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May 23, 2018 | Germany Accuses Italy of “Debt Blackmail”: Hello EU, Time for Reform Expired

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
For 10 years, the EU and EMU promised reform. None was delivered. Time is Up. Populists have taken control of Italy.

Merkel’s CDU/CSU coalition is in a state of panic regarding Italy. The German parties went on the attack accusing Italy of “debt blackmail”

Eurointelligence Snips

This was the day when people who were left speechless by the political events in Italy started to talk. In Germany it was the now cancelled request for a monetary financing of Italy’s debt that triggered a collective nervous breakdown.

The CDU’s economic council warned about a eurozone endgame, and said that Angela Merkel’s policy of kicking the can down the road had led to a situation where the debtors are now in a position to blackmail the creditors. Its general secretary was quoted by FAZ as saying: why should German households pay for rich Italians? The head of the CSU in the Bundestag, Alexander Dobrindt, also demanded that under no circumstances Germany should pay for Italy’s debt programme. His colleague in the European Parliament, Manfred Weber, says Italy was playing with fire, and was risking another eurozone crisis.

Eurozone Reform Officially Dead

French President Emanuel Macron has a vision for Europe. Germany did not agree with it.

Heck, Germany did not agree with any Eurozone reforms for over a decade. Chancellor Angela Merkel blew with the wind in a perpetual can-kicking exercise, accomplishing nothing.

Now, it’s too late. The new Italian government will kill any proposal that Germany and France may agree on.

And of course one of the major Eurozone flaws is that every country must agree to change the pact.

One Day

This is what I said at the time regarding Italian complacency.

The Italy won’t leave rationale looks like this:

  • The Five Star Movement (M5S) would have to get into power, but the new technocrat government’s first mission is to rig the rules so that does not happen.
  • Even if M5S wins the lower parliament, it still may not control the senate.
  • Even if M5S takes complete control of parliament, it would have to change the constitution.
  • Changing the constitution without a super majority would require a vote.

This was my explicit warning:

The problem with the above thesis is there is only one party that wants to keep the Euro and coalitions will form if for no other reason than people are fed up.”

Consider a Surprise

Flashback March 1, 2018, three days before the Italian election.

Eventually, Will Come a Time When

Let’s go back further. Flashback November 23, 2011: Eventually, Will Come a Time When …

Somehow that post did not get converted to The Maven. This was my conclusion.

Eventually, there will come a time when a populist office-seeker will stand before the voters, hold up a copy of the EU treaty and (correctly) declare all the “bail out” debt foisted on their country to be null and void. That person will be elected.

Le Pen may be too early, and France may not be that country, but the time will come.

Zombified Italy

Alhambra Investments put together an excellent series of charts that show stagnation in Italy which in turn explains the new Italian coalition.

The lead image is from that article.

Time Has Expired

You can only kick the can for so long before populists take control.

The time has come. Eurosceptic populists are in control of Italy.

One way or another Germany will pay. Will it be a destructive Eurozone breakup or debt cancellation?

Mike “Mish” Shedlock

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May 23rd, 2018

Posted In: Mish Talk

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