Italy's populist coalition government poses new threat to eurozone - Politics Forum.org | PoFo

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#14916089
Title is mostly click bait. It's unlikely that there is a real threat to the eurozone.

This is just a friendly reminder that Italy's GDP per capita is lower than when it joined the EZ.

Italy's populist coalition government poses new threat to eurozone

After a week of intense wrangling, the leaders of the Five Star Movement and the Lega Nord agree a common programme

Two Italian, populist, eurosceptic parties have reached an agreement to form a government of the eurozone’s third largest economy, setting up the single currency bloc for a possible new crisis. March’s national elections in Italy delivered a hung parliament, but also left the virulently anti-immigrant Lega Nord and the radical anti-establishment Five Star Movement as the two parties with the most seats. After a week of intense wrangling, the leaders of the two parties – which have sharply divergent outlooks in a host of areas – announced on Friday that they had agreed upon a common programme.

“This government contract binds two political forces that are and remain alternative, to respect and achieve what they promised to citizens,” said the Five Star leader Luigi Di Maio.

Both parties ran on electoral platforms that threatened conflict with the eurozone and the EU, in areas ranging from busting national budget deficit rules, to clamping down on immigration to lifting sanctions on Russia. The two parties will stage informal ballots of their supporters on the programme over the next three days, meaning the coalition could take office early next week.

Italian 10-year borrowing costs spiked above 7 per cent in 2011 and 2012, threatening a fiscal crisis for Rome, as traders panicked that the the single currency could be on the verge of splitting apart. They have since come down dramatically as the European Central Bank has been heavily buying up the country’s sovereign bonds as part of its money printing programme, with the country’s borrowing costs hitting a low of 1.051 per cent in 2016. On Friday 10-year bond yields, which move in the opposite direction to prices, on Friday rose to 2.2 per cent, the highest since October 2017, although the markets still seem generally unperturbed by the prospect of a Five Star-Lega Nord coalition.

The common programme, published online on Friday, promises a universal basic income of €780 per person per month, which it says should be part funded by the EU. It wants “limited deficit spending” to boost GDP growth and a review of the EU’s fiscal rules. Sanctions on Russia should be lifted immediately, its says. In line with the Lega Nord's anti-immigrant ethos there is a plan to speed up the deportation of 500,000 migrants.

However, there is no mention of a long threatened referendum on EU or eurozone membership for Italy, nor calls for the European Central Bank to cancel the portion of the country’s national debt that it owns (worth around €250bn). Italy has had one of the worst economic performances in the rich world over the past decade, with its per capita GDP in 2017 still down 8.4 per cent on the level of 2007.

The country’s GDP per capita is even below the level seen when it adopted the euro in 2000.

Image

The country’s unemployment rate currently stands at 11 per cent, down from a peak of 13.1 per cent in 2014, but double the 5.8 per cent low seen in 2007 Italy accounts for around 15 per cent of the eurozone’s GDP, behind France and Germany. That contrasts with the 1.8 per cent of Greece, the member state that was the crucible of the eurozone crisis between 2010 and 2015. The country also accounts for just under a quarter of the sovereign debt of the currency bloc.

“Although we have to brace ourselves for significant noise, including clashes between Rome and Brussels, a truly disruptive crisis is probably not on the cards for now. However, if highly-indebted Italy loosens the fiscal reins....the country would become vulnerable to a debt crisis if and when the next cyclical recession exposes the country’s weaknesses,” said Holger Schmieding of Berenberg bank.
#14916110
There are big news here, Lega Nord and Five Star has formed a government. They are both anti-EU and anti-establishment parties. It also shows that Five Star is not as rigid as at first appeared. They vowed not to form a government with anyone else, but it seems they have decided to go ahead with it in practice.

Also Berlusconi has been pushed out, thank lord.
#14916138
I agree it is important news. Didn't want to give the impression that it was insignificant.

Also:
Reuters wrote:5-Star, League want ECB to forgive 250 billion euros of Italy debt: draft

ROME (Reuters) - The anti-establishment 5-Star Movement and far-right League plan to ask the European Central Bank to forgive 250 billion euros ($296 billion) of Italian debt, according to a draft of a coalition program the parties are working on.

The 39-page document, obtained by Huffington Post Italia, also calls for a renegotiation of Italy’s European Union budget contributions, an end to sanctions against Russia and plans to dismantle a 2011 pension reform that raised the retirement age.

The proposal likely to cause most alarm to financial markets is the creation in the EU of “economic and judicial procedures that allow member states to leave monetary union”.

5-Star and the League said in a statement that the draft, which was dated May 14, was “an old version that has been considerably modified”. In particular, it had been decided “not to call into question the single currency,” they said.

The two parties have held six days of talks aimed at putting together a coalition government and ending 10 weeks of political stalemate following an inconclusive election on March 4.

5-Star leader Luigi Di Maio said on Tuesday he hoped a deal could be reached on Wednesday that would subsequently be put to supporters of both parties to see if they backed the pact.

The draft accord is likely to cause concern in Brussels and at ECB headquarters in Frankfurt. It might also dismay Italian President Sergio Mattarella, who has repeatedly stressed the importance of maintaining a strong, pro-European stance.

To help reduce Italy’s public debt, which at more than 130 percent of national output is the highest in the euro zone after Greece’s, the joint document calls for the ECB to forgive 250 billion euros of Italian benchmark BTP bonds bought under the bank’s so-called “quantitative easing” program.

This would cut 10 percentage points off Italy’s debt/GDP ratio. While the two parties specified they had removed the section on possibly opting out of the euro, they made no mention about the suggestion the ECB should write off this debt.

Both parties have a history of Euroscepticism. 5-Star has moderated its position considerably in the last year, rowing back on a previous plan to hold a referendum on Italy’s membership of the currency bloc. However the League still wants to leave the euro zone as soon as is politically feasible.

Hours after the document leak, 5-Star and the League issued a further joint statement saying they wanted to “reconsider” the euro zone’s fiscal rules with Italy’s partners “in the spirit of returning to the pre-Maastricht set-up” — a reference to the treaty which laid the groundwork for monetary union.

Turning to other issues that have snarled Rome’s relations with Europe, the draft calls for asylum seekers who arrive in Italy to be relocated automatically across the European Union.

They also demand an immediate end to sanctions on Russia in order for Moscow to become a “strategic partner” in regional hotspots, such as Syria and Libya.
#14917068
They haven't formed a government yet. They managed to produce a sort of agenda "where the only numbers are those of the pages" and agreed that they would like to have an almost unknown professor of Law as prime minister (which means a powerless prime minister); it is yet to be seen whether her will be appointed or not.

However, there is a basic problem for Lega & 5-Stars government, and this is the fact that Lega doesn't want it. What Lega wants is an early election, but they don't want to be blamed for that. If they manage to form a government, then it will be interesting... though the risk that they will not achieve anything remains strong.
#14918257
More on Paolo Savona:
The Local wrote:
Paolo Savona, the eurosceptic at the heart of Italy's standoff

The standoff between Italy's president and the populist coalition hoping to form a government centres on their pick for economy minister, the staunch eurosceptic Paolo Savona.

A fierce critic of the Maastricht Treaty and the euro, 81-year-old Savona has a career in finance and economics that stretches back to the 1960s, and was Minister of Trade and Industry during fellow banker Carlo Ciampi's short-lived technical government in the early 1990s. In his latest book, "Like a Nightmare and a Dream", Savona calls the single currency a "German cage", and his hostility to the euro is causing President Sergio Mattarella to hesitate over his appointment amid a flurry of warnings from Brussels. Despite the fierce backing of prime minister nominee Giuseppe Conte, Five Star Movement leader Luigi Di Maio and in particular League chief Matteo Salvini, Mattarella is refusing to give in, despite worries the coalition will collapse if he wasn't given the role. "When you have the best available you go for the best. He is the guarantee that Italy can sit at table as a key player," Salvini said on Thursday.

But Savona in his book strikes a decidedly more hardline tone, writing that "we need to prepare a plan B to get out of the euro if necessary ... the other alternative is to end up like Greece." In the book he attacks Italian officials who decided to take Italy into the euro, which he claims has "halved Italians' purchasing power", the European Central Bank (ECB) and its president Mario Draghi, and in particular Germany. "Germany didn't change its idea on its role in Europe after the end of Nazism, even if it abandoned the idea of imposing itself militarily," he writes.

However, despite a tone redolent of one he defends himself against charges of being Europhobic, saying that he is simply criticising institutions that are failing the European people. "I'm passed off as one of those rare anti-European institutional economists but it is not true. I would be in favour of a united Europe in principle, and that's why I talk about the worst of what I see today in Brussels," Catholic daily Avvenire quote him as saying. "Europe's difficulties are down to the elites who run it: they say they take care of the people but they only take care of themselves."

Born in Sardinian capital Cagliari in October 1936, Paolo Savona began his career at the Bank of Italy after gaining a master's degree in economics and commerce in 1961. He then specialised in monetary economics at the Massachusetts Institute of Technology (MIT) and in 1976 he returned to Sardinia, leaving the Bank of Italy to become Professor of Economic Policy at the University of Cagliari. He was director general of business association Confindustria, president of a small Sardinian bank and then head of the Banca Nazionale del Lavoro (BNL), a major Italian bank. He has also been a member and sometimes chairman of a number of boards, including of Aeroporti di Roma and Telecom Italia. On Wednesday he resigned as chair of London-based investment fund Euklid.

Vincenzo Visco, current head of the Bank of Italy and a former finance minister in leftist governments between 1996 and 2000, told the Corriere della Sera that Savona "has all the capacity and credibility" to fill the post but "two big problems". The first, Visco says, would be applying an anti-austerity programme negotiated by Five Star and the League, "which he knows to be completely inapplicable" given Italy's 2.3 trillion euro public debt. The second, according to Visco, would be that his political positions are "radically and suicidally anti-German ... that could create problems both for him and for us."
#14918258
We can never completely discard the possibility that populists politicians are prepared to commit collective suicide when elected; however, any move to further increase Italy's debts will first of all hurt Italians themselves. When the money in their pockets starts dwindling, they are going to have second thoughts. Even though the new government hasn't been formed yet, the spread of interest rates has already increased to above 250. The ECB cannot come to the aid of the Italian government if the latter should decide to ignore ECB rules.
#14918272
Ter wrote:I congratulate the Italian voters for their bold choice and I hope they can escape from under the German thumb.
It will please me immensely if the Italians create major headaches for the corrupt, overpaid, untaxed, arrogant Eurocrats in Brussels.


I'm sure the Italians would much rather join the MENA to enjoy the great benefits brought by our favorite apartheid regime to the region. :knife:
#14918274
Atlantis wrote:I'm sure the Italians would much rather join the MENA to enjoy the great benefits brought by our favorite apartheid regime to the region. :knife:

I sense some sour grapes here.
With the EU, it is downhill all the way.
Hungary, Poland, Chzech Republic, now Italy, and soon other countries as well, revolting against the massive influx of Muslim immigrants as caused by Frau Merkel, may she rot in hell.
#14918275
Ter wrote:I sense some sour grapes here.
With the EU, it is downhill all the way.
Hungary, Poland, Chzech Republic, now Italy, and soon other countries as well, revolting against the massive influx of Muslim immigrants as caused by Frau Merkel, may she rot in hell.



"Sour grapes" is the exact expression. The EU is comforting itself with robust anti racism credentials.
#14918282
Italy is a constant threat to the Eurozone in and of itself, their banks are more dangerous than any of their politicians could ever be. As far as I know the only certain thing about this future Italian government is that they want sanctions on Russia lifted immediately.

Drop Russia sanctions immediately, Italy’s M5S & Lega Nord urge in landmark govt pact

Just in time! :lol:
#14918286
The problem with the Italian banks is simple: While other countries "cleaned-up" their banks - Germany immediately - Spain a bit later through the European fund - the Italian government didn't really do anything; so even if the Italian banks had less problems than those of other countries...all the problems are still there and only got worse over the time... but the rules and the resources to fix the banks were there......

The Russian sanction rhetoric is the following:" The EU (aka Germany) has force us to put sanctions on Russia against our own economic interest because Russia interfered with their (German) attempt to take over the Ukraine... as soon as elected we will cancel those sanctions!" Reality is a bit different; and i am really curious to see if they will do something here...
#14918287
Beren wrote:Italy is a constant threat to the Eurozone in and of itself, their banks are more dangerous than any of their politicians could ever be. As far as I know the only certain thing about this future Italian government is that they want sanctions on Russia lifted immediately.

Drop Russia sanctions immediately, Italy’s M5S & Lega Nord urge in landmark govt pact

Just in time! :lol:


They are right about that too. Why should Italians have to suffer because the Yanks have set their fascist thugs in Kiev on the loose?

We have all had enough of Russian sanctions. Let's sanction the last remaining apartheid regime instead. The future is on the continent.

Anyways, the tide is turning. The Austrians are very keen on closer relations with Russia, and no matter what the Italians believe, Germans through the entire political spectrum want closer relations with Russia. Once the Brits have gone, the sanctions will go too.
#14918290
Varilion wrote:The problem with the Italian banks is simple

Well, according to Deutsche Bank Italy is "A country nearing an election and with high populist party support, with a generationally underperforming economy, a comparatively huge debt burden, and a fragile banking system which continues to have to deal with legacy toxic debt holdings ticks a number of boxes to us for the ingredients of a potential next financial crisis."

So I wonder if Italy is getting ripe for collapse and we'll hear more and more about the troika again. I'd be disappointed if they didn't have plans to intervene.
#14918301
Beren wrote:So I wonder if Italy is getting ripe for collapse and we'll hear more and more about the troika again. I'd be disappointed if they didn't have plans to intervene.


I'm sure they have plans and I'm sure nobody is keen on any intervention.

The problem is Italy and the only way to solve that problems is for Italian politicians to get their act together. It's got nothing to do with the EU, except that the Euro allowed them to spend more than they should have.

In the meantime we could start sanctioning the last remaining apartheid regime to kingdom come just to increase the butt-hurt for @Ter :lol:
#14918366
Beren wrote:I wonder if something will be done to avoid it in this most recent economic boom.


Like what?

Anyways, if Trump does lead us into a trade war and an age of protectionism, the boom could come to a halt before it reaches Italy. Europe can redirect its trade away from the US, but that'll take time and won't be without pain.

I think the Italian political crisis will put a damper on Macron's ambitions for reform. But it seems that the Banking Union is now approaching completion:

EU ministers reach key agreement to unlock Banking Union file

By Beatriz Rios | EURACTIV.com May 25, 2018

Member states have reached an agreement on a package of measures aimed at reducing risk in the banking industry. The political consensus built, upon a joint proposal by the French and German finance ministers, paves the way for a deepened reform of the Economic and Monetary Union.

“Dear colleagues, we have it!” Vladislav Goranov, Bulgarian Minister for Finance, revealed after reaching an agreement on a set of measures to improve risk reduction in the Banking Union during an Ecofin meeting today.

“This package is a key deliverable in the risk reduction in the banking sector,” said Vladis Dombrovskis, Vice-President of the Commission in charge of the Euro, Social Dialogue, Financial Stability, Financial Services and Capital Markets Union.

With this decision the EU will apply international standards agreed following the 2007-08 financial crisis to European legislation. Its implementation will make European banks more resilient in case of markets shocks, according to the EU.

In particular, the proposal introduces a binding leverage ratio of 3% for all banks, to prevent them from excessively increasing leverage. This figure will go up for global systemically important banks.

It also comprises a ‘total loss-absorbing capacity’ of at least 8% of their balance sheet, which larger banks will have to comply with. This measure aims to strengthen risk-sensitive capital requirements for banks that trade largely in securities and derivatives, so as to ensure they hold sufficient assets to stand a period of market turbulences.

The Commission and member states are committed to continue with the work towards more risk sharing measures before June’s meeting, including the common backstop for the Single Resolution Fund and a common guarantee scheme for deposits. This element is one of the most controversial aspects of the package.

The focus on risk reduction over risk sharing has led to some frictions between member states. Italy and Greece, who defend development of both measures and the logic that they should go hand in hand, abstained from the vote. “We expect that in June the EU will do significant breakthrough,” Italian Finance Minister Pier Carlo Padoan stressed.

The presidency of the Council will now have to start negotiations with the European Parliament.

Italy in the spotlight

There have been three attempts in the last six months to adopt this package but only now member states found the consensus.

A possible hostile government in Italy and its contagion effect in the markets might have to some extent forced the EU to speed up in its work to strengthen the Banking Union.

“There is no direct link between the political process in Italy and what we managed to achieve,” Vladislav Goranov, Bulgarian Minister for Finance, claimed.

Germany’s Olaf Scholz was cautious on how the new Italian government might affect the set of reforms the EU needs to work on in the near future.

“The designated prime minister of Italy, after his talk to the president said that Italy will follow the regulations and rules we have in the European Union. I think if someone is giving his hand, you should take it,” Scholz stated.

A step closer to EMU reform

The political agreement reached today is based on a consensus built by the German and French governments over the past few weeks. A consensus they showcased by giving a joint press conference after the Ecofin meeting.

France and Germany have been working “hand in hand” on the banking package. “A week ago we sat down and drafted a text,” Bruno Le Maire, French Minister for Finance said to the press. That text was the basis for today’s agreement, Le Maire revealed.

“This package is a good, strong and fair package,” Le Maire defended, and will be “a major step in risk reductions.” The deal will allow “getting progress in all the other questions related of the Banking Union,” German Finance Minister Olaf Scholz highlighted.

Thus, the agreement is also a political milestone as it paves the way for the deepening of the Economic and Monetary Union reform. “This is a very important moment for the further development of the European Union,” Scholz pointed out. “It has created the political momentum we needed”, stressed Le Maire.

The ministers will now work together towards a proposal which they will present to Chancellor Angela Merkel and President Emmanuel Macron, ahead of the European Council Summit in June. For the reform of the EMU, “it is now or never,” the French minister warned.


"The designated prime minister of Italy, after his talk to the president said that Italy will follow the regulations and rules we have in the European Union."

Sounds like the new Italian leaders may not be as radical as their pre-election rhetoric suggests. Anyways, without the political baggage of the establishment parties, they may have more room for maneuver to tackle reforms.
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