Consciousness of Sheep
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On the back of the slow collapse of the Italian banking industry, Italy is just three all too plausible steps away from destroying the Eurozone according to John Hulsman at City Am:
- Step one is that Prime Minister Matteo Renzi loses the autumn referendum on reform of the political system
- Step two involves Renzi resigning and calling a general election
- Step three involves Beppe Grillo’s right-wing populist Five Star Movement winning that election.
What makes this scenario plausible is the EU response to the perilous state of the Italian banks:
“Italian bank bad debt totals a gargantuan €360bn, fully 18 per cent of all bank loans, double the rate of 2011. According to new EU rules, the banks cannot be bailed out by Rome unless bondholders take losses first.
“At present it is estimated that some 46 per cent of the losses for Italian bank shareholders and junior creditors – losses that must amount by EU rules to at least 8 per cent of any bank’s liabilities – are held by local Italian families. This is more than a large enough segment of the populace to sink Renzi’s referendum, politically tarring both him and an unfeeling, unaccountable (sound familiar?) EU in the process. In calling his referendum, Renzi has fatally asked a question for which he simply doesn’t know the answer.”
If Italian voters choose to follow Britain’s lead and vote against Renzi’s centre-right government, the path to office for the Eurosceptic Five Star Movement is all too clear. In the event of Grillo becoming prime minister, he is likely to call a referendum on Italy’s membership of the Euro (and possibly the EU) as soon as possible in order to build on the momentum of the Brexit result:
“Recent mid-May polling put Italian support for leaving the EU itself at 48 per cent; so support for leaving the single currency would be substantial. If the EU continues to stand in the way of an Italian bank bail out, such a vote would surely be too close to call.”
If Italy withdraws from the Euro, it is inconceivable that countries like Spain, Portugal and Greece that have been on the receiving end of EU-inspired austerity will remain for long. And once they go, larger countries like Poland and France will not be far behind them.
With the failure of the Euro, it is unlikely that the EU will survive without radically shifting its mission. But the alternative – rewriting Europe’s banking rules – may prove equally unpalatable to Europe’s elites.
