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It's All Coming Together . . . and Not So Slowly Either

By

Oh Boy - Someone is trying to crash my party

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Man, can you say pent-up frustration? The blurb by the Italian Welfare Minister Roberto Maroni about abandoning the Euro currency came even faster than I thought. Here's the way I see it:

  • Italy's battle with the EU over deficit spending beyond the Maastricht's bands (the "mechanical heart" of the Euro currency) is joined. Italy will blow through the 3% deficit ceiling regardless of the EU's tantrums. Italy, as well as France and Germany, is spiralling into recession. Just this morning car sales in Italy were reported down 28% y/y, and the auto industry is one of the few linchpins of Italy's economy.

  • Never mind that members of Berlusconi's government are playing down the idea. Berlusconi's tenure has whatever many days are left before next year elections, and the likely successors are far left "populists." If the roll-back to the Lira is put to a referendum it will be called "winning" as opposed to "voting" because the left block and the right leaning "Lega" party (Maroni is one of the Lega's leaders) are both overwhelmingly for it.

  • Fearing spiralling inflation? This threat is unlikely to sway voters. They suffered a near doubling of prices overnight when the Lira was retired, and the economy has been heading south ever since. At least with a national currency they'll be able to devalue on a monthly basis like in the good old days of the '70's.

  • Inventing a currency and then trying to shape a massive bureaucracy-based economy around it was the ultimate brain-spasm. The Maastrich bands removed a country's ability to react to local economic conditions, putting vastly different economies on an artificially levelled playing field. This has caused the imabalances within and between national economies to balloon while hidden away under the shield of a blanket currency. The costs of this Frankensteinian experiment have been put on the backs of the people. And they are now sick of it.

  • As night follows day, financial imbalances lead to protectionism, which in turn leads to worldwide financial crisis.
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