05-28-2018, 10:17 PM
*** 29-May-18 World View -- Italy's 'populist' government collapses, threatening eurozone exit
This morning's key headlines from GenerationalDynamics.com
****
**** Italy's 'populist' government collapses, threatening eurozone exit
****
![[Image: g180528b.jpg]](http://Media.GenerationalDynamics.com/ww2010/g180528b.jpg)
Italy's parliament building
Last week, we reported on the formation of a 'populist' coalition
between the left-wing Five Star
Movement (M5S), led by Luigi Di Maio, and the right-wing La Liga (The
(Northern) League), led by Matteo Salvini.
Although the two parties differ on many issues, and distrust each
other greatly, they decided to form a coalition based on their shared
anti-euro, anti-EU and anti-immigrant policies, and particularly on
the fact that they have no fiscal discipline whatsoever.
Di Maio and Salvini chose Giuseppe Conte, an obscure law professor
with no political experience, to serve as prime minister, to be
confirmed by the parliament.
But they also chose Paolo Savona to be finance minister, someone who
at one time in the past raised objections to Italy joining the
eurozone. Following constitutional procedure, Conte submitted
Savona's name to Italy's president, Sergio Mattarella. Mattarella,
who is staunchly pro-Europe, vetoed the choice of Savona, based on his
previous statements about the eurozone, even though he says that he no
longer believes them. Conte resigned, and the entire proposed
government collapsed.
This infuriated Di Maio and Salvini, who claimed that Mattarella was
catering to the demands of Brussels and Berlin, rather than to the
will of the people of Italy. Di Maio called for the impeachment of
Mattarella, something unlikely to be successful under Italy's
constitutional system.
Salvini demanded new elections, believing that his Northern League
would gain addition seats in parliament. "In a democracy, if we are
still in democracy, there's only one thing to do, let the Italians
have their say," he said. Deutsche Welle and CNBC and Handelsblatt (Berlin)
****
**** Italy's president Mattarella selects a 'technocrat' as prime minister
****
President Mattarella said he vetoed Savona's appointment as that would
have "alarmed markets and investors, Italians and foreigners." He
pointed out that the threat of leaving the eurozone was causing
investors to increase the bond spread. (This means that investors are
losing faith in Italy's ability to repay its debt, and so investors
are forcing Italy to pay higher interest rates when it borrows money.)
Indeed, Italy's economy is at crisis levels. Today, Italian debt
stands at around €2.17 trillion, or 133% of gross domestic
product (GDP). That's worse than Greece's situation when it was being
bailed out in 2010. At that time, Greece's debt as "only" 127% of
GDP.
The Di Maio-Salvini plan was to simply ignore Italy's crushing debt,
and spend a lot more money, give away a lot of free stuff such as a
guaranteed income, and reduce taxes.
Even more ominous was a hare-brained plan to issue a new kind of
government bond, called a mini-Bot. (Bots are Buoni Ordinari del
Tesoro, a common Italian Treasury bill or short-term credit note.)
The mini-Bots would be backed by expected tax receipts in the future,
meaning that the government would be spending future income before
they even had it. Furthermore, the mini-Bots could be used to pay for
taxes or other payments to the government, giving the feeling that
mini-Bots were a new Italian currency. There would be nothing to
prevent stores from accepting mini-Bots as payment, or to prevent
brokers from establishing a black market exchange rate between the
mini-Bot and the euro.
The mini-Bot proposal means that the Di Maio-Salvini government could,
at some time in the future, repudiate its euro-based debt, leave the
eurozone, and use the mini-Bots as currency.
This was all apparently too much for president Mattarella, and he
vetoed the selection of Paolo Savona as finance minister, causing the
entire government to collapse.
In order to stabilize the markets, Mattarella decided to make Carlo
Cottarelli the new prime minister. Cottarelli will be a "technocrat,"
meaning that he won't be implementing any political policies, but will
only do the bare minimum to keep the government running, until there
can be new elections at the beginning of next year.
Carlo Cottarelli is a former official from the International Monetary
Fund (IMF), and he is known as "Mr. Scissors" because of his
cost-cutting policies. So investors' concerns should be soothed,
provided Cottarelli is able to govern. But it's not clear that he can
govern. He will receive no support from Di Maio or Salvini, and
little or no support in parliament from MPs for the Five-Star Movement
or The League. That means that Cottarelli will be unable to get the
parliament to pass his proposed budget, and that will cause
Cottarelli's government to collapse just as quickly as Conte's
government collapsed.
In that case, there will be an emergency election in August or
September. If Matteo Salvini is right, then the furious voters will
elect even more MPs from the two populist parties, to get revenge for
what they see as foreign interference from Brussels or Berlin. The
next election will be seen as a referendum on whether Italy should
stay in the eurozone, so president Mattarella's move to force the Di
Maio-Salvini government to collapse may be what causes Italy to leave
the eurozone after all. Sputnik News and Guardian (London) and The Street
Related Articles
KEYS: Generational Dynamics, Italy, Five-Star Movement, M5S, Luigi Di Maio,
La Liga, The (Northern) League, Matteo Salvini.
Giuseppe Conte, Paolo Savona, Sergio Mattarella,
mini-Bot, Buoni Ordinari del Tesoro,
Carlo Cottarelli, Mr. Scissors, International Monetary Fund, IMF
Permanent web link to this article
Receive daily World View columns by e-mail
Contribute to Generational Dynamics via PayPal
John J. Xenakis
100 Memorial Drive Apt 8-13A
Cambridge, MA 02142
Phone: 617-864-0010
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.gdxforum.com/forum
Subscribe to World View: http://generationaldynamics.com/subscribe
This morning's key headlines from GenerationalDynamics.com
- Italy's 'populist' government collapses, threatening eurozone exit
- Italy's president Mattarella selects a 'technocrat' as prime minister
****
**** Italy's 'populist' government collapses, threatening eurozone exit
****
Italy's parliament building
Last week, we reported on the formation of a 'populist' coalition
between the left-wing Five Star
Movement (M5S), led by Luigi Di Maio, and the right-wing La Liga (The
(Northern) League), led by Matteo Salvini.
Although the two parties differ on many issues, and distrust each
other greatly, they decided to form a coalition based on their shared
anti-euro, anti-EU and anti-immigrant policies, and particularly on
the fact that they have no fiscal discipline whatsoever.
Di Maio and Salvini chose Giuseppe Conte, an obscure law professor
with no political experience, to serve as prime minister, to be
confirmed by the parliament.
But they also chose Paolo Savona to be finance minister, someone who
at one time in the past raised objections to Italy joining the
eurozone. Following constitutional procedure, Conte submitted
Savona's name to Italy's president, Sergio Mattarella. Mattarella,
who is staunchly pro-Europe, vetoed the choice of Savona, based on his
previous statements about the eurozone, even though he says that he no
longer believes them. Conte resigned, and the entire proposed
government collapsed.
This infuriated Di Maio and Salvini, who claimed that Mattarella was
catering to the demands of Brussels and Berlin, rather than to the
will of the people of Italy. Di Maio called for the impeachment of
Mattarella, something unlikely to be successful under Italy's
constitutional system.
Salvini demanded new elections, believing that his Northern League
would gain addition seats in parliament. "In a democracy, if we are
still in democracy, there's only one thing to do, let the Italians
have their say," he said. Deutsche Welle and CNBC and Handelsblatt (Berlin)
****
**** Italy's president Mattarella selects a 'technocrat' as prime minister
****
President Mattarella said he vetoed Savona's appointment as that would
have "alarmed markets and investors, Italians and foreigners." He
pointed out that the threat of leaving the eurozone was causing
investors to increase the bond spread. (This means that investors are
losing faith in Italy's ability to repay its debt, and so investors
are forcing Italy to pay higher interest rates when it borrows money.)
Indeed, Italy's economy is at crisis levels. Today, Italian debt
stands at around €2.17 trillion, or 133% of gross domestic
product (GDP). That's worse than Greece's situation when it was being
bailed out in 2010. At that time, Greece's debt as "only" 127% of
GDP.
The Di Maio-Salvini plan was to simply ignore Italy's crushing debt,
and spend a lot more money, give away a lot of free stuff such as a
guaranteed income, and reduce taxes.
Even more ominous was a hare-brained plan to issue a new kind of
government bond, called a mini-Bot. (Bots are Buoni Ordinari del
Tesoro, a common Italian Treasury bill or short-term credit note.)
The mini-Bots would be backed by expected tax receipts in the future,
meaning that the government would be spending future income before
they even had it. Furthermore, the mini-Bots could be used to pay for
taxes or other payments to the government, giving the feeling that
mini-Bots were a new Italian currency. There would be nothing to
prevent stores from accepting mini-Bots as payment, or to prevent
brokers from establishing a black market exchange rate between the
mini-Bot and the euro.
The mini-Bot proposal means that the Di Maio-Salvini government could,
at some time in the future, repudiate its euro-based debt, leave the
eurozone, and use the mini-Bots as currency.
This was all apparently too much for president Mattarella, and he
vetoed the selection of Paolo Savona as finance minister, causing the
entire government to collapse.
In order to stabilize the markets, Mattarella decided to make Carlo
Cottarelli the new prime minister. Cottarelli will be a "technocrat,"
meaning that he won't be implementing any political policies, but will
only do the bare minimum to keep the government running, until there
can be new elections at the beginning of next year.
Carlo Cottarelli is a former official from the International Monetary
Fund (IMF), and he is known as "Mr. Scissors" because of his
cost-cutting policies. So investors' concerns should be soothed,
provided Cottarelli is able to govern. But it's not clear that he can
govern. He will receive no support from Di Maio or Salvini, and
little or no support in parliament from MPs for the Five-Star Movement
or The League. That means that Cottarelli will be unable to get the
parliament to pass his proposed budget, and that will cause
Cottarelli's government to collapse just as quickly as Conte's
government collapsed.
In that case, there will be an emergency election in August or
September. If Matteo Salvini is right, then the furious voters will
elect even more MPs from the two populist parties, to get revenge for
what they see as foreign interference from Brussels or Berlin. The
next election will be seen as a referendum on whether Italy should
stay in the eurozone, so president Mattarella's move to force the Di
Maio-Salvini government to collapse may be what causes Italy to leave
the eurozone after all. Sputnik News and Guardian (London) and The Street
Related Articles
- European markets in turmoil over Italy's unbridled spending proposals (23-May-2018)
- Bank run worsens Italy's banking crisis (28-Dec-2016)
- Italy announces bank bailout that will 'bail in' ordinary depositors (22-Dec-2016)
- Italy bank crisis more dangerous to EU than Brexit (05-Jul-2016)
- After Brexit and Trump, Italy's Five-Star-Movement may be the next surprise (18-Nov-2016)
- German official says that 'two clowns have won' in Italy (01-Mar-2013)
KEYS: Generational Dynamics, Italy, Five-Star Movement, M5S, Luigi Di Maio,
La Liga, The (Northern) League, Matteo Salvini.
Giuseppe Conte, Paolo Savona, Sergio Mattarella,
mini-Bot, Buoni Ordinari del Tesoro,
Carlo Cottarelli, Mr. Scissors, International Monetary Fund, IMF
Permanent web link to this article
Receive daily World View columns by e-mail
Contribute to Generational Dynamics via PayPal
John J. Xenakis
100 Memorial Drive Apt 8-13A
Cambridge, MA 02142
Phone: 617-864-0010
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.gdxforum.com/forum
Subscribe to World View: http://generationaldynamics.com/subscribe
