Only in Italy?


A common phrase was on the lips of pundits this morning – only in Italy.

With the centre-left scoring only the narrowest of victories, leaving them with control of the lower house – the Chamber of Deputies – but a good 40 seats short in the Senate, it is hard to imagine a set of results less amenable to the creation of a government.

The results will have sent shivers down the spines of breakfasting EU officials just as it has spooked the hell of the markets. The Italian stock market has already dropped by 5%. Interest rates on 10 year government bonds have jumped 0.4% to 4.8%.

Last month, the outgoing finance minister of Mario Monti’s technocrat government, Vittorio Grilli told MEPs on the European Parliament’s Economic committee that the country would run a balanced budget in 2014. Then, last Friday, the Commission’s economic Winter Forecast indicated that Italy’s finances were returning to good shape, with the budget deficit to fall below 3% in 2013. In the space of less than 24 hours, eighteen months of painstaking work to claw back credibility and market confidence risks being undone.

However, taking a step back from the economic panic caused by the stalemate, there are so many fascinating sub-plots in this election that it is difficult to know where to start.

What is the main story? Silvio Berlusconi’s refusal to give up on politics after three separate terms as Prime Minister and enough scandal to fill over 100 unprintably salacious novels. What about the inexplicable reluctance of the Italian electorate to finally kill off the 76 year old dinosaur? How it is possible for a convicted fraudster currently on trial for having sex with an underage prostitute, to claim 30% of the vote?

Then there is the failure of Pier Luigi Bersani’s Democratic party, who could only secure victory by the skin of their teeth, separated from Berlusconi’s Freedom party by fewer than 150,000 votes in the elections to the Chamber of Deputies and less than 1% in the Senate. Indeed, the centre-left was also dogged by allegations of scandal over its involvement in the Monte Paschi bank collapse.

What about the sudden emergence of Beppe Grillo, who has made a comedy career out of lampooning Italy’s political class, and now holds the balance of power?

Or, last but not least, the routing of Mario Monti? The favourite politician of Brussels (and Berlin), who could only finish a dismal and distant fourth place with 10% of the vote in his first election contest.

What next you might ask?

Well, short of a Bersani/Berlusconi grand coalition, it is difficult to see how a government of any colour could take office, let alone be able to survive for more than a matter of weeks. The centre-left and right blocs are both well short of the 158 members needed to form a majority in the Senate even with the support of the 18 members elected on Monti’s ticket. For his part, Grillo has so far insisted that he will play no part in a government with either of the mainstream parties. Italians are likely to be sent back to the polls sooner rather than later.

That said, however, the election produced such a fragmented result that it is far from likely that fresh elections would deliver a majority government. In any case, the instability caused by months of inaction could well take Italy back to the mercy of the financial markets.

A week ago, the EU and the watching world would have scoffed at the idea of a maverick comedian holding the balance of power in the eurozone’s third largest country. They’re not laughing any more.

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  1. #1 by Fr@ncesco on February 26, 2013 - 4:13 pm

    Very happy to vote for Berlusconi in these elections. Cheers from Italy!

  2. #2 by Frida on February 26, 2013 - 6:33 pm

    Traditionally the Italian citizens are afraid of the left wing as they: first, associate the left to the former USSR communist party, secondly they link the left wing to tax increase. No matter what Berlusconi has done, they still believe that under his “regime” everyone lives better. Life is not ruled by the law of tribunals, but by a pragmatic approach to day-to-day issues. It might be narrow minded but this is the reality. I don’t like it but it is a consequence of cultural approach to politics. Italians tend to delegate and lack of participation. The vote expressed last weekend shows anger to the political system nonetheless people still go for immediate result rather then invest on the long term. Berlusconi knows it and it has been using this method since 1994 and pays back. Then we will see the consequences. Me, included – being Italian.

  3. #3 by Marc on February 27, 2013 - 7:54 pm

    Once again, a journalist who seems primarily concerned about the parasitic financial markets and thieving bankers.

    It is a matter of supreme indifference to me what financial markets and bankers think of election results. Countries can simply stop borrowing money (indeed, they never should be allowed to borrow any in the first place) and then what for these ‘financial markets’? No more profits at the expense of people.

    But what to do with these bankers that we shall then no longer need?

    I reckon mr Robespierre will be asked to get on stage sooner than we all think.

    • #4 by Benjamin Fox on March 1, 2013 - 7:02 pm

      Thanks for the comments. Marc – I’m no fan of austerity, believe me. I also agree that the bond market is too powerful. One of the main structural flaws in the eurozone is that the lack of a bank lender of last resort leaves country’s open to speculative attack.

      Countries have to be able to borrow money just like most of the rest of us have to – whether it’s the mortgage on our home, car or student loan. It’s the way the world works.

    • #5 by jon livesey on March 2, 2013 - 1:19 am

      If you could ban countries from borrowing, you would at the same time cancel their ability to stimulate their economies in times of recession.

      If a country can’t borrow, then the amount the public sector can spend is strictly limited by tax revenue, and that would make it impossible to rescue itself from recession, since the public sector would be extracting as much from the private sector as it spends.

      And no matter how “virtuous” that might seem, in practical terms we saw the consequences in the Thirties.

      The other problem with banning borrowing by sovereigns is that lenders don’t buy sovereign debt for patriotic or sentimental reasons, but because financial institutions – pension funds, insurance companies, endowments, etc – have specific future liabilities to meet, and therefore have to have predictable future income from default-free instruments.

      In a normal country with its own sovereign fiat currency – think the US, UK, Japan – sovereign debt is that default-free instrument. Since such a country controls the supply of its own currency, it cannot be made to default. In financial language, it has no solvency limit.

      In a country that borrows in a foreign currency, or in a common currency like the euro, sovereign debt is no longer default free, since such a country cannot create the currency it needs to pay its debt.

      So the Bond Markets are not being perverse or tyrannical at all. They are simply recognizing that the euro-area is a very strange beast in which what would in a normal country be default-free no longer is. Hence the risk premium that they – quite correctly – impose on the euro periphery from time to time.

      Please remember that the first duty of a pension fund is to its pensioners, not to the ego of the guys in Brussels.

  4. #6 by Maggie G on February 27, 2013 - 8:12 pm

    Berlsusconi is member of P2 and P2 controled Operation Gladio with assasination of Aldo Moro and Olof Palme. He should be hanged. For sure.

    It is not necessary for the Right to reinvent the financial wheel. There is a large corpus of material that was formulated decades ago by keen minds on the subject, and because the financial system has not changed, the relevance of these ideas remains. Those such as Silvio Gesell, Ezra Pound, Charles Coughlin, C. H. Douglas, John A. Lee, and Gottfried Feder, should again become required reading and subjects of discussion. Instead, where there is discussion on finance among the Right it often involves some idiot scheme about a silver or a gold standard. The major cause of World War II was fear of Germany’s new banking system, and also the barter trading system that was allowing Germany to displace the USA, Britain, and others in world trade.

    As Feder states throughout his manifesto, currency (or credit) is simply intended as a means of exchange, not as a profit-making commodity via usury. During the Medieval era usurers were executed; now they are regarded as the epitome of respectable business practice.

    Finally, the ideals of liberating all of mankind from the slavery of usury is one that can capture the imagination of multitudes of people of goodwill, as it once did during the 1920s and 1930s. It is an alternative that leaves Marxism for dead and demands the utmost idealism, based on the closing words by Feder: “Give me your hands, workers of all lands, unite!” (Manifesto, p. 57).

    Feder: “Closing of the nation externally with all freedom and diversity internally. This is the correct idea of a German state.”

    I think Grillo have read it

    • #7 by jon livesey on March 2, 2013 - 1:29 am

      From the Wiki:

      “Gottfried Feder (27 January 1883 – 24 September 1941) was an economist and one of the early key members of the Nazi Party. He was their economic theoretician. Initially, it was his lecture in 1919 that drew Hitler into the party.”

      “Adolf Hitler met him in summer 1919, and Feder became his mentor in finance and economics. He was the inspirer of Hitler’s opposition to “Jewish finance capitalism.”

      I guess that tells me about all I need to know.