The great Monti move? A quick comment on recent developments.
It seems clear that Monti is taking the leadership in designing the rescue of the Euro and to some extend of Europe. In the last few days he visited all the relevant european capital cities and most probably is closing the gap to reach an agreement.
Monti has played the card we mentioned few weeks ago. An anti europe consensus is growing in Italy. If Europe continues to be subject to the German egotistic attitude, the Italian government resulting from next election could end up with a strong anti europan bias. The same in Spain.
The governor of ECB mr Draghi was the first to understand the situation, and the risk it brings to the future of Europe. I think this is now widely understood.
So what is the deal? Monti is offering the guarantee that any future Italian government will continue the rigour policies and will not be tempted to go back to relaxation after being saved.
How? Both Spain (first) and Italy ( say mid August) will ask for the shield against the spread to be used and as a consequence enter into binding agreements with EU Commision and ECB. These agreements will be binding also any new goverment. This will reassure the German goverment and possibly public opinion.
Well done Mario and Mario... checkmate!!!
How Berlusconi will win the next election and....
Last December (see my previous post) I suggested that Monti should have adopted a tougher negotiation stance in Europe.
I, provocatively, explained why, after a thorough modernisation of the Italian society, the majority of the Italians would be better off with the lira.
Six months later, I still think that Monti should be much tougher in his negotiations: the cost the Italian Republic have to pay to refinance her debt is simply too high and makes the pain the population is going through de facto useless. In addition even the competition among companies is distorted since the cost of capital for almost any German (or Dutch) corporate is much lower than for any Italian blue chip.
Given the inability of the present government to be assertive enough in Europe, and of the German government to be able to overcome their short term selfishness, I think we are heading for very dangerous times.
In few months we will be having elections in Italy and it seems that Mr Berlusconi will run again for the Prime Minister position.
The most logical step for Berlusconi will be to position himself as the strong man (does it ring a bell?). He will most probably run as the leader of a new party and become the only choice for the euro unhappy fast growing minority.
He will most likely support a strong confrontation with the Germans, he will highlight their selfish attitude, the incredible advantage they are enjoying in paying negative yields. He will suggest that Germany should leave the Euro. Berlusconi will explain why without a central bank as a lender of last resort there is no future for the Italian (or Spanish) economy.
And.... Berlusconi will win!
At least 35% of the votes will go to him as antieuro hero, as the only man with the stamina to stand strong in front of the German Prime Minister, he is the man who called nazist capo a german euro mp. He will also try to have a personal vendetta on Mrs Merkel who, in his eyes, humiliated him.
This will be very dangerous: for Europe, for the Euro and for Italy.
Italy might go back to the worst of the Berlusconi times. The opposite of what we need. The opposite of what Germany needs.
Do we want to see this happening?
What is needed now is a proper firewall: unlimited resources to limit the spread for countries with a serious primary deficit reduction program in place.
It's so clear, it's so simple, it's so necessary.