Italian President overrides election results

[Takhisis]

What exactly is the expected role of the President in Italy? Is his role intended to be something like the Queen of England who is basically forbidden from interfering in politics, or is the Italian President refusing to approve nominees something what while rare, is still within the expected role for him?
(Basically, is this closer to Congress declining to approve a presidential nominee [uncommon, but well within their expected authority] or the Queen refusing to accept a government from a party she disagrees with [a full on political crisis]?)

As has been pointed out above, it's well within his expected legal functions, as long as he doesn't overdo it. Presidents were supposed to be a backstop to keep the totally-not-successors-to-fascism from the DC and the we-have-been-educated-in-the-USSR-but-we're-totally-not-gonna-proclaim-Italy-a-one-party-state-honest PC. Of course, as Italy had a change of government every year or so on average since the end of WWII.

Just the one minister's nomination was rejected in any case and that problem has been solved, so Giuseppe Conte will be PM.

gerontocrat.

+1

+2

 

[Bootstoots]

What odds are you giving on this prediction?

I'll backpedal a bit and say that if there to be another 2008-style crisis, the Euro would probably survive in some form, but only after losing Greece (85%), Italy (70%), Portugal (65%), and possibly Spain (55%). The odds I'm giving would be higher if I didn't have a little bit of faith in the Eurocrats' ability to improvise in the chaos, decide that the rules they had been haranguing the periphery with were far more flexible after all, and then act to relax them in such a way as to not destroy European markets. Debt forgiveness will suddenly become possible.

As it is now, there's way too much public debt - especially in the periphery but also in much of the core - to transfer private losses wholesale onto public balance sheets a second time. Just the simple increase in spending and decrease in tax revenues that happens automatically would be enough to push Italy, Portugal, and obviously Greece over the edge, never mind saving the banks.

As for Italy right now, looks like Mattarella saw how the markets reacted to the prospect of a new election and backed down accordingly. Good to know there's someone looking out for the investor class.

 

[Colon]

As for Italy right now, looks like Mattarella saw how the markets reacted to the prospect of a new election and backed down accordingly.

That's assuming M5S/LN's version of events was the truth, namely that the president had rejected alternative finance ministers put forward by them. If instead the president's version of events was the truth, which is that the coalition refused to propose an alternative, then it's the coalition that backed down.

 

[Colon]

...Debt forgiveness will suddenly become possible.

As it is now, there's way too much public debt - especially in the periphery but also in much of the core - to transfer private losses wholesale onto public balance sheets a second time. ...

Debt forgiveness by definition implies a cost to the public. The private sector doesn't do forgiveness on the debt it owns, only governments.

In any case, a fifth of the assets of Italian banks' assets consists of Italian government debt. These banks already are very weak due to piles of bad loans, so scrapping any meaningful amount of such debt means the banks will have to recapitalised with public money. Debt relief for Italy at no cost for the public, that's not going to happen.

 

[Bootstoots]

Well, there's a different way out. A very un-German way out, but a way that does solve the problem.

Have the central bank buy up the bad public debt and just forgive it, or more likely sit on it at near-zero interest and a practically infinite repayment timeline. This is obviously inflationary, but if we're talking about another crisis, it would happen during a deflationary shock, making the resulting inflation manageable - indeed welcome to the debtors.

A very restricted form of this was already done in the form of the ECB's QE, and also the reduction of interest rates and extension of the repayment schedule to Greece. Should another crisis occur, they'll have to step that up dramatically.

If they refuse to change the rules and do that in the face of a crisis, then investors with Italian public debt will panic and dump it, triggering a debt crisis and bank run at the same time. And then you'd have a Greek situation, but 8 times the size. A messy default and probably Italexit would follow. And there would be much wailing and gnashing of teeth.

 

[innonimatu]

If they refuse to change the rules and do that in the face of a crisis, then investors with Italian public debt will panic and dump it, triggering a debt crisis and bank run at the same time. And then you'd have a Greek situation, but 8 times the size. A messy default and probably Italexit would follow. And there would be much wailing and gnashing of teeth.

It won't be a redo of the 2008 crisis because a very large portion of that debt is already parked with the ECB. And while they are talking about following the US Federal Reserve in reversing "QE", they are acutely aware of the vulnerability of the euro to just that scenario. Reasons will be found to keep postponing. The current rules do not scare speculators, indeed these are the rules that enabled speculators, the rise of so many asset prices over the past years.

The real simmering fire is the economic (as in wage) stagnation or even continued reduction, and rising asset prices combining to drive the "common people" into poverty. They are demanding an end to the policies of "austerity", the massive sustained wealth transfer for the benefit of the creditors. And that the ECB cannot undo without panicking "investors", because those investors are the creditors. The ECB is already also supporting corporate bond prices, and its ZIRP inflated real estate prices and justified rising rents, which in turn fueled a speculative bubble in real estate funds. To keep all those "investors" happy it must keep the game rigged against the plebes: high corporate profits by keeping wages low, high real estate income by keeping property unfordable and thus supporting the rental markets, easy very low interest credit to allow for further "consumer spending" by the plebes... who will react increasingly forcefully in the political arena.

 

[dutchfire]

I'll backpedal a bit and say that if there to be another 2008-style crisis, the Euro would probably survive in some form, but only after losing Greece (85%), Italy (70%), Portugal (65%), and possibly Spain (55%).

You can't run a betting shop with such a poorly defined conditional.

 

[Colon]

...

Have the central bank buy up the bad public debt...

When a government defaults (or before that, for that matter), what's the difference between its bad debt and good debt?

When a CB buys the country's debt, forgiveness becomes redundant. Profits CBs make flow back to governments.

And covering the new coalition's budget plans with purchases by the ECB would guarantee an AfD government in Germany, which means the Euro is dead anyway. Even if you somehow got the rest of Europe to go along with the scheme (at this point, I think only Greece and maybe Portugal would agree), then there's no chance Italy could in time return to the markets unless there'd be a firm commitment to keep its finances in order. In other words, the ECB would be required to cover Italy's budget shortfalls indefinitely.

 

[Bootstoots]

When a government defaults (or before that, for that matter), what's the difference between its bad debt and good debt?

When a CB buys the country's debt, forgiveness becomes redundant. Profits CBs make flow back to governments.

And covering the new coalition's budget plans with purchases by the ECB would guarantee an AfD government in Germany, which means the Euro is dead anyway. Even if you somehow got the rest of Europe to go along with the scheme (at this point, I think only Greece and maybe Portugal would agree), then there's no chance Italy could in time return to the markets unless there'd be a firm commitment to keep its finances in order. In other words, the ECB would be required to cover Italy's budget shortfalls indefinitely.

Right, that's why I said it's a very un-German thing to do. It's exactly what Japan has been doing for decades now - having the CB buy the government's debt and keep the yield at practically 0. As long as you're in a deflationary environment and don't go insane with it, simply monetizing the deficit like that works just fine - their inflation is near zero too.

But of course, despite the fact that it works, it's anathema to everything Germany and friends stand for. So the result will be another self-inflicted crisis, but worse than the previous one, with hard defaults, collapses of banking systems, and unplanned exits from the euro across the periphery. Still, I think there's some chance that a severe enough crisis could cause things that seem impossible now to happen anyway.

 

[Colon]

Right, that's why I said it's a very un-German thing to do. It's exactly what Japan has been doing for decades now - having the CB buy the government's debt and keep the yield at practically 0. As long as you're in a deflationary environment and don't go insane with it, simply monetizing the deficit like that works just fine - their inflation is near zero too.

But of course, despite the fact that it works, it's anathema to everything Germany and friends stand for. So the result will be another self-inflicted crisis, but worse than the previous one, with hard defaults, collapses of banking systems, and unplanned exits from the euro across the periphery. Still, I think there's some chance that a severe enough crisis could cause things that seem impossible now to happen anyway.

You call 2 decades of stagnation "working"? Of all major advanced economies only Italy has been a worse performer since 92 (when the bubble burst). If anything Japan shows expansionary fiscal policies are no substitute for structural reform.

Moreover, the monetary effects of yet more bonds purchases wouldn't be limited to Italy and the Eurozone doesn't have deflation. Last month's CPI was even 1.9%. Neither does Italy itself actually, even if inflation is fairly low.

There also isn't going to be a crisis in the first place if the new government behaves responsibly. Government interest payments as a share of revenues haven't been as low since the early 70s. A debt load of +130% is high, but not insurmountable. Belgium cut its debts from 133% in 93 to 87% in 07 for instance. Italy also has a healthy current account surplus, so it doesn't rely on foreign capital. The only reason another debt crisis is in the making is because the coalition plans to raise the deficit by another 6-7% of GDP and provides no roadmap as how to reduce it again in the medium-long term. Nor does it offer anything as how to raise productivity growth. At least Japan would direct much of its deficit spending towards infrastructure.

 

[Bootstoots]

You call 2 decades of stagnation "working"? Of all major advanced economies only Italy has been a worse performer since 92 (when the bubble burst). If anything Japan shows expansionary fiscal policies are no substitute for structural reform.

It does about as well as I would expect a mature economy with an aging population, no immigration, and a very low birth rate to do. Much like Italy except for the immigration. It has a low growth rate, but also a persistent current account surplus, low unemployment, and a lack of crises since 1990. Not that I think monetizing the deficit is a great thing to do, but in a crisis it definitely stabilizes things, which is why the ECB did it to a limited extent from 2012 on. I'd argue they should have done more of it and cut the interest rate on its share of the bailed out debt to Greece, Portugal, and Ireland to 0, conditional on reforms that made sense. In the event of another debt crisis, it should certainly consider doing this on a large scale.

Moreover, the monetary effects of yet more bonds purchases wouldn't be limited to Italy and the Eurozone doesn't have deflation. Last month's CPI was even 1.9%. Neither does Italy itself actually, even if inflation is fairly low.

There also isn't going to be a crisis in the first place if the new government behaves responsibly. Government interest payments as a share of revenues haven't been as low since the early 70s. A debt load of +130% is high, but not insurmountable. Belgium cut its debts from 133% in 93 to 87% in 07 for instance. Italy also has a healthy current account surplus, so it doesn't rely on foreign capital. The only reason another debt crisis is in the making is because the coalition plans to raise the deficit by another 6-7% of GDP and provides no roadmap as how to reduce it again in the medium-long term. Nor does it offer anything as how to raise productivity growth. At least Japan would direct much of its deficit spending towards infrastructure.

I'm mostly talking about what the ECB should do in the event of another multi-country sovereign debt crisis like 2010-14, not just for Italy specifically. I don't think Italy's populist government should go through with cutting taxes via their 20% flat tax proposal while also raising spending. But Italy got the kind of government that austerity can lead to.

Out of curiosity, how exactly did Belgium go from a high deficit and debt load in the early 1990s to a balanced budget a decade later? Was it through the sort of austerity policies imposed in southern Europe in the 2010s, or was there a different approach?

 

[innonimatu]

Too bad. But I did wonder about Cuidadanos joining in bringing down a very right-wing government. Only if they though they could step in as the new very right-wing government...

And it turned out that even though Rajoy was supported by Ciudadanos, he got kicked out. Now I'm guessing the EU's bureaucracy and German government will invest even more on promoting Albert Rivera, if they can cause early elections to happen...

 

[dutchfire]

So I've been complaining a bit about other posts, perhaps this is a good moment to give my own #hottakes.

1. You're all falling into the Great Man Theory trap (or perhaps in this case Great Woman) for how decision making in the European Union actually comes about. In particular, the hard work of actual political alliance formation and governing.

2. You are all underestimating the influence of the smaller countries (or, equivalently, overestimating the influence of France+Germany) in the European Union. Perhaps largely because their influence is in influence the agenda, setting the Overton window and killing plans before they gain a lot of attention. The issues where we see action are usually things where there's rather wide agreement.

3. You are mostly treating countries as single-minded actors (Germany wants X), while there are wide difference of opinion within countries, within governing coalitions and even within single political parties. The Schäuble - Merkel distinction is famous.

4. Syriza's negotiations with the Trojka are taken as the default for what happens if you negotiate with the EU. This sort of overlooks the fact that Syriza was actually *edit: not* very good at negotiating, for several reasons. The party was internally divided, not very experienced, depended on parliamentary support of the extreme right, had Fifth Columnists opposing their efforts within the larger government and lacked allied parties in other EU countries. No wonder the Trojka could eat their lunch. The funny thing is that in the history writing, Syriza benefits from painting a picture of an almighty EU since it covers their tactical failures, and the EU can hardly go around saying that they screwed the Greeks because they are poor negotiators. If you want to see them, there are plenty of examples where member states can defy the EU, from the Netherlands as a drugs smuggling den, via the anti-austerity policies in Portugal, to the dismantling of the right of law in Hungary and Poland.

5. Humans have a tendency to prepare for the previous disaster. We've been talking about Greece and predicting how it will leave the EU and how this might take down the EU as a whole for the larger part of a decade. Meanwhile, the UK and the US pushed the democratic self-destruct button with almost no warning.

6. How much do you really know about (other) EU member states? Honestly, I don't think there are any English language news sources about the Netherlands with analysis worth anything. You can be happy if they report news events without factual and geographical errors. In a time of stark differences between core and periphery, between Amsterdam and Veendam, and the large middle in between, even domestic news papers have problems covering this evenly. In that vein, I know almost nothing about what is happening domestically in Cyprus, Lithuania or Denmark. I therefore try to refrain from making too bold statements about those places. One might even say that the focus here on monetary economics illustrates this point. It's a topic you can talk about without knowing anything about the country in question. But you miss the underlying socio-demographic, regional and micro-economic view (and much more).

7. My question to @Bootstoots about odds wasn't just for fun. I see a lot of overconfidence in predictions (sometimes followed by ridiculing a prediction that gave the actual outcome a 30% probability). Historical determinism for the future. Just for fun, the Arab spring and the Turkish coup, and the subsequent rearrangement of sun tourism to souther EU members states was a significant economic factor in places like Greece and Portugal. How many economic predictors knew in advance?

 

[EnglishEdward]

Your point 4 only makes sense to me if I assume you have accidentally omitted the word "not" from the second sentence.

 

[Thorgalaeg]

And it turned out that even though Rajoy was supported by Ciudadanos, he got kicked out. Now I'm guessing the EU's bureaucracy and German government will invest even more on promoting Albert Rivera, if they can cause early elections to happen...

Yes, PNV changed his mind in the last minute under the promise of PSOE keeping PP's budget. So we will have a supposedly left wing government using a supposedly right wing budget. Which is only an apparent contradiction since PSOE has never been that different of PP in economic matters (or any other matter btw) as they are both part of the establishment.

About EU, PSOE is even more europeist than PP or C's. So nothing has changed.

 

[Hrothbern]

So I've been complaining a bit about other posts, perhaps this is a good moment to give my own #hottakes.

1. You're all falling into the Great Man Theory trap (or perhaps in this case Great Woman) for how decision making in the European Union actually comes about. In particular, the hard work of actual political alliance formation and governing.

2. You are all underestimating the influence of the smaller countries (or, equivalently, overestimating the influence of France+Germany) in the European Union. Perhaps largely because their influence is in influence the agenda, setting the Overton window and killing plans before they gain a lot of attention. The issues where we see action are usually things where there's rather wide agreement.

3. You are mostly treating countries as single-minded actors (Germany wants X), while there are wide difference of opinion within countries, within governing coalitions and even within single political parties. The Schäuble - Merkel distinction is famous.

4. Syriza's negotiations with the Trojka are taken as the default for what happens if you negotiate with the EU. This sort of overlooks the fact that Syriza was actually very good at negotiating, for several reasons. The party was internally divided, not very experienced, depended on parliamentary support of the extreme right, had Fifth Columnists opposing their efforts within the larger government and lacked allied parties in other EU countries. No wonder the Trojka could eat their lunch. The funny thing is that in the history writing, Syriza benefits from painting a picture of an almighty EU since it covers their tactical failures, and the EU can hardly go around saying that they screwed the Greeks because they are poor negotiators. If you want to see them, there are plenty of examples where member states can defy the EU, from the Netherlands as a drugs smuggling den, via the anti-austerity policies in Portugal, to the dismantling of the right of law in Hungary and Poland.

5. Humans have a tendency to prepare for the previous disaster. We've been talking about Greece and predicting how it will leave the EU and how this might take down the EU as a whole for the larger part of a decade. Meanwhile, the UK and the US pushed the democratic self-destruct button with almost no warning.

6. How much do you really know about (other) EU member states? Honestly, I don't think there are any English language news sources about the Netherlands with analysis worth anything. You can be happy if they report news events without factual and geographical errors. In a time of stark differences between core and periphery, between Amsterdam and Veendam, and the large middle in between, even domestic news papers have problems covering this evenly. In that vein, I know almost nothing about what is happening domestically in Cyprus, Lithuania or Denmark. I therefore try to refrain from making too bold statements about those places. One might even say that the focus here on monetary economics illustrates this point. It's a topic you can talk about without knowing anything about the country in question. But you miss the underlying socio-demographic, regional and micro-economic view (and much more).

7. My question to @Bootstoots about odds wasn't just for fun. I see a lot of overconfidence in predictions (sometimes followed by ridiculing a prediction that gave the actual outcome a 30% probability). Historical determinism for the future. Just for fun, the Arab spring and the Turkish coup, and the subsequent rearrangement of sun tourism to souther EU members states was a significant economic factor in places like Greece and Portugal. How many economic predictors knew in advance?

Agree in main with all you said

On those small countries....
How would people from international press, not immerged in those small countries, be able to understand. Ireland shows that even the lack of a language barrier does not help that much. And hotel lobbies and big cities are a biased source for your immersion.
And more blunt... how would someone coming from a polarised two party system, winner takes all, country, have a good feel how to interpretate the consensus influencing of smaller parties in those (multi-party popular vote countries) small countries, or how these small countries take consensus influence in the EU ?

Every time a multi party country has a period of cabinet formation negotiations taking some time, the press of countries having the clear cut two party system start to generate fear and uncertainty.
Makes me always chuckle.
As if the country is not still governed... What a BS !
But yeahhhhh.... if every new vote for a new government has to "change it all"... ASAP implementing the will of the people.... because everything needs to be radically different because the 50% +1 vote took another direction.... hard port or hard starboard !!!
Well... there are countries with a tradition of keeping the ship of state relatively stable on the same course, recognising that small changes of course are mostly much more beneficial for the long term of the country and for the social and political stability and cohesion. There are countries were the feeling of governing responsibility has still a great weight compared to partisan politics.
Trump being an extreme example of the opposite.

I think also a lot of that instant behaviour has to do with the increasing impatience of our consumerism behaviour.
That same instant behaviour together with that "it must be predicted" behaviour has I think also to do with the financial markets.
That want online updating of currencies, bond interest rates, etc, etc.

 

[Hrothbern]

Out of curiosity, how exactly did Belgium go from a high deficit and debt load in the early 1990s to a balanced budget a decade later? Was it through the sort of austerity policies imposed in southern Europe in the 2010s, or was there a different approach?

My two cents as neighbor:
You could also read articles on the PM of the 90ies Dehaene (centre right Christian Democrat)
Roughly:
He started his job in the midst of a very complicated political situation and the first mission completed was the full federalisation of Belgium, shortly thereafter continued with a strong austerity program because of the max 3% debt condition of the EU.
He was PM of two cabinets, both Christian Democrats together with the Social Democrats. With both parties well connected to their "own" unions, the christian and socialist unions, this Grand Coalition could push hard.
GDP decreased in the latter half of the 90ies.

Belgium did benefit greatly from the increased global trade with the Antwerpen harbor, being a depot hub generating lots of transition and export trade into Europe.
On the back of that, and the new Euro, and other developments, Belgium had a strong GDP growth from 2000 till the 2008-2009 crisis. Whereby noted that coming from that Dehaene austerity, they kept wage increase very low for a long time during that growth period. This is also the period where Verhofstadt (Liberal-neoliberal) is PM in grand coalition cabinets.
Belgium was not hit as hard from that financial crisis because it was much more financial solid at that time than the South European countries. There was also no real estate, no private house price bubble.
And where because of that crisis many other countries started a wave of austerity, Belgium did not do it that harsh!
Was that the "typical political inertia" of the complicated Belgium politics ? Perhaps in a sense, that it protected against extremes... But I think that Belgium had a much better financial starting position, a better position to benefit from global trade growth, came out very fast out of the dip, and it played a role that the cabinets of that post crisis period were not neo-liberal dominated, but the same bunch as before. Even some time with a Social Democratic PM.

 

[innonimatu]

Yes, PNV changed his mind in the last minute under the promise of PSOE keeping PP's budget. So we will have a supposedly left wing government using a supposedly right wing budget. Which is only an apparent contradiction since PSOE has never been that different of PP in economic matters (or any other matter btw) as they are both part of the establishment.

About EU, PSOE is even more europeist than PP or C's. So nothing has changed.

But they all must count on elections being called soon. It's just too easy to overthrow the government. Thus the PSOE must win votes, increase spending. The PNV can be bought by passing a budget favorable to the Basques anyway, what they wanted to protect were the concessions they'd extracted from the PP?

Rajoy was for "austerity", that was something he could not openly move away from even during election years. Not did he want to. Sanchez can be "against austerity", especially when it will win him votes. This combined with a different government in Italy does indeed change some clashes within the "eurozone". The EU being the EU, I thing it will double down on imposing austerity from above, using the ECB as the stick. The PSOE will learn why being europeist is no longer good... and that will be a good outcome from this government experience.

 

[EnglishEdward]

I suspect that a key player in this may be the French. Their President Macron had some interesting ideas on reforming the Euro zone,
I won't pretend to fully understand them, but he was I understand poo pooed by the Germans, probably because they were not German ideas.

The question is what stance will he and the French take; supporting Spain and Italy or supporting Germany, Austria etc.

 

[Kyriakos]

4. Syriza's negotiations with the Trojka are taken as the default for what happens if you negotiate with the EU. This sort of overlooks the fact that Syriza was actually very good at negotiating, for several reasons. The party was internally divided, not very experienced, depended on parliamentary support of the extreme right, had Fifth Columnists opposing their efforts within the larger government and lacked allied parties in other EU countries. No wonder the Trojka could eat their lunch. The funny thing is that in the history writing, Syriza benefits from painting a picture of an almighty EU since it covers their tactical failures, and the EU can hardly go around saying that they screwed the Greeks because they are poor negotiators. If you want to see them, there are plenty of examples where member states can defy the EU, from the Netherlands as a drugs smuggling den, via the anti-austerity policies in Portugal, to the dismantling of the right of law in Hungary and Poland.

This is factually wrong, on many levels. But to be brief: Had Hungary somehow been able to (it wouldn't) do what it later did, before 2015 etc, it wouldn't have been allowed to. You rather don't wish to notice that currently there is next to zero rule of law in the Eu. If there was rule of any Eu law, Hungary would be under sanctions.
Re Syriza, it backed down, with disastrous effect; that doesn't change what the negotiation was: pretty similar to what the negotiation between the Eu and Uk now is: Eu asking for stuff and nothing up for negotiation. It is just that in the case of the Uk there isn't even one talented/in the know individual like Varou, so there are only the rest of the clowns (much like the rest of the Syriza gov - which is set to be ousted soon anyway, and good riddance).

Re Italy: i hope the new government takes it out of the euro currency, like it wants to.