Italy’s Crisis — And Europe’s: Italy’s President Rejects The Populist Election Winners, Setting Up A Clash Between Democracy And The European Union; Will Ita’l Leave?

Italy’s Crisis — And Europe’s: Italy’s President Rejects The Populist Election Winners, Setting Up A Clash Between Democracy And The European Union; Will Ita’l Leave?
     We have a new ‘Sick Man Of Europe.’  As history has recorded, in the waning days of the Ottoman Empire (1908-1922), Tsar Nicholas, the last Tsar of Russia, referred to the Ottoman Empire as — “The Sick Man Of Europe.  The European Union (EU), in many ways, resembles the failing Ottomans, and their desperate attempt to prevent the inevitable.
       Francesco Ronchi, a lecturer at Sciences Pa in Paris, had an Op-Ed in the May 30, 2018 edition of the Wall Street Journal (WSJ), with the title above.  Professor Ronchi profoundly writes that “minor decisions and small mistakes, can change history.  Italian President Sergio Mattarella’s decision to reject the populist’s right-left coalition’s attempt to form a government in Italy may turn out to be a turning point in Europe.”
     “While Mr. Mattarella’s desire to protect the country from turbulence is no doubt sincere, his actions could end up having the opposite result,” Professor Ronchi warns. “By openly invoking the role of investors, financial markets and the defense of the Eurozone in his speech on Sunday, Italy’s President lends credence to the populist argument that Italy has become [the latest] battleground in a war between the international establishment and national democracies. Even if populists win the elections, their supporters believe they will never be able to hold power — for fear that they would oppose the dogma that dominates the Eurozone.”
     And, if you’re wondering how the EU reacted to the Italian turmoil — it was highly predictable, and highly arrogant. Gunther Oettinger, one of the most senior members of the EU Commission, reacted this way:  “Markets will teach Italians how to vote.”  That kind of attitude epitomizes the odious relationship between the EU, and the citizens that make up the various European states. German Chancellor Anglea Merkel was just as arrogant and short-sighted, stating: “Italians had better toe the line, or they will not be spared what the Greeks are going through.”
     “This disdain for Italian voters is not only undemocratic; but, dangerous,” Professor Ronchi observes.  “It fuels nationalism and anti-German [and anti-EU] sentiment in Italy,” he adds. “By appealing to national pride and the defense of democracy against external influences, populist parties are likely to increase their share of the vote in the next elections, which may take place in the next few months. Transforming these elections into a de facto referendum on Eurozone membership, would be another dangerous gamble [or perhaps be good in long run]… a climate of growing Euro-skepticism.”
     “Italy is not Greece,” Professor Ronchi reminds us. “It is the third largest economy in the Eurozone; and, the ninth largest in the world.  An Italian government with an openly Euroskeptic mandate would head for a clash with Germany, which would certainly have a disruptive effect on the Eurozone.”
     “But, what is happening in Rome is not only [just] about the future of the Euro,” Professor Ronchi argues. “It also has to do with the state of democracy in Italy and Europe. Discussing, and questioning the governance of the Eurozone , as the Italian right-left populist coalition wished to do — should not be a taboo in mature democracies,” he argues.
     “If Berlin and Brussels really care about the future of the survival of the Eurozone, they should not fear [indeed welcome] such a debate,” Professor Ronchi wrote. “The economic gap between Southern and Northern Europe is widening — and, will be unsustainable before long if it isn’t properly addressed,” he warns. “Limiting the space for democratic debate in Europe seems to confirm the perception that the EU is immune to public opinion. That dangerously widens the divide between Europe’s people and institutions,” — never a good thing.    
      Italian President Sergio Mattarella’s decision to “marginalize The League and 5 Star [the two populist parties] has already radicalized their positions and polarized Italian public opinion,” Mr. Ronchi wrote. “Italian politics is volatile and unpredictable and could change course in hours,” he added.  But, “a right-left populist government, based on a stable majority in Parliament could still be created, if President Mattarella, The League, and 5 Star find a reasonable compromise that allows both sides to save face. Voters would then judge the new government, based on its actions.”
     “If this does not happen,” Professor Ronchi warns, “Italy could experience a new constitutional crisis.  It could end up a case study in how liberal democracies commit suicide.”
BELOW – Is A Re-Post Of An Article I Commented On A Couple Of Years Ago — Nothing Has Changed IMO

Euro ‘House Of Cards’ To Collapse, Warns ECB Prophet; ‘The Rotten Heart Of Europe: The Dirty War For Europe’s Money’


     Ambrose Evans-Pritchard, my second favorite British writer, second only to Max Hastings, had an October 16, 2016 article in London’s The Telegraph, with the title above.  In surveying the landscape in the aftermath of Britain’s decision to leave the Euro — which I believe was the right decision — the future of the European Union (EU) is now a question mark.

     According to Professor Otmar Issing, the European Central Bank’s (ECB) first chief economist and “a towering figure’ in the creation of the Euro as the single currency for the continent — is now forecasting’s its demise.  In an interview with The Telegraph, Professor Otmar said that the ECB is becoming dangerously over-extended; and, the whole Euro project is unworkable in its current form.  “One day, the house of cards will collapse,’ he said.  “The Euro has been betrayed by politics,” he said; and lamented “the experiment went wrong from the beginning..”  Now, he observed, this ‘grand experiment’ has “since degenerated into a fiscal free-for-all that once again masks [Europe’s] festering pathologies,” Mr. Evans-Pritchard wrote.

     “Realistically, it will be a case of muddling through, struggling from one crisis to the next.  It is difficult to forecast how long this will continue; but, it cannot go on endlessly,” he told the Journal Central Banking, in what Mr. Evans-Pritchard described as ‘a remarkable deconstruction of the project.”

     “The comments,” Mr. Evans-Pritchard writes, “is a reminder that the Eurozone has not overcome its structural imbalance.  A beguiling combination of cheap oil, a cheap Euro, quantitative easing [by the [ECB], and less fiscal austerity have disguised this — but, the short-term effects are already fading.”

     “The regime is almost certain to be tested again in the next global downturn, this time starting with higher levels of debt and unemployment, and greater political fatigue,” Mr. Evans-Pritchard wrote.

     Professor Issing “lambasted the European Commission as a creature of political forces that has given up trying to enforce the rules in any meaningful way.”  With good reason in my view — since such enforcement would be tantamount to emasculating the national sovereignty of these very nations, but I digress.  “The moral hazard is overwhelming,” Professor Issing said.  “The ECB is on a “slippery slope,” and in his view — fatally compromised the system by bailing out bankrupt states in palpable violation of the Treaties.”

     “The Stability and Growth Pact has more or less failed.  Market discipline is done away with by ECB interventions.  So, there is no fiscal control mechanism from markets, or politics.  This has all the elements to bring disaster to the monetary union,’ Professor Issing said.  “The no bail-out clause is violated every day,” he added, “dismissing the European Court’s approval for bail-out measures as simple-minded, and ideological.”

     “The ECB has “crossed the Rubicon,” and is now in an untenable position, trying to reconcile conflicting roles as banking regulator, Troika enforcer in  rescue missions, and agent of, monetary policy.  Its own financial integrity is in jeopardy.”

     Mr. Evans-Pritchard notes that the ECB “already holds over 1 trillion Euro bonds bought at “artificially low,” or negative yields, implying huge paper losses, once interest rates rise again.”  “An exit from QE [quantitative easing] policy is more and more difficult, as the consequences potentially be disastrous,” Professor Issing warned.

     “The decline in the quality of eligible collateral is a grave problem,” The Telegraph warned.  “The ECB is now buying corporate bonds that are close to junk, and the haircuts [to the bond holders] can barely deal with a one-notch credit downgrade,” for fear that bond holders would rush to get out.

     “Cloaking it all is obfuscation, political mendacity, and endemic denial,” Mr. Evans-Pritchard wrote.  “Leaders of the heavily-indebted states have misled their voters with soothing bromides, falsely suggesting that some form of fiscal union, or debt mutualisatiion is just around the corner.  Yet, there is no chance of political union, or the creation of an EU treasury in the foreseeable future, which would in any case, require a sweeping change to the German constitution — an impossible proposition in the current political climate.  The European project must therefore function as a union of sovereign states, or fail.”

     “Professor Issing is “open to the idea of a genuine United States of Europe, built on proper foundations, but has warned repeatedly, against trying to force the pace of integration, or to achieve federalism “by the back door.”

Bernard Connolly, Author Of “The Rotten Heart Of Europe:  The Dirty War For Europe’s Money”
     In 2014, Rick Santelli of CNBC had a fascinating and thought provoking interview with Bernard Connolly.  Mr. Connolly, an Oxford educated British economist who is known for his pessimistic outlook for the Euro and the European Monetary Union.  had just written an new book on the Eurozone: “The Rotten Heart of Europe:  The Dirty War For Europe’s Money.” I wrote at the time that Mr. Connolly’s book was a sobering and realistic assessment of the consequences and pitfalls that plague the Eurozone — as a consequence of pursuing a continent-wide monetary union.  Mr. Connolly should know, he was there for the “birth” of the Euro and was partly responsible for where Europe is today with respect to the Eurio.
     Mr. Connolly contended at the time that “the monetary union — which is at the heart of this grand Euro experiment — is rotten at its core.”  Indeed, Mr. Connolly argued that “this destructive pursuit is making the economic situation in Europe worse than it would otherwise be; and, this “forced harmonization” is engendering “distrust, resentment, ridicule, contempt and even hatred,” among and between the people’s of the European continent.”  
     Mr. Connolly called “this belief in the promise of a monetary union either crazy or disturbing.  Those who originally proposed a European Union thought this was the path to prevent a third European civil war.  The reality,” Mr. Connolly said,”is a reversal of the post-WWII economic revival.  We have an elitist, bureaucratic, corrupt, authoritarian, repressive institution and leadership on one side and, a demoralized, lost generation of youth who see an “unaccountable, undemocratic, illegitimate and ultimately repressive super-state” that is digging Europe and themselves into an even deeper hole.”  Not surprisingly, Mr. Connolly sees ultimate failure for the European Union and even disaster, the longer those in charge in Europe pursue this feckless endeavor.  A deadly cocktail of unintended consequences.
     And, if all of that isn’t enough, one cannot subordinate their nation’s sovereignty to an un-elected, unaccountable, and disconnected bureaucratic entity in Brussels — at the expense of their own domestic population.  Eventually, as happened in Britain, the populace will first grow tired, and then angry with rules, regulations, and dictums from an outside body who has no skin in the game in their everyday lives.
     The British took the first step in bringing the Great — back into Great Britain; and, the British people did the rest of Europe a favor by initiating what is likely the beginning of the end of this doomed, socialist, unification experiment.  Will ‘Ita’al Leave’ be next? V/R, RCP.

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