Thread: Berlusconi is crushed by the EU's hideous strength

Now Silvio Berlusconi is crushed by the EU's hideous strength

By Daniel Hannan
Last updated: November 8th, 2011
589 Comments
several links on this post


I survived everything - except the EU

Silvio Berlusconi had seemed irremovable. Il Cavaliere had survived a series of blows that would have felled anyone else. He had weathered accusations of bribery, soliciting underage sex, tax fraud and mafia links. He had shrugged off the attentions of – by his own count – 789 prosecutors and magistrates. He had recovered from being whacked in the face with a statue by an angry Milanese. He had laughed off gaffes on electric-rail topics from Muslims to Nazis.

No wonder he thought himself invulnerable. He had become the longest-serving Italian leader since – well, since Mussolini. Yet he underestimated the EU's hideous strength. Observing the crisis in Greece, and the EU's reaction to it, he had concluded that Brussels would do anything to keep the euro together. If his austerity measures were insufficient, the EU would come up with the extra cash. It was the same calculation that George Papandreou had made, and his fate was the same; the same, indeed, as that of every leader since Margaret Thatcher to have found himself on the wrong side of the Brussels combine harvester.

Don't get me wrong: I can think of all sorts of reasons why Italians might have wanted to see their risible premier sleeping with the fishes. My point isn't about the pros and cons of Berlusconi; it's about the awesome power of the EU to subvert the internal democracy of its member nations.

Bond spreads were widening as the markets priced in the possibility of Italy leaving the euro. Berlusconi's crime, in the eyes of Eurocrats, was to be relaxed about the prospect. He effectively told Eurocrats, 'If you want your single currency, you pay'. Five days ago, he made the threat overt: 'Italians have been made poorer since the introduction of the euro.' The moment those words were spoken, he was finished.

The shadow of that hyddeous strength, sax myle and more it is of length…

http://blogs.telegraph.co.uk/news/danie ... -strength/

Italy's bond spike: the austerity death spiral has begun

By Daniel Knowles
Last updated: November 9th, 2011
153 Comments


Italy's plans left in ruins

Every time I refresh my browser, Italian bond yields seem to have climbed another percentage point. They breached the 7 per cent level - considered just about sustainable – about an hour ago and have been climbing rapidly ever since. The pension managers, private investors, hedge funds and so on which decide whether or not to lend to the Italian government are panicking. They see no prospect of being repaid, and as they stop lending, it is becoming a self-fulfilling prophecy. Italy has to refinance a quarter of its enormous national debt – or about €300 billion – over the next nine months. They need confidence.

In the short run, the European Central Bank might be able to push yields back down again, by unleashing a shock-and-awe bout of bond buying, as has been done before. But it might well be too late. The Italian economy is very likely to be shrinking, meaning that at even relatively low yields, Italy's debt is probably unsustainable. As Martin Wolf points out in this morning's FT, at a 4.5 per cent real interest rate (after inflation), with 1.5 per cent growth per year, that means running a 3 per cent primary surplus just to keep going. Italy's deficit is comparatively small; it may even be running a small primary surplus. But that's just never going to happen.

The tragedy is that this was all avoidable. A German fiscal expansion, coupled with an enormous monetary stimulus, six months ago, and far fewer people would be worried about Italy's growth prospects. Now we are entering an austerity death spiral in Europe, where debtor countries are forced to cut ever harder.

We'll see what happens as the day goes on. Possibly a fudge can be found for the next few weeks. But I'm only more convinced of what I said yesterday: it is time to print money. All the other outcomes are too horrible to contemplate.

http://blogs.telegraph.co.uk/news/danie ... has-begun/