Although Italy is experiencing one of the most difficult moments after the Second World War, our nation has been left alone by the European Union despite the Coronavirus emergency being a global emergency and not just an Italian problem. The behaviour of the European Union has been a great disappointment for Italy as the EU has not been able to give a timely and effective response to Italian requests for support.
What is the point of the European Union if, in this moment of need, it does not help a nation like Italy – one of the founders of the EU? The European Union should be doing more from an economic point of view by helping the Italian state (and consequently Italian citizens). We cannot and must not forget that every year Italy pays billions of euros into the European budget, if solidarity is not demonstrated or supplied at this stage of the crisis, there is no reason for Italy to remain a member of the European Union.
In addition to the dramatic health consequences, the effects of the Coronavirus on the Italian economy are serious now but will be even more serious in the medium term. Let’s not forget that Italy is the eighth most industrialized nation in the world. Therefore, our economy is based on a good industrial sector with a strong manufacturing core and on the tertiary sector, including our highly developed tourist sector. However, this is now a large problem for Italy as following the government’s new decree, all businesses that are non-essential – non-utilities – must be closed. Additionally, the Italian economy is reliant on exports and this crisis has had an impact on the whole European economy.
One specific indication of the problematic approach taken by the EU was the recent speech from the President of the ECB, Christine Lagarde. The speech was so disconcerting it caused a collapse of the Milan stock exchange and removed billions of euros from the markets. The truth is that the European Union and the ECB only intervened when the virus reached France and Germany with no concern for any other European nation. I echo the calls of the leader of the Brothers of Italy, Giorgia Meloni, for Lagarde to resign as she has proved herself unsuitable for the role she plays.
The knock-on effects for the economy security of the European Union will be serious. In addition to Italy – which represents the third largest economy in the EU after France and Germany now that the United Kingdom has left – the Coronavirus is rapidly spreading to the rest of Europe, which means that many other nations will soon find themselves in a similar situation to ours with all the economic consequences. We live in a globalized world where the effects of an economic crisis are likely to have a domino effect and echo across the globe. The risk of a new major financial crisis on a similar scale to that of 2008 is a concrete possibility with all the problems that entails.
We must also consider that even before the Covid-19 emergency the eurozone economy had a very low growth rate and now we will go into recession. When this emergency is over for Italy, and all European countries, it will be necessary to have a serious reflection on how the EU functions since the only real help for Europeans has come from individual nations rather than the supranational body that has tried to claim responsibility for all Europeans.
Francesco Giubilei is an author, publisher, and professor. He is the president of the Italian conservative foundation Fondazione Tatarella and the founder of the Italian conservative think tank Nazione Futura. He writes for the newspaper Il Giornale and is a professor at the University G. Fortunato of Benevento.
The epidemic’s economic shock could easily exceed that of the 2008 financial crisis.
European Central Bank chief Christine Lagarde risks misreading the moment and not doing enough to help national governments deal with the coronavirus | Thomas Lohnes/Getty Images
Dalibor Rohac is a resident scholar at the American Enterprise Institute in Washington, D.C. and tweets at @DaliborRohac.
For better and for worse, crises create opportunities for extraordinary politics. European leaders, including the eurozone’s top central banker, Christine Lagarde, would be foolish to think that the ongoing pandemic is different just because it is a public health crisis — and not a political or financial one.
Besides the cost in terms of lives and public health, the pandemic has created an economic shock on a scale that could easily exceed the 2008 financial crisis. While the Great Recession resulted from a financial shock that reverberated through the U.S. and European economies, the entire world now faces a massive downturn across all sectors of the economy.
“Social distancing” invariably means less economic activity for everybody. In the coming weeks, if not months, people will work less, invest less and spend less. Inevitably, balance sheets will deteriorate and otherwise profitable businesses will go under — unless there is a clear commitment from public authorities to stabilize the economy.
The countries hit the worst by the pandemic — Italy, Spain and France — are the ones that have the least amount of fiscal breathing space.
In the United States, the Federal Reserve is moving ahead with a program of quantitative easing, although President Donald Trump is chastising it for being too slow. In the U.K., the Bank of England slashed rates and the government has announced a large fiscal loosening worth £30 billion.
The EU’s response, in comparison, has been pitifully weak. According to Lagarde’s statement last week, there are “no material signs of strains in the money markets or liquidity shortages” and any policy response to the developments should be primarily fiscal — and therefore national.
That is irresponsible. The countries hit the worst by the pandemic — Italy, Spain and France — are the ones that have the least amount of fiscal breathing space, irrespective of the European Commission’s relaxation of fiscal and state aid rules on Friday.
Going into the current crisis, Italy’s debt-to-GDP ratio was 134 percent. Spain’s and France’s were close to 100 percent. With spreads on their bonds skyrocketing, a sizeable fiscal stimulus is out of the question. Greece may have seen relatively few cases of coronavirus, yet the spread on its own 10-year bonds have gone up by over 50 basis points in the past week. It is not enough to simply “count on Germany,” as German Finance Minister Olaf Scholz put it — markets need to see real, macroeconomically significant firepower now in order to regain confidence.
EU countries like Spain will have a hard time absorbing the economic hit that the coronavirus
will leave in its wake | Cesar Manso/AFP via Getty Images
And whatever one thinks of Lagarde’s claim that the ECB should not be “the line of first response” to the widening bond spreads on the eurozone’s periphery, a muscular pre-emptive injection of liquidity into the markets by the ECB is now the only thing that can stop the gradual build-up of panic in the financial sector and cushion the impact the pandemic is having on nominal spending.
Worse yet, Lagarde is dramatically misreading the politics of the moment. After the omnishambles of the Brexit negotiations, it has become conventional wisdom that Europeans have been somehow cured of any desire to leave the EU. While that may have been true a few weeks ago, it can no longer be taken for granted in today’s extraordinary times.
The real human cost of the pandemic (over 1,000 people have died in Italy alone) combined with popular anxieties and a sense — justified or not — that European institutions are not helping can easily add to a potent centrifugal force. That will be especially true if Italians reach the conclusion that a devaluation of their currency is their only possible source of economic relief.
Remember that Italy was until recently governed by a populist coalition built around the rejection of austerity supposedly imposed by the EU. In opinion polls in France, French President Emmanuel Macron is tied with the far-right leader Marine Le Pen for reelection in 2022. Even in Spain, the far right made significant gains in the parliamentary election in November 2019. Governments in Warsaw, Budapest and Prague already harbor little affection for the EU. If they conclude that there are political gains to be made from taking things into their own hands — in whatever sense — they will.
If there is one lesson from the Great Depression, it is that when international leadership fails, it is replaced by the destructive, non-cooperative behavior of national governments. When the U.S. failed to provide liquidity to the global financial system and imposed the Smoot-Hawley tariff instead of keeping its markets open, competitive devaluations and tariff hikes ensued.
The EU’s leaders and the European Central Bank’s president in particular face a similar choice today. Either they move boldly to help the periphery, or the periphery is going to help itself in whatever way it can — even if it means the unraveling of the eurozone and the EU.
I think it’s safe to say the new crisis just killed the Schengen Treaty. That ridiculous document which guaranteed freedom of movement across the European Union finally hit something it couldn’t bully, COVID-19.
Regardless of whether you believe the pandemic is real or not, the reaction to it is real and is having real consequence far beyond the latest print of the Dow Jones Industrial Average.
The lockdown of Italy isn’t a temporary thing. Oh, the suspension of free movement is temporary, but it portends something far bigger.
It’s the beginning of the real political balkanization that’s coming to the European Union over the next few years. Old enmities and prejudices have not been stamped out under the boot heel of oppressive legislation coming from a bunch of disconnected technocrats in Brussels.
They have only been suppressed.
Because when there are existential threats there’s no time or desire to virtue signal about how we’re all one big happy dysfunctional family.
For decades Germany refused to lighten up on its fiscal inflexibility believing, rightly, that it shouldn’t subsidize profligacy in places like Italy, Spain and Greece if it didn’t want to.
At the same time, however, Germany transmitted those rules to the single currency regime of the euro. That was the price they forced on the rest of Europe.
This ensured that eventually they would have to do exactly that, subsidize or bailout debts, as the mispricing of labor and capital efficiency inherent in the any single currency applied over multiple economies drove capital to Germany and out from those countries.
Now Germans face the existential threat of COVID-19 imported into Europe mostly through Wuhan textiles workers in Milan’s leather shops/ Their leaders will force them to accept looser spending rules.
And do you think this will engender an outpouring of love and affection towards Italians?
If you do you might be delusional or an open-borders libertarian… but I repeat myself.
Chancellor Angela Merkel has signaled for months she would spend more to satisfy the rising Greens on Germany’s political left.
Her finance minister, Olaf Scholz, unleashed the full force of Germany’s sovereign wealth fund to offer unlimited support to German businesses facing troubles because of this virus.
This is as good a cover story for the gargantuan holes in the balance sheets of zombie German banks as they were likely ever going to get folks.
ECB President Christine Lagarde was brought in to ram through the political changes needed to loosen Germany’s tie. She knew the only way the EU would survive the growing crisis within its non-functional sovereign debt market was to print money to the high heavens.
Or allow the union to break up. But, there is no Door #2 in Europe. All doors lead to Brussels.
Germany stood in the way of that while at the same time Merkel ruthlessly enforced Schengen. She weakened the political center in Germany and inflamed memories of a Germany which rampaged across Europe militarily in the 20th century through enforced austerity hollowing out less-efficient euro-zone economies.
So in the midst of this mess comes COVID-19 and the uncoordinated and inept response to it from the political center of Europe to date. Only now are they coming to the conclusion they need to restrict travel, after sitting on their hands for a few weeks while Italians died by the hundreds.
And do you think that’s engendering waves of love and affection among Italians towards Germans?
If you do then you don’t know Italians… at all.
And this is your signal that this is the beginning of the real crisis. Because while COVID-19 may have been the catalyst for the breakdown of capital markets, capital markets were simply waiting for that spark to occur.
Any other type of spark, a bank failure from a run of bad loans, could have been handled and absorbed. There was no Credit Anstalt the central planners weren’t prepared for.
They’ve been able to keep Deutsche Bank operational for the past few years, for pity’s sake, they could have handled any other single bank failure.
But with COVID-19 being the ultimate form of exogenous shock to the global economy there is no containing the financial contagion. And that’s why we saw a strong unwind of U.S. equities and a sharp rise in both the Japanese yen and the euro when this thing began.
Part of what had been pushing U.S. equities higher was the capital flow from Europe and Japan into the U.S. That reversed for short time as the eurodollar markets seized up and the demand for cash locally rose sharply.
It’s no different than what is happening here.
I went to my bank yesterday to grab some cash and finish our self-quarantine prep (we’d bought extra toilet paper weeks ago). The teller told me she’d moved out a lot more cash than normal and it wasn’t even the end of lunch hour.
The same thing on a larger scale was happening in Europe until Lagarde told the world that she wasn’t done blackmailing Germany to loosening its stance on fiscal rules at her presser on Thursday.
And the rally in the euro, which was already sick, died.
Annnnd…. it’s gone!
What we saw to end this week was an epic reversal of that capital outflow as the USDX and U.S. equities rallied while the euro crashed back to $1.11. And now that it’s started I don’t expect it to stop.
The Fed fired major blanks at the dollar-funding crisis in the credit markets this week. What is the ECB going to do to stop rates from rising in Europe as money flees their incompetence?
Fairy dust springs to mind, honestly. But, more likely there will be a very quick move to close the banks and cancel the use of cash while new rules are adopted and Lagarde turns to the IMF to bailout the ECB which can very easily go bankrupt here.
The weakest banking system in Europe serves a country on lockdown over this virus.
So, it doesn’t matter now that Germany has acquiesced, pledging its own savings and lifting fiscal restraints of euro-zone members. All the printing will does is feed the vortex of unpayable debt that is far bigger than their prodigious piggy bank.
The next stage of the crisis is here with the focus finally turning to Europe. The U.S., for all of its faults, is one nation with a unified debt market and an executive who can and has exercise powers necessary to keep the wheels from completely falling off the U.S. economy.
Will Trump spend money he doesn’t actually have? Yes. So what?
That money will go into a logistical pipeline that far outstrips Europe’s to combat a disease over a smaller population spread across larger distances. That limits the damage to the U.S. It ensures political stability that the EU cannot hope to compete with for the trust of spooked capital.
Add the global economy grinding to a halt. We’ll see the crisis emerge in Europe to feed a widening gyre of debt servicing that will look like a global bank run on dollar liquidity.
It will force fundamental reform of the euro and the ECB. They are necessary for the EU to survive this crisis in anything close to its current form.
I’m not laying odds that will work. Instead I expect Schengen’s suspension to hold and more countries go the way of the Brits by exiting the EU itself.
While this crisis is tailor-made to shove the federalization of Europe down the throats of what’s left of the German middle class, I don’t think it succeeds.
Until Germany is willing to bail out Italian banks, there is no solution to this.
And while I think Merkel is willing to fall on her sword to get this done, It may still not work.
How convenient it is that Merkel’s CDU just cancelled their April 22nd leadership vote because of this crisis. This forestalls any possibility of Merkel losing control of her party until after Germany begins its EU Commission Presidency.
Whatever she has planned she has to do soon. Her political capital is just about spent.
There will be no change of leadership during a crisis like this. She’s almost done completing the sell out of Germany to the EU begun by Helmut Kohl.
Just in time for the whole experiment to come crashing down.
(CNN)Day one of Europe's brave new future didn't go terribly well.
On Tuesday, new Members of the European Parliament (MEPs) took their seats for the first time since a dramatic set of elections in May shook up the status quo.
As the new-look parliament stood for the iconic melody from Beethoven's ninth symphony, commonly known as Ode to Joy and the unofficial anthem of Europe, MEPs from the UK's Brexit Party turned their backs in protest.
Europhiles called the protest disrespectful. "What's disrespectful is to take the ancient nations states of Europe and, without asking anyone, turn them into a country," said Nigel Farage, the Brexit Party's leader.
You might think that opinions of a political party named after a movement to leave the European Union shouldn't matter much to EU officials. But Farage's group is the largest single party in the European Parliament. And it's not just Euroskeptics that are making life difficult for supporters of the European project at the moment.
As Europe's voters become increasingly hostile to business-as-usual politics, EU leaders tried to pull off an almighty stitch-up and force establishment figures into the bloc's four top jobs -- including the most powerful job in Brussels, president of the European Commission.
After three days of horse trading, the German defense minister Ursula von der Leyen was lined up to take this post. Her nomination -- which came out of the blue -- is a near-perfect illustration of the problems facing a Europe rocked by populism and a general distrust of the establishment.
Here's how the process works. The commission president is decided in two stages: First, the leaders of the 28 EU member states must agree on a name. That person must then be approved by a simple majority of the the 751 members of the European Parliament.
Ordinarily, that process is a formality.But May's EU elections were a clear indication of the mixed feelings across the continent in 2019. Establishment parties lost seats to both Euroskeptic parties, like the Brexit party and the Italian far-right Leage, and pro-EU reform parties, like the German Greens and French President Macron's En Marche movement.
This has severely compromised the old coalition between the center-right and center-left groups to get what they want in Brussels and freeze out everyone else.
In turn, this means that the only way to get someone everyone can agree on is to pluck bland "compromise" candidates who have little baggage.
But there is a fine line between a compromise in which all parties accept they don't get exactly what they want and ending up with a situation that everyone hates.
Here we come back to the Leyen nomination. The majority of the center-left bloc in parliament is livid that their first choice, the Dutch Labour politician Franz Timmermans, was so quickly swept aside by the 28 EU leaders. He was not the only qualified candidate to be brushed off: The candidacy of the former favorite, Germany's Manfred Weber, also fell apart. Eastern European nations, such as Hungary, could not stomach a candidate with a track record of standing up to the nationalist leaders who typically run these countries.
Charitably, Leyen is seen as an unusual choice. Less charitably, she could be described as a very small fish on the European stage. She has a patchy record as Germany's defense minster and critics say she has no real history in the pan-European policy arena.
That would suit strongmen leaders in the east for obvious reasons. But it also suits French President Emmanuel Macron. One of Leyen's only publicly-known European policies is her support of a European army, something Macron badly wants to lead the charge on. Her perceived weakness on European politics also allows Macron to take a larger role on the European stage, an opportunity he has been keen to grasp as his popularity in France fluctuates.
And by getting behind the Leyen nomination, Macron is seen to be supporting the idea of a German in the top job without that German being Weber, whom Macron might anticipate as being harder to "help" find his feet in the job.
Of course, this might backfire for Macron and other supporters of Leyen. Some think their perception of her as weak could be rooted in misogyny. And German diplomats say that she is a formidable character and that while her record in post is not wholly positive, she is tough and not likely to be pushed around.
That's if she makes it into the job at all. The center-left Socialists and Democrats (S&D) in the European Parliament are trying to convince MEPs that the appointment would be illegitimate, as it goes against a resolution passed in May which says that only someone previously declared as being interested in the top job can become the next commission president. Ignore that, and what is the point of parliament?
But even the S&D group is divided. The EU makes top appointments as part of a package deal, designed to give everyone all countries a little of what they want. That's how Christine Lagarde, the boss of the International Monetary Fund, ended up being put forward for president of the European Central Bank, despite not having previously been linked to the role.
One of the more perplexing nominations was that of Spain's Josep Borrell for the top foreign affairs job. The idea was that by handing the top job to a Spaniard, it might persuade MEPs to approve the package as a whole. But it's on a knife edge and some observers wonder whether, if the deal goes down really badly, a new slate of appointees could be required -- perhaps sooner, rather than later.
So it's all a bit of a mess. In all probability, this will be resolved quickly as European politicians are on the whole pragmatic. But this is just step one. The reality facing whoever takes these jobs is that the 28 members of the European Union are becoming increasingly polarized. Hiring for the top jobs in European politics is seldom without its difficulties, given the money and power involved. But on the whole, this should be the easy bit.
As populists and anti-establishment parties dig their heels in over the next five years, things are not about to get any easier for the European institutions that embody everything so many on the continent despise.
