depositors in other countries.
2.
Give banks direct access to the bailout fund EFSF. Problem: it was
sold to voters as a bailout mechanism for countries, not
corporations.
3.
Unification of bond yields via Eurobonds. Cost of borrowing would be
the same for all countries, raising it for Germany and France, and
lowering it for Spain and Italy. A bit “more complicated” to
implement, it would require constitutional reforms of all countries
as they would give up part of their national sovereignty. A “European
constitution” would have to seal it. “Leaders in every country,
including France and Germany, must have the strength to convince
their electorates of the short- and medium-term benefits.”
And
it threatened Germany with economic demise, having learned how to do
that from Greece: “Germany cannot maintain its health and strength
amid the debris of small and large European countries.” Wondrous
benefits, on the other hand, would emerge from a political and fiscal
union—run by bureaucrats in Brussels, I presume: Europe would
suddenly become “a fierce competitor” that would be able to
“ensure income and jobs for a new generation.” If not,
“you”—that’s Ms. Merkel—“would be overwhelmed by a spiral
of defensive interventions that jump from one country to the next.”
And it concluded, “It’s clear to everyone that the United States
of Europe is a reality....Faccia
presto, signora Merkel.”
It
would be a debt and transfer union. Debt would be transferred into
one direction and wealth into the other—unless strict controls were
instituted. If countries were to guarantee the debt of other
countries, guarantors would have to be able to control how much can
be borrowed; or else, Greece for example, could borrow cheaply and
without limit while someone else would ultimately have to pay off its
debt. So, any kind of common debt, be it Eurobonds or other
instruments, would require a supra-national entity that decides to
what extent a country is allowed to borrow.
Once
the budget is in deficit, elected national representatives would lose
their ability to fund infrastructure projects, boondoggles,
subsidies, corporate handouts, wars ... a fundamental democratic
activity, messy as it can be. Instead, they’d have to go begging to
the board of bureaucrats who speak different languages and hail from
different countries. That board would wield enormous power over each
country as it decides what gets funded and what doesn’t, based on
whim or political persuasion. National politicians do that too, but
they’re part of the country and have to run for reelection.
The
US had hundreds of years and a civil war to figure out how to manage
its common good. The Eurozone is a group of 17 independent nations
with ancient cultures. Uniting them into a federal arrangement will
take decades, if it’s even possible. But the debt crisis is here
now. Italy is running out of options. Spain is hopelessly in trouble.
Greece has hit the wall. And turning that fiasco overnight into a
healthy United States of Europe is an illusion.
In
Greece’s chaotic wake bobs the Republic of Cyprus, the fifth
Eurozone country to get a bailout. A massive banking scandal, tight
connections to Greece, corruption, too much debt, and a lousy economy
took it down. But tiny Cyprus has one thing—and it’s huge—that
other debt sinner countries don’t have. Read.... Manna
for Bankrupt Cyprus.
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