Monday, November 14, 2011

Ancora! Ancora! Ancora!

While there seems to be a temporary lull in Eurozone action, I don't think the developments on Friday and over the weekend amount to a turning point.  Installing "technocratic" elites doesn't make a lot of sense, because it was unaccountable technocrats who created the mess in the first place.  That the specific technocrats have links to Goldman Sachs, which arranged the accounting fraud that allowed to Greece to enter the Eurozone in the first place, doesn't inspire confidence, either.  Stergios Skaperdas has written another op-ed on Greece leaving the Euro.  I wish Greek politicians would read it but, like national-level politicians everywhere, they seem to be tightly encased in their own little bubble.  Even when they make noises about the austerity being imposed on the country, it is to position themselves in the next election, not because they have a better alternative.

The most immediate impact of the change of Prime Minister in Italy has done is given everyone a chance to write about how awful Silvio Berlusconi has been for Italy.  It's not a new topic; people have been writing about Italy's Murdoch+Buffett for years.  A lot of Italy's "structural" problems would have existed if he had stayed out of politics.  And some of the uniquely Italian problems have been around for decades.  But having as Prime Minister someone who was arguably in politics to keep himself exempt from prosecution as much as anything else has taken amoral familism to a new level.

So while having Silvio gone will improve Italy's long-term prospects, in the immediate future the problem is basically one of math.  Unless bond rates come down, and the economy either grows or inflates (a.k.a. currency devaluation), Italy will probably join Greece in exiting the Eurozone.  The problem is that the economy is unlikely to grow fast enough to convince bondholders to accept lower rates.  And the ECB is still the ECB, so it's unlikely to help in one way or another.   That has prompted more calls to end the common currency.  Both a recession in Europe and a collapse of the Euro would affect the United States, something the country can't really afford on top of our own past and potential future stupidity.

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