Italian election results: I\’m Lovin\’ It

Rather than just a little giggle or a snort of laughter, I find myself wracked by guffaws at this:

The eurozone’s debt crisis strategy was in chaos on Monday night after anti-austerity parties appeared on track to win a majority of seats in the Italian parliament, vastly complicating efforts to forge a government able to carry through EU-imposed reforms.

I always did think that Italy would be where the wheels came off the project.

In an earthquake result, the Five Star protest movement of comedian Beppe Grillo looked likely to emerge as the biggest single party in the lower house. The scourge of bankers and corrupt elites, Mr Grillo has campaigned for a return to the lira and a restructuring of Italy’s €1.9 trillion (£1.64 trillion) public debt.

The conservative bloc of ex-premier Silvio Berlusconi looked poised to win the senate, coming back from the political grave with vows to rip up the EU’s austerity plans and push through tax cuts to pull Italy out of deep slump.

“The majority of Italians have clearly voted against the Brussels consensus. That is a damning indictment,” said Mats Persson from Open Europe.

The important point being that the Italian budget is, pretty much, in primary balance. Their continuing borrowing is solely to cover interest and maturing bonds. There is therefore, without too much chaos, the possibility of their simply saying bugger it. Declare a default and carry on. Or return to the Lira. For they don\’t have to keep borrowing in order to keep the governmental show on the road.

And don\’t we have an interesting political result here? If a majority of the demos doesn\’t want to follow the EU line, well, why should that demos be forced to do so?

16 comments on “Italian election results: I\’m Lovin\’ It

  1. Hmm, the comment eating monster doesn-t seem to like apostrophes so they have been removed …

    “If a majority of the demos doesn-t want to follow the EU line, well, why should that demos be forced to do so?”

    You know this.

    1. So Germany doesn-t invade France again.

    2. Because our Eurocratic patrician masters are simply better, brighter, more caring, more representative of the true demos than we plebs could ever be, no matter our numbers.

  2. Best comment 0f the morning came from a colleague who doesn’t like the result.

    How can they call this democracy, if the senate can block the parliament.

    He obviously missed his vocation, a career in Brussels would have been ideal.

  3. That presumably means, if people don’t want to repay their creditors they have the right not to? Or does that only work for a government with a “democratic mandate” to steal from its creditors?

  4. So they were so happy with the buffoon they elected last time, they elected a professional buffoon this time?

    Good for them – the clowns can hardly do worse.

    However why would we want to shackle ourselves to this dance of death? If the Italians refuse to be grown ups, why should we be forced to pay for them indefinitely?

  5. “Declare a default and carry on. Or return to the Lira. For they don’t have to keep borrowing in order to keep the governmental show on the road.”

    Tim, surely they do (have to keep borrowing)? If nothing else, a good chunk of Italian debt is due to their own citizens. A Lira devaluation is one thing, but a crash in bond prices (in their own currency) and no interest payments is something quite different? Or did I miss something?

  6. PW, I think what you’ve missed is that the markets have already written down Italian government debt to the sort of level where you might as well bet on Tim becoming next Pope.

    Reneging on the debt would sting, but not be fatal because they’ve taken most of the blow already.

    (except the ECB, which has bought great chunks of it, but do we care if that’s holed below the waterline?)

  7. Whilst it appears very obvious that some (large) split within the euro zone would be the most effective strategy (for those living within the eurozone), the cynic in me right now says that Italy – like some miscreant child – will simply be told, and Brussels is getting very good at this: “No, this is not the right result; would you please try again, a little harder this time perhaps?”

    And, one way or another… Interesting times indeed.. :)

  8. Richard,

    If large numbers of Italian citizens hold the debt, then default / restructuring (or even partial suspension of interest) would hurt them.

    I do take the point about bond values temporarily falling not being so crucial – ie, as long as they are ultimately redeemed at par (even in Lira), then Lira based investors / savers will not lose out.

    “(except the ECB, which has bought great chunks of it, but do we care if that’s holed below the waterline?)”
    That would become Dr Merkel’s problem….

  9. @PW

    Since, as you correctly say, Italians hold the bulk of their state’s debt, why:
    a) do the bond markets give a bugger, and
    b) why does the EU ditto?

  10. For might makes right,
    And till they’ve seen the light,
    They-ve got to be protected,
    All their rights respected,
    -till somebody we like can be elected.

    Who’d have thought the US Marines and the European Union would have something in common?

  11. For might makes right,
    And till they-ve seen the light,
    They-ve got to be protected,
    All their rights respected,
    -till somebody we like can be elected.

    Who-d have thought the US Marines and the European Union would have something in common?

  12. Thomas,

    Apologies, I may have misled you.

    I mainly wanted to make the point that, with regard to domestic investors, some form of default (implied by the suggestion of not paying interest or worse) could adversely impact their primary surplus / deficit position.

    In the context of levels of ownership, this may be interesting, I must admit that I thought the Italian domestic % might be higher than that.

    http://www.bondvigilantes.com/blog/2012/08/17/who-owns-government-bonds-these-days/

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