Germany Accuses Italy of "Debt Blackmail": Hello EU, Time for Reform Expired

For 10 years, the EU and EMU promised reform. None was delivered. Time is up. Populists have taken control of Italy.

Merkel's CDU/CSU coalition is in a state of panic regarding Italy. The German parties went on the attack, accusing Italy of "debt blackmail"

Eurointelligence Snips

This was the day when people who were left speechless by the political events in Italy started to talk. In Germany it was the now cancelled request for a monetary financing of Italy’s debt that triggered a collective nervous breakdown.

The CDU’s economic council warned about a eurozone endgame, and said that Angela Merkel’s policy of kicking the can down the road had led to a situation where the debtors are now in a position to blackmail the creditors. Its general secretary was quoted by FAZ as saying: why should German households pay for rich Italians? The head of the CSU in the Bundestag, Alexander Dobrindt, also demanded that under no circumstances Germany should pay for Italy’s debt programme. His colleague in the European Parliament, Manfred Weber, says Italy was playing with fire, and was risking another eurozone crisis.

Eurozone Reform Officially Dead

French President Emanuel Macron has a vision for Europe. Germany does not agree with it.

Heck, Germany did not agree with any Eurozone reforms for over a decade. Chancellor Angela Merkel blew with the wind in a perpetual can-kicking exercise, accomplishing nothing.

Now, it's too late. The new Italian government will kill any proposal that Germany and France may agree on.

And of course one of the major Eurozone flaws is that every country must agree to change the pact.

One Day

This is what I said at the time regarding Italian complacency.

The Italy won’t leave rationale looks like this:

  • The Five Star Movement (M5S) would have to get into power, but the new technocrat government’s first mission is to rig the rules so that does not happen.
  • Even if M5S wins the lower parliament, it still may not control the senate.
  • Even if M5S takes complete control of parliament, it would have to change the constitution.
  • Changing the constitution without a super majority would require a vote.

This was my explicit warning:

"The problem with the above thesis is there is only one party that wants to keep the Euro and coalitions will form if for no other reason than people are fed up."

Consider a Surprise

Flashback March 1, 2018, three days before the Italian election.

Eventually, Will Come a Time When

Let's go back further. Flashback November 23, 2011: Eventually, Will Come a Time When ...

Somehow that post did not get converted to The Maven. This was my conclusion.

Eventually, there will come a time when a populist office-seeker will stand before the voters, hold up a copy of the EU treaty and (correctly) declare all the "bail out" debt foisted on their country to be null and void. That person will be elected.

Le Pen may be too early, and France may not be that country, but the time will come.

Zombified Italy

Alhambra Investments put together an excellent series of charts that show stagnation in Italy which in turn explains the new Italian coalition.

The lead image is from that article.

Time Has Expired

You can only kick the can for so long before populists take control.

The time has come. Eurosceptic populists are in control of Italy.

One way or another Germany will pay. Will it be a destructive Eurozone breakup or debt cancellation?

Mike "Mish" Shedlock

Comments (20)
No. 1-20
Bam_Man
Bam_Man

It is on, like Donkey Kong!

xil
xil

the "policy of kicking the can down the road had led to a situation where the debtors are now in a position to blackmail the creditors"

reminds me of the old adage, if you owe the bank $100 thousand* that's your problem but if you owe the bank $100 billion* that's the bank's problem

*amounts adjusted for the FED's inflation

Bam_Man
Bam_Man

This is going to be fun to watch because you know how much the Germans and Italians “like” each other to begin with.
I Tedeschi dovranno pagare per tutto!

TheWindowCleaner
TheWindowCleaner

Central Banks are stupid, pols are stupid, economists and economic pundits are stupid. The only smart people are those who see the new paradigm and how to implement it so that the best aspects of the agendas of both the right and the left are accomplished and everyone can go home happy.

Blacklisted
Blacklisted

So, where are all those doomed euros going to park?

Mike Mish Shedlock
Mike Mish Shedlock

Editor

That is a good question that I pondered years ago. It depends on the path taken. Will Germany split off from the Euro? Will there be a destructive split with Italy leaving? Will there be debt mutualization? Debt cancellation? Will the ECB print money to pay back Target2 debts? No one knows.

caradoc-again
caradoc-again

The project will carry on rocking. By hook or by crook the "We Europeans" brigade will stop the wheels from coming off and will crush the Italian Gov. Psy-ops, you name it. Hell hath no fury like a Europhile scorned, it's a religion.

caradoc-again
caradoc-again

Mish has been spot-on but it will be much harder to be right from this point forwards as all non-convential means will be brought to bare to keep the show on the road.

TheWindowCleaner
TheWindowCleaner

What if you could more than double everyone's potential purchasing power, integrate price deflation painlessly into profit making economic systems, eliminate transfer taxes altogether and slash income taxes by almost 90%...and all you had to do was look at double entry bookkeeping a little closer for the way to accomplish all of this?

Carl_R
Carl_R

...and, will money flow to the US from Europe, driving the market to new highs, or will the market tank in view of the impending crisis?

Christian dk
Christian dk

So..How to take advantage of this coming mega crash...

caradoc-again
caradoc-again

Does the fact it hasn't already happened tell you something? The market is cleverer than the vast majority of us. If the outcome was baked in the cake the market would have moved already?

Christian dk
Christian dk

1 . Borrow Euros at 1 % and buy silver and gold for your long term pension savings.

Christian dk
Christian dk

ups..posts when you hit ENTER..

Christian dk
Christian dk

ups..posts when you hit ENTER..

Booskar
Booskar

Francs, gold and dollars.

Advancingtime
Advancingtime

While the US and the UK were mired in political chaos during 2017 the EU claimed it was experiencing improved economic conditions. It appears this did little to move Europe in the direction of implementing long-needed EU and eurozone reforms.

Until the EU is prepared to do “whatever is necessary,” to paraphrase ECB chief Mario Draghi, in order to protect retail bank depositors, the EU will remain far from being a united political economy. More on this subject in the article below.

Pater_Tenebrarum
Pater_Tenebrarum

It is a tactical mistake to tell them that you realize they are in fact blackmailing you. The Germans should look to Trump and take a leaf out of his negotiation book. It's much better in this situation to confront one's opponents with seemingly irrational threats and remind them how much THEY stand to lose if they go through with their plans.

mcgrete
mcgrete

Flashback to early America, when the Articles of Confederation required ALL of the States to amend that compact. Rhode Island enjoyed large revenues from its port, and wanted virtually no changes; hence, RI failed to attend what became the Constitutional Convention. Nine (9) of the thirteen (13) states were all that was required to from a 'more perfect Union', rendering RI's legal veto power for the soon to be abandoned Union under the Articles of Confederation useless.