Unionem Europaeam Delenda Est

In a nutshell, the reason why populists will win is because when their choice is between two forms of economic failure, they will choose based on identity and sovereignty.

The article below is describes how Italy's economic woes are mostly self-inflicted. And I predict that even if you fully explained this to Italian voters, it wouldn't make any difference. Furthermore, it is the act of asserting sovereignty that will cause Italy and other nations to face the cost of their poor decision making. The European/Globalist projects are complete and utter failures because they have taken suppression of personal responsibility to the level of national governments.

ZH: Italy, "Safe Bonds", & Europe's Populist Fantasyland
Let us start with reality.

Italy’s economic problems are self-inflicted, not due to the Euro.

Italy has seen more governments since World War II than any other country in the European Union.

Governments of all colors have consistently promoted inefficient dinosaur “national champions” and state-owned semi-ministerial corporations at the expense of small and medium enterprises, competitiveness and growth.

Labor market rigidities remained, leaving high unemployment and differences between regions.

A perverse incentive financial system, where banks were incentivized to lend to obsolete and indebted state-owned companies in their disastrous empire-building acquisitions, inefficient municipalities, as well as finance bloated local and national government spending. This led to the highest Non-Performing Loan figure in Europe.

A nightmare legal system that makes it virtually impossible to repossess assets from bad debt, led non-performing loans through the roof and malinvestment to soar.

A thriving export and small enterprise ecosystem were constantly limited by taxation and bureaucracy. This made the thriving companies smaller and actively looking to set activities outside of Italy.

Because of this, government spending continued to rise well above revenues. As Italy -like Spain and Portugal- decided to penalize high-productivity sectors with rising taxes, revenues fell short, while expenditures continued to rise. Italy, like so many peripheral countries, created a massive “crowding out” effect of the public sector against the private. It is not a coincidence that most citizens in Italy, like Spain or Portugal, prefer to be civil servants than entrepreneurs.
Italy hasn't slashed its budgets as would have made sense given its economic conditions. Just as California, Illinois, New York, Greece and Spain have not done, because they are not societies that make hard choices.
The nonexistent austerity has led to madness. Populist parties behave like those children who receive a treat if they stop behaving badly, they continue to misbehave because they think they will receive more candy.
That's how the European system works. German creditors are on the hook for Italian debts.
The funny thing is that millions of Italians and Europeans think that their pensions, their public salaries and their healthcare would be maintained or increased by defaulting and leaving the euro.

There is not a single case in history in which a default and exit like that of Italy has not generated huge cuts. There is not a single case in which the welfare state has not been massively cut in real terms with the devaluation. Whoever thinks that is a great idea should review history.

More importantly, even if these measures are accepted by Europe, it will create a domino effect of squandering states doing the same, ultimately destroying the European Union in the next debt crisis.
Unionem Europaeam delenda est. The cuts are coming no matter what because Italy cannot meet its obligations. All across the developed world, nations have promised more than they can deliver because voters borrow from tomorrow to spend today. All the European Union, ECB, Federal Reserve, Bank of Japan et al have done is prevent the resolution of the debt crisis. They have stolen a decade from the people and will steal another and another, locking the global economy into stagnation for as long as they can to avoid the painful adjustment.
Effective default would mean the bankruptcy of the social security, pensions, the collapse of public salaries and savings (since the main defaulted-on would be the Italian savers). But the bankruptcy of the banking system and rises in bond yields would lead to the drying up of credit to companies and families, no matter how exporters they may be. Exiting the euro would be a massive huge devaluation and a domino of bankruptcies.
Same as it ever was, same as it ever was, same as it ever was.
The problems of Italy -or Spain, or any other European nation- are not solved by destroying the country and the currency. In this scenario, it seems almost naive to me that the European Commission thinks that it is going to place “safe” bonds packaging government debt while the politicians think that the only solutions are default or excess.
And here is where the analysis goes totally wrong. Exiting the euro and destroying the EU will save Italy because Italy will exist. On its current trajectory, Italy will become an Arab-African debt colony of Germany.

All of the developed world is in a horrible position because voters are unwilling to accept any pain, because nearly (in some cases more than) half of voters live at the expense of the rest. There is no more to tax. There are only cuts to be made. Voters will never accept cuts, therefore the end result will either be cataclysmic debt defaults and budget cuts or the destruction of currencies. Precisely because voters will never choose the hard choices, they must be allowed to choose a path that leads to resolution. Similarly, the "establishment" in these countries are trying to prevent voters from making bad decisions, but their solutions are merely tossing sticks of dynamite into a sea of gasoline. More debt, mass immigration, financial repression, attacks on sovereignty and democracy. All their solutions have done is delay, while making the inevitable crisis all the larger when it finally strikes. Wiping away the current establishment while reaching a conclusion to the long depression is a two-for-one deal.

No comments:

Post a Comment