Quo Vadis? Italy at the crossroads

What can be made of Italy? Here is the third biggest economy in the EU, and it is sinking slowly in a sea of debt, neglect and bureaucracy. No other country quite encapsulates the romance of Europe.

Despite its quirky

Map of Italy with EU flag

Map of Italy with EU flag (Photo credit: Wikipedia)

trains, and appalling TV (thanks Silvio), Italy has always had a special place in the European heart. Italy is the capital of style. Italians ooze that elusive ‘something’ that Northern Europeans can recognise but not emulate.  We love the Tuscan landscapes, and the Umbrian hill towns, Capri, Sorrento, and wonderful Rome itself. We crave the sun drenched evenings, and the simple ‘ambulare’. We love the culture, not just the historical stuff of Roman Legions, or operatic heights, but even more so, the frisson of illegality, of Don Corleone, of borderline resistence to authority. We love imagining a spook at every corner, and a Don in every town. The food, the wine, the community… Such an Idyl, such a life!

On top of this Italy has been one of the industrial powerhouses of Europe, and has seen its GDP more than double between 2000 and 2008. Since then the wheels have started to come off. Like many perfect storms there are many elements, and it isn’t just debt in Italy’s case (although debt is a major problem, now 128% of GDP; thats about two and a half trillion euro to you and me). It seems that the Godfathers on every street corner, are neither  elusive nor romantic. Public works and politics are contaminated at every level by some very non-romantic people. The Ndrangheta butchers are spreading their Calabrian style gangsterism throughout Europe. Rubbish chokes the beautiful city of Naples. Judges and police are assassinated. Public contracts are tainted, and public works are corrupted. The black economy thrives.

The political system appears to have ground to a halt. The cumbersome system of electing a Government makes finding a political solution near impossible.  What other country could throw up a choice between a clown and a septegenarean accused of soliciting underage girls a quarter of his age? What other country could allow such a man to monopolise the media, and dictate the political agenda?

The price for all this is human and very real. Unemployment has doubled in the last five years to three million(12%). Youth unemployment rate is over 40%. Some 89% of youths aged 18-24 are relying on their parents. In a sad statement, Prime Minister Letta announced a Government program to reduce Yourth Unemployment to 30%, and suggested that this was progress. Italian industrial production is down 25% as austerity and debt takes hold. Even the (reverse) takeover of Chrysler by Fiat, seems to be a retreat from Italy by the car giant. Though this would have a far more symbolic than real effect, the optics are terrible.

While Italy is a member of the “PIIGS”, it does not really belong. It is  a founder member of the E.U.. It is in the G8. It is a military-industrial giant. It is synonymous for most of us cold-fish, with being the essence of Europe. If it fails, it is not a Cyprus, Ireland, Portugal or Slovenia. If it fails, so does the concept of European Economic Unity.

English: Portrait of Giacomo Puccini

English: Portrait of Giacomo Puccini (Photo credit: Wikipedia)

WIll Italy muddle through? There is a real tragedy worthy of Puccini at play here. Those of us who love Italy for its romance and charm will be hoping that the heroine doesn’t succumb in the last Act!. Those who care for Europe should be equally concerned.

 

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Save the Patient

English: Constituency for the European Parliam...

English: Constituency for the European Parliament election in 2009 Español: Mapa por el Elecciones al Parlamento Europeo de 2009 Français : Circonscriptions aux élections européennes en 2009 (Photo credit: Wikipedia)

Many austerocrats ask, what are the alternatives to austerity? Certainly the entire Irish government is in this camp, as are the Governments of much of the EU. They seek council from Wolfgang Schauble and Olli Renn. The mantras of shame and moral decline are rattled out, and the twenty million young people who are thrown aside  are ignored. The baby is going out with the bathwater.

Well I have some suggestions that won’t sit well with our masters, but here they are

Issue Eurobonds

This has been well described by George Soros.

Print Money

If the Germans are so worried about this, give a lot of it to the Germans, as long as they spend it on holidays in the recessionary countries.

Spend the rest of money you print however you like, provided that you are creating proper jobs. We need to save the young.

Allow modest inflation

Inflation of say 3% would ease the debt burden over time, and encourage people to invest their money.

We are not just talking about the economy here we are talking about the Union itself. If we cannot have a unified approach to these problems then we should seriously consider an early dissolution, before things get worse.

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Falling Apart – Week 9 P.C.

Things fall apart; the centre cannot hold;

../ The ceremony of innocence is drowned;

The best lack all conviction, while the worst

Are full of passionate intensity. – W. B. Yeats

Week 9 P.C. (Post Cyprus)

Its hard to believe, that we have become so adjusted to this crisis. News that would be shocking headlines just two months ago, hardly gets on Page 3 these days. Look in vain for upbeat news, it gets worse and worse, and nobody seems to either notice or care,

English: Various Euro bills.

English: Various Euro bills. (Photo credit: Wikipedia)

 

This week these extraordinary things happened and nobody blinked!!!!

Things are gathering pace, and are too few out there advocating a continued unity. What is most remarkable about this week, is how everyone has become so used to these huge shifts in our political psyche.

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Slovenia on the ropes

Ljubljana, Slovenia

Ljubljana, Slovenia (Photo credit: Wikipedia)

Slovenia is selling the family silver, yet is still being jilted. The effort to save the sub-alpine country from bankruptcy takes an aspirational turn. The unfortunate quote that the new scheme is like  trying to control a falling airplane is juxtaposed to the plan to sell the airport and the National Airline!

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Jurgen Habermas

Jürgen Habermas during a discussion in the Mun...

Jürgen Habermas during a discussion in the Munich School of Philosophy (Photo credit: Wikipedia)

The politico-social disaster that will evolve with the breakup of Europe, has been referenced by the German Thinker and Philosopher Jurgen Habermas.

Habermas is a noted intellectual in Germany, and he has added his voice to the cacophony of thinkers pleading for a new enlightenment in political thinking, to avert the dissolution of the Union. It must be a truism, that an inability of our politicians to think beyond their local and national agendas is prescriptive for dissolution. Survival of the Union can only happen when there is integration oriented leaders, and visionary statesmen or women. It is the current pity that we do not seem to have anyone of stature at this stage to lead the continent. The sapping of political will is a key ingredient of the current crisis.

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George Soros

George Soros, billionaire

George Soros, billionaire (Photo credit: Wikipedia)

One can almost get encouraged when wise council abounds. However wise council is ignored, and partisan political interests prevail. Germans can see no further than their forthcoming elections, and are busy claiming the high ground as the tsunami of European Disintegration approaches. To quote Yeats “the best lack all conviction, while the worst are full of passionate intensity”. The crisis becomes more acute by the day, and the political inertia seems to deepen.

George Soros, has put forward a succinct analysis of the situation in The Guardian. He is saying what anyone with a brain has been saying since Cyprus. He has, however, put his mind to finding good constructs for the remedy of the situation. His options are the issuance of Eurobonds, or alternatively Germany leaving the Euro. Again, this is the choice between integration and dissolution, which has been a theme here at Paddyspiigs.

If Germany did leave the Euro, who else would go with them,- Austria? Denmark? Holland? This would lead to a two speed Europe with the separation of the Northern nations from the indebted nations. A natural consequence of the current political atmosphere. This is a solution that totally ignores the political, social, and strategic aims of the European Union. It would be a sad message to send out to the world at large.

Soros’s analysis does however make a significant contribution to the current debate. Hopefully someone will listen to him!

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Simple Choices

Helmut Kohl - Chancellor of Germany (1982–1998...

Helmut Kohl – Chancellor of Germany (1982–1998) and architect of German Reunification – M.A. 1956; Ph.D. 1958 (Photo credit: Wikipedia)

Well Oscar Lafontaine is talking the talk again. Having brought Europe together in one if the greatest social experiments in modern history, he is now set on dismantling the euro, in what would be an equally brave experiment. Hopefully he won’t turn around in 15 years time and want to reverse again. Isn’t it great to have leaders with such flitting vision!

Germany has been a big winner in Europe and will continue to be going forward, for a host of political, social and economic reasons. It is true to say that Germans have managed their affairs prudently, and have not over-borrowed, like many of their EU partners. However, Germany has not been a passive spectator in the entire fiasco that has unfolded. It was the chief designer of the Euro and it impressed on the EU/ECB a standard of rigorous inflation control, that was ill suited to the peripheral countries. German investors were happy to invest in the periphery when the gains to be made exceeded the more modest gains in their homeland. Germany was at the forefront of insisting that Ireland not “burn the bondholders” in the appalling Anglo Irish Bank scandal, – an insistence that has done more to destroy the Irish state than any other single issue in the current crisis.

Germany also gains substantially from the current low inflation, recessionary environment, which sees capital flows into German bonds, and German Funds. Germany as a major production driver of the EU gains more than most by the tariff-free environment that it can sell its goods and services into.

By contrast, if Mr Lafontaine gets his (new) way, and the Euro breaks up, the German exports are likely to be the first casualty, as the peripheral markets are lost to the stronger Deutschmark. So no one escapes. We all sink or swim together.

In some ways the breakup of the Euro, will be the answer to the problems of the periphery. The peripheral countries will be allowed to devalue, and a certain amount of relaxed inflation targets, will help deal with the debt problems. Debt will be nominalised in the new devalued currencies as there will be no Euro as standard. This alone will do what Governments failed to do when the crisis hit. The periphery will have hopefully learned the lessons of the last few years in respect to fiscal control.

The subtitle of this blog “The Living History of the Breakup of Europe”, is more of an observational title than an aspirational one.  We need to get some straight thinking if Europe is to stay together, or indeed even if its not. What we are going through is a transformational change that will either make us stronger or our continent will succumb to partisan nationalism again.

There are only two ways to proceed, and those are integration or dissolution.

If we are to proceed along the integrationist strategy then we need to deal with all the sovereign debt and deficit funding in the system. This cannot be done with pure austerity, which is an attack on the viability of nations, but rather with a program of development akin to the Marshall Plan

First page of the Marshall Plan

First page of the Marshall Plan (Photo credit: Wikipedia)

, which provided vision beyond the pure economics, or even the unification program for Germany, which did likewise.

If Europe is to integrate then it should do just that. To see the issue as purely economic and fiscal will ensure the breakup of Europe. There is no leader in Germany the equivalent of Helmut Kohl, who was prepared, on both Europe and on German unification, to grasp the hand that history had dealt him, and play it with vision. The only vision we see now is accountancy, and the longer this visionary stupor persists, the more the spectre of nationalism will rise and the more inevitable will be the break up of Europe.

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