despite the formation of an anti-establishment coalition government in Italy, and the rise of populist parties across Europe, opinion polls suggest that support for the EU is now higher than it has been in decades. According to a recent Eurobarometer survey, if a referendum on EU membership were held today, 83% of Europeans would vote to remain in the bloc; and a record-high 60% regard EU membership as a “good thing” for their country.
.. In other words, while populism can certainly sow political divisions within the EU, there is little evidence that Brexit itself has caused a domino effect.
The Brexit ringleader Nigel Farage might like to think that Italy’s new populist government represents a success for his brand of go-it-alone nationalism, but it turns out that Europe’s populists are of a different breed than those in the UK. Though financial markets have grown skittish at the prospect that Italy’s new leaders could drive their country out of the eurozone, polling conducted after the election in March showed that 60-72% of Italians would not support such a move.
.. Just 32% of citizens believe that “things are going in the right direction” for the EU
.. Trump’s tariffs have thus provided a perfect opportunity for Germany’s grand-coalition government to meet Macron halfway on his ambitious proposals to reform the EU and the eurozone.
.. Trump revels in the chaos he sows. He regards international relations as a zero-sum game of winners and losers, and, to the extent that his foreign and trade policies make any sense at all, they are transactional. By contrast, the EU’s modus operandi is one of collaboration and compromise. And now that these two worldviews are colliding, each is likely to be emboldened.
Betting on Crisis, Hedge Funds Short Italian Bonds
Five Star politicians, including the group’s founder and current leader, pondered such radical cures to Italy’s economic woes as restructuring its enormous debt and establishing a currency in addition to the euro.
.. The Janus Global Unconstrained Fund, managed by William H. Gross, lost 3 percent in one day.
.. Hedge funds have been building up their short positions for months, betting that Italian bonds will face another bout of selling pressure
.. the same strains that prompted the earlier bout of selling — weaker countries running up potentially unsustainable debts — are showing again.
.. “These people feel very strongly that deficit limits make no sense,”
.. a robust market for futures contracts tied to Italian government bonds had made it easy to bet against Italy
.. In addition to betting against bonds, many prominent hedge funds are calculating that the share prices of large Italian companies will fall drastically.
.. Bridgewater, the world’s largest hedge fund, has a number of short positions on Italian financial institutions, including UniCredit, Italy’s biggest bank
.. “What we have had so far is a political event, not a credit event,” he said, referring to the point when a country runs out of money. “The endgame is still 12 to 24 months out.”
.. What has spooked investors the most has been the Italian ruling party’s flirtation with a second currency.
.. Strapped Greek and Italian citizens could use this alternate currency to pay taxes and for things like gasoline or health care from the state.
.. “Italy is a conservative country,” Mr. Bonansinga said. “I am just not sure that people want to leave the euro.”
Merkel’s Comeuppance is Europe’s – and the World’s – Misfortune
No one who was paying attention to Greece’s predicament three years ago should be surprised by the position that German Chancellor Angela Merkel and Europe find themselves in today. But only a dangerous fool would celebrate.
.. today’s defenders of the European status quomust fight on two fronts: against Trump’s encroachments and, within Europe, against the likes of Matteo Salvini and Luigi di Maio, the rising stars of Italian politics who, despite their parliamentary majority, were denied the right to form a government by the country’s besieged pro-establishment president.
.. Just as it is Trump’s aim to overturn the global system from which Germany has benefited for decades, Salvini and di Maio see the disintegration of the euro as a welcome development and a boon to their anti-immigration campaign... If you insist on policies that condemn whole populations to a combination of permanent stagnation and humiliation, you will soon have to deal not with Europeanist leftists like us but, instead, with anti-Europeanist xenophobes who see it as their vocation to disintegrate the European Union.”.. Germany’s establishment media are now referring to the Italian economist whose appointment as finance minister was vetoed by the president as “Italy’s Varoufakis.” That moniker obscures a fundamental difference: I wanted to keep Greece in the eurozone sustainably and was clashing with Germany’s leaders in favor of the debt restructuring that would make this possible. By crushing our Europeanist government in the summer of 2015, Germany sowed the seeds of today’s bitter harvest: a majority in Italy’s parliament that dreams of exiting the euro... Trump understands one thing well: Germany and the eurozone are at his mercy, owing to their increasing dependence on large net exports to the US and the rest of the world. And this dependence has grown inexorably as a result of the austerity policies that were first tried out in Greece and then implemented in Italy and elsewhere... a condition of agreeing to bailout loans for distressed governments and banks. Then note that this pan-European austerity drive took place against the backdrop of massive excess savings over investment... large excess savings and balanced government budgets necessarily mean large trade surpluses – and thus the increasing reliance of Germany, and Europe, on massive net exports to the United States and Asia... In other words, the same incompetent policies that gave rise to the xenophobic, anti-Europeanist Italian government also bolstered Trump’s power over Merkel... the US will aim to force China to deregulate its financial and tech sectors. If it succeeds, at least 15% of China’s national income will gush out of the country, adding to the deflationary forces that are breeding political monsters in Europe and in the US.
Paroling the Spanish Prisoner (Wonkish)
one of the issues that came up was the recovery in Europe, which is real and in some ways a bigger story for the world economy than the continuation of the Obama expansion here. An obvious question, which Anil raised, was whether this recovery calls for a reconsideration by Euroskeptics like myself.
.. we underestimated the political cohesion of the single currency, the willingness of political elites to suffer enormous economic pain in order to stay in the monetary union.
.. During the good years money poured into Spain, fueling a huge housing bubble. This fed inflation that made Spanish industry uncompetitive, leading to a huge trade deficit.
.. over the period 2008-2018 Spain suffered an enormous cumulative loss of output it could have produced: 33 percent of potential GDP. That’s as if the U.S. were forced to pay a price of more than $6 trillion to, say, remain on the gold standard.
.. the politics of the euro have been far more robust than us Anglo-Americans could have imagined.