The Devil Wears Merkel
The last time there was a default in Italy was 3 September 1992 when the President of the Council, Amato went on TV and announced the devaluation of the lira. Devaluing the currency that you control and that is used to give a value to your public debt is equivalent to restructuring the debt in relation to foreign creditors. Italy’s devaluation was triggered by the fact that it couldn’t pay the interest on the public debt at the exchange rates fixed by the European Monetary System (EMS). Twenty one years later, Italy still has its hands tied, then it was the EMS, now it’s the Euro. Italy has to pay interest on the public debt amounting to2,047 billion, and that amount is increasing. Just in the month of May, the debt increased by 32 billion and we’ll have to pay about 1.5 billion euro extra in interest for the year.
What’s happened in the past is useful to understand what’s going to happen in our country in the future. In the ten year period from 1982 to 1992, the debt/GDP ratio nearly doubled: it went up from 60% to 110%, and this happened because in 1981 the Treasury gained full autonomy (in what is referred to as a “divorce”) from the Bank of Italy. Since that moment, the State has not been able to count on an internal lender to borrow from and it has had to offer ever increasing interest rates to finance the debt. If in 1982 Italy paid real interest rates close to zero on its debt, in the ten year period that followed, that reached an average of 5.5% with spikes of 8%. It is thus the explosion of the interest on the accumulated debt that has taken the debt to unsustainable levels. An immense Ponzi-scheme where, in the absence of growth, the interest is paid by issuing new debt. As Alberto Bagnai says in his book "Tramonto dell’Euro“ {Sunset of the Euro}, basically, the result is a net transfer of national income from the provision of primary services to the tax payers (health, education, security) to those to whom the debt is owing, mainly Italian and foreign banks. But why is there this absurd divide? Because that’s what Europe is asking us to do , the Europe of the EMS that we joined in 1978 tying our hands and feet to a rigid and penalising exchange rate that obliged us to give up the possibility of using devaluation as a tool.
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It would have been enough to insist on the equalization of the balance of trade rather than having a requirement to balance the budget, to have a completely different story that would have clipped the wings of Northern Europe’s mercantilism. Because Italian politics is bowing down to the will of Germany, what has become the priority is the protection of the debt (public or private) held abroad, and most of this debt is generated by the perverse mechanism of the Euro and the EMS. Italian politics has sold its soul to the Teutonic devil in exchange for its own survival but at the expense of the population that is suffering under the conditions of austerity and deflation that have been imposed on it.
If Italy doesn’t react, then the market will do so using its universal language: there’ll soon be a rise in the interest rates required to such a point that our debt will not be sustainable.
What’s happened in the past is useful to understand what’s going to happen in our country in the future. In the ten year period from 1982 to 1992, the debt/GDP ratio nearly doubled: it went up from 60% to 110%, and this happened because in 1981 the Treasury gained full autonomy (in what is referred to as a “divorce”) from the Bank of Italy. Since that moment, the State has not been able to count on an internal lender to borrow from and it has had to offer ever increasing interest rates to finance the debt. If in 1982 Italy paid real interest rates close to zero on its debt, in the ten year period that followed, that reached an average of 5.5% with spikes of 8%. It is thus the explosion of the interest on the accumulated debt that has taken the debt to unsustainable levels. An immense Ponzi-scheme where, in the absence of growth, the interest is paid by issuing new debt. As Alberto Bagnai says in his book "Tramonto dell’Euro“ {Sunset of the Euro}, basically, the result is a net transfer of national income from the provision of primary services to the tax payers (health, education, security) to those to whom the debt is owing, mainly Italian and foreign banks. But why is there this absurd divide? Because that’s what Europe is asking us to do , the Europe of the EMS that we joined in 1978 tying our hands and feet to a rigid and penalising exchange rate that obliged us to give up the possibility of using devaluation as a tool.
...
It would have been enough to insist on the equalization of the balance of trade rather than having a requirement to balance the budget, to have a completely different story that would have clipped the wings of Northern Europe’s mercantilism. Because Italian politics is bowing down to the will of Germany, what has become the priority is the protection of the debt (public or private) held abroad, and most of this debt is generated by the perverse mechanism of the Euro and the EMS. Italian politics has sold its soul to the Teutonic devil in exchange for its own survival but at the expense of the population that is suffering under the conditions of austerity and deflation that have been imposed on it.
If Italy doesn’t react, then the market will do so using its universal language: there’ll soon be a rise in the interest rates required to such a point that our debt will not be sustainable.
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