Italy After the Vote: What Now?

The Italian voters have spoken—but what on earth did they say?

Two clear winners were anointed yesterday. First, Beppe Grillo, whose M5S placed first at 25% with the slogan “send them home,” retire all the old guard politicians and replace them with citizen-legislators. And second, Silvio Berlusconi, the oldest of the old guard, the embodiment of everything Grillo and his followers railed against. So having yoked together this improbable pair, can the Italian voters honestly expect the state to move forward in any direction whatsoever?

Well, the drover charged with that task for the moment is the technical ‘winner,’ Pier Luigi Bersani, whose center-left alliance won a razor-thin plurality and will thus, under Italy’s bizarre election system, have a working majority in the Camera and the chance to form a government. But with nothing close to a workable majority in the Senate—even with Monti’s handful of centrist senators Bersani comes up 20 votes short—how long will that government last?

Several implausible scenarios remain technically possible.

  • Berlusconi has already called for the ‘grand coalition’ (with Bersani and Monti) which would create a numerical majority. Neither Bersani nor Monti seems likely to disgrace himself with such a deal, but people (like me) who consider Berlusconi politically dead are repeatedly surprised when the zombie walks.
  • Alternatively, the PD could call for new elections. This was the first reaction of the Democratic Party’s deputy secretary Enrico Letta yesterday, but he was quickly walked back. In time there may be no other choice, but Italy seems likely to pay a steep price in borrowing costs–and angst–if it has to launch new elections.
  • Most intriguingly, a working relationship could develop between Bersani’s center-left and the Grillini in both houses to produce some of the reforms Italy so desperately needs. This was the immediate response yesterday of Bersani’s leftist partner, Nichi Vendola, who pointed to a long list of progressive proposals roughly shared by the two groups. Grillo himself this morning declared himself open to case-by-case consideration of reform bills emanating from Bersani’s putative government.

Could such a governing alliance between an old-school political party and this self-described ‘tsunami’ of anti-political populism actually function? The odds are against it, but the very possibility points to some fascinating ambiguities in Grillo’s movement.

One notable point is that Grillo’s long march had its base in left-populist challenges to the financial and business establishment, on behalf of dispossessed workers and farmers. More recently the M5S has opened itself to the right with anti-immigrant pronouncements and doubts about Italy’s remaining in the Eurozone. But it could be argued that Grillo’s base has anti-corporate leftist inclinations, is in fact a disenchanted remnant of Italy’s traditional Left, and would not be entirely out of place in an enlarged center-left coalition.

But that question raises a more fundamental one: who are the 160 or so new legislators M5S is sending to the new parliament, and what will they do when they get there? Fact 1: Beppe Grillo will not be one of them. Because he strongly insists that no one with a criminal record should sit in parliament, and because he himself carries a conviction for vehicular manslaughter, he has barred himself from serving. The folks who did find places on the M5S lists by way of a thinly participatory on-line ‘primary election’ are … unknown. Novices. Amateurs by design. This is new territory for a legislative body—even those Tea Partiers who flooded Washington in 2010 tended to have been locally active Republicans.

Of course the expected answer is, they’ll do what Grillo says. That’s been the norm for M5S, a one-man operation with one voice, one world-view, one trademark owned by that one person, no internal discussion, no platform committee, no process. When several local movement activists complained about the absence of internal debate last fall, they were promptly purged, i.e., legally enjoined from using the proprietary M5S logo.

This may seem odd coming from Grillo, who has identified himself with internet freedoms, the ‘copyleft’ commons idea, and the diffuse democracy of social media. M5S grew up as a network of local working groups, and has attracted the young people, elsewhere organized in Pirate Parties, who understand the on-line world to be a free preserve. Grillo’s meteoric rise has been linked to the ‘virtual piazza’ as a new forum for democratic expression. Will these self-recruited M5S legislators go to Rome in order to follow his top-down orders, or will they practice a form of horizontal democracy seen most recently in the Occupy movements, with which they share a visible affinity?

In short, M5S is riven by an enormous contradiction: on one hand, the authoritarian Grillo, whose famous blog is a personal platform and not a forum, and whose performances in actual piazzas are sometimes compared to Mussolini’s. On the other, his movement, which thrives in the ‘virtual piazza’ and may be inventing a highly decentralized, very new form of democracy powered by technologies that hardly existed five years ago. Can that New Italy somehow find terms of coexistence in Rome with the more tepid renewals proposed by the Bersani-Vendola coalition, while fully 30% of the voters still long for the archaic corruption and demagoguery of Berlusconi?

More than likely, this house of cards will collapse within weeks and Italians will be asked to vote once more. Who can guess what they will do then? Can the ECB and the Eurozone withstand this turbulence? The stakes are high. But I do think that the most durable effect of Sunday’s election may be the emergence of this new electronic post-partisan form of democratic participation embodied not in Beppe Grillo but in his hosts of anonymous followers.

The Shortgage of Bulgarians Inside Bulgaria

Oh, there’s a hole in my bucket, dear Liza, a hole……

Wenn der Beltz em Loch hat -
stop es zu meine liebe Liese
Womit soll ich es zustopfen -
mit Stroh, meine liebe Liese

According to Angela Merkel, speaking in the German city of Mainz in mid February,  European countries struggling with the fallout of the euro-area debt crisis have much to learn from East Germany’s experience with economic overhaul following the fall of the Berlin Wall. In the main she was speaking about the need for reform, something on which we can all agree. “At the beginning of the 21st century”, she said, “Germany was the sick man of Europe and that we are where we are today also has to do with reforms we carried out in the past. That’s why we can say in Europe that change can lead to good.”

But there was one tiny little detail she forgot to mention. During the post unification period East Germany’s population went into melt-down mode. Continue reading

Italian Elections: Rounding the Last Pole

Launched in an act of treachery that brought down Mario Monti’s technocratic government, the Italian national election campaign will end one way or another, to the relief of many, Saturday evening. What might have been a sustained debate on the merits of austerity measures in a prolonged recession, on the future of Italian employment and its welfare state or a host of other pressing issues, has instead taken on the quality of an unsavory burlesque revue. Its stars: authentic if acerbic comic Beppe Grillo, whose 5 Stars protest movement may yet shape the outcome, and sick joker Silvio Berlusconi, whose foolish headline grabs have used up much of the electoral space. But it has been a lavish, large-cast production, with indictments flying, old allies back-stabbing, off-color jokes and evanescent affiliations, a Fellini-esque procession of oddities and crudities unworthy of the noble republic Italy could nonetheless become.

What to expect? Given Italy’s ban on published polls in the final two weeks, calling this one from Boston is something like watching a horse race through the wrong end of the binoculars–but I’m going to do it anyway. Bersani and the center-left have led all the way, notwithstanding the Monte dei Paschi banking scandal that implicates Monti as much as Bersani, and neither man in any direct way. Bersani’s campaign has been steady if utterly unflamboyant; he conveys an avuncular credibility that makes it hard to brand him a flaming radical despite Berlusconi’s many tries. He has sought international credibility in Berlin and in the American press, and has scrupulously balanced his attachments to rising centrist Matteo Renzi on his right and leftist but circumspect Nichi Vendola to his left. Nothing suggests that Bersani will be dislodged from the #1 spot, and thus control of the lower house.

But can he form a stable government? That’s a question about the Senate, and really about 2 or 3 key regions that will decide it: Lombardy, Sicily, maybe Campania. This interesting poll predicts a one-vote plurality for the center-left: it may be a long night for Pier Luigi. If he falls short, Monti’s centrist coalition acquires what corporate types call a ‘golden seat’ at the table, with considerable leverage over fiscal policy.

But Monti himself has been the great disappointment of the season. All the EU heavies have lobbied for him, with possibly negative effect. Italian voters may respect him but don’t seem to like him, and his campaign has never achieved lift-off. With fewer distractions this could be the real story of the campaign: even Italy’s desperate straits and Monti’s exemplary financial credentials are not enough to sell austerity to a chronically hurting electorate–liberal politicians throughout Europe, beware! As I’ve noted elsewhere, Monti’s persistent efforts to split Bersani from Vendola have miserably failed, and Monti has lurched from accomodation to hostility to a final call for a renewed ‘grand coalition.’ He may yet find himself part of one, but no thanks to his nondescript political skills.

Vendola, meanwhile, has shown himself to be a team player, capable of flashes of wit such as this wonderful Tweet. He has hewed to a steady left line, insisting that workers’ rights and the full social safety net must be cornerstones of any ‘reform’, but like Bersani he seems a lot less scary than his right-wing detractors would prefer. Look for Vendola in a prominent place in Bersani’s government.

But will Grillo’s anti-political movement obtain an intractable bloc in the new Parliament? Populist protests are notoriously hard to measure, though Grillo’s internet-savvy and personally charismatic style have made an indisputable and perhaps permanent impact. My own hunch is that on Sunday Grillo may underperform, losing a share of his 15% to that other discreet contender, Abstention. This shadow-candidate is thought to command 30% already, and I wonder: instead of showing their disdain for politics by going out to vote for Grillo, why won’t a fair proportion of his supporters send the same message by staying home? Well, maybe because they love Beppe–we’ll see.

In any case, Berlusconi’s faux-populism can’t hold a candle to Grillo’s real deal. The Cavalier still stands to win a substantial fraction–25%?–but without Grillo he would have had a better chance to harvest the broad dissatisfaction with Monti. Why this cadaverous has-been still gets even 1% is a mystery to me, but I remain confident that he will be shut out of any new government. Why? Because he is pure poison.

So I’m among the few who wait optimistically for Monday’s verdict. Last spring I hoped Hollande would feel empowered to contest Merkel’s disastrous orthodoxy. I noted the brief but surprising flourish of the Dutch Socialists last fall; I observe Alexis Tsipris’s recent arrival on the main stage, and sense a gathering change of mood in much of Europe, perhaps in time for next year’s Euro-elections. A Bersani-Vendola government would move the Old Continent a few more cautious steps in that direction. Avanti!

Has Spain’s Economic Contraction Now Become Self Perpetuating?

Spain’s political leaders are in cheerful, almost jubilant, mood at the moment. Economy minister Luis de Guindos, speaking in Davos, declared the tide had turned, and forecast that the Spanish economy would return to growth in the second half of 2013.

“The perception of the Spanish economy has improved and will continue to do so over the coming weeks and months,” he told his audience at the World Economic Forum. In similar vein, he told Spanish journalists in Moscow last weekend that Spain’s economy no longer being a key theme at G20 meetings was another welcoming sign of the times.

As ever, Spain’s economy sage is hedging his bets – earth shattering the growth will not be, but grow the economy will, this is his mantra. Put another way, the bottom in Spain’s economic collapse has now been passed. From here on in the road may be winding, but it will be up. Perhaps, he suggested, the economy will be stationary in the third quarter, and then we will see growth, albeit ever so slight, in the fourth one. And quite possibly he is right. The core of the issue is not whether the country could see one, or even two, quarters of positive performance, but whether any faltering recovery will be sustained out into the future, through 2014 and beyond. It is here that all the old doubts really emerge. Continue reading

We still owe it to them, and blaming private companies will not do.

Back in 2007, the Danish army withdrew from Iraq. The government originally tried to avoid accepting Iraqis who had worked for the Danes as refugees, despite the fact that they were in grave danger of reprisals. Eventually, after a protest campaign and a protest by senior army officers, the Danish government gave in. In the UK, this example was followed – the government tried to wriggle out of it, this blog among many other people protested as part of Dan Hardie‘s campaign, and eventually some action was taken.

History is repeating itself, as Le Monde reports. The story is paywalled, but the essential point is that the NATO deployment to Afghanistan will only shrink from here to 2015, the Danes will be off very soon, and again the government is trying to wriggle out of its obligations to Afghans who they relied on in a variety of roles and who are now faced with Taliban vengeance.

This time, though, the cowardice and moral abasement has reached a new low. The official argument is apparently that the interpreters (and others) were employed by a private company, and therefore it is nothing to do with Denmark! This is repellent. It is not just that a moral obligation exists, or that a norm of common decency is involved. This attempt to hide behind privatisation is undignified, dishonest, dishonourable. Everyone involved ought to be deeply ashamed.

Now I strongly suspect that history will repeat itself in the UK as well, and no doubt in the other European contributors to ISAF. So it is important to get angry early, in order to make an example to the others. To lead off, I will ask a question.

The story above refers to a supposed private company, says that it is a British company, and then names it as LSU or Labour Support Unit. But there is no such company registered in Britain. “Labour Support Unit”, in general, is a British military organisation, a staff attached to a large formation or garrison that is responsible for employing civilians.

So either Le Monde is confused, perhaps because “company” can be a business, a social group, or a military unit in English, or else the Danish government is bullshitting to its own public that it’s all the problem of the private sector, while hoping that the British government sorts out the problem and spends the money. This is a sorry, sordid business.

Of fish, flowers, AKs, offshore banking, and now horsemeat

The horsemeat scandal has taken an unexpected, and possibly very significant, turn. So the Cyprus company controlled by Dutch meat merchant Jan Fasen, who was caught last year passing off South American horsemeat, and which is accused of doing the same with horses from Romania and the British Isles, turns out to have a single director, which is itself a company. (Fasen’s firm, if you haven’t heard, is named Draap, or the Dutch word for “horse” spelled backwards.)

This second company, Guardstand, also controls something called Ilex Ventures, which was used by…ahem…the international arms dealer Viktor Bout to buy some aeroplanes. Oh. Guardstand, for its part, is controlled by something called Trident Trust, which is a company-formation agent in Cyprus, which mostly serves Russian customers.

Now, it would probably be wrong to assume that Bout was behind the horsemeat racket or that some huger interest controlled both. It is probably more useful to look at this from a horizontal, functional perspective. Both Bout and the horsemeat guy made use of Cyprus’s role as a Russian-speaking offshore financial services centre with access to the eurozone.

There’s quite a lot more information at Reporting Project, which speaks to this point. The corporate structure is more complicated than the Guardian piece suggests. Draap’s sole shareholder is Hermes Guardian Ltd. in the British Virgin Islands, its sole director is Guardstand, and the company secretary is Trident Trust. Hermes Guardian is a shareholder in numerous other Cypriot companies, and one of its directors is the head of the Cypriot Fiduciary Association. And both Guardstand and Trident were also used during a half billion dollar acquisition of a steel mill in Donetsk.

All this originated because of the existence of a tax treaty between the Soviet Union and Cyprus. Russians and Russian money have been very obvious in Cyprus in the euro era.

It is often suggested that this treaty, like the similar one with Iceland, was intended by the Soviet side to help finance their intelligence agents in the West. If true, it’s possible that Bout would have been aware of it, having worked for the GRU (Soviet/Russian Military Intelligence) in Africa in the 1980s. As he used the Sharjah Airport free-trade zone as the trading and aviation centre of his business, he may have used Cyprus as the financial centre. These are the places where the rubber meets the road of globalisation, and they tend to build up a layer of secrets over time.

This immediately reminds me that his alleged financial manager, Richard Chichakli, has recently surrendered to Australian police after eight years on the run. He’s been extradited to the United States, where Bout is serving his sentence, still protesting to Russia Today that he only ever dealt in fish and flowers.

Now, for the other significant bit. Cyprus has a lot of the same economic problems as, say, Greece. Notably, its banks are in trouble and the sovereign may have to bail them out and the sovereign itself will end up bust, so on and so forth, we all know the story by now. One of the reasons the Cypriot sovereign is on the hook for quite so much money is that Cyprus has surprisingly big banks. Of course, they’re linked up to the rest of Europe via TARGET 2, so if the big depositors spook*, it’s an instant run on the bank.

Big depositors, you say? And who might they be? I think it is fair to say that nobody is particularly keen to bail out Viktor Bout or Horsemeat Guy. As a result, it’s politically very possible that the whole idea of a bail-in might get tested. And whether it does, and the exact terms, are increasingly linked to things like “how far into the maze the journalists get” and “whether Richard Chichakli starts singing in jail”.

And we may be going to see what happens when an offshore financial centre goes bust.

*surely the right word here…

Hungary’s Matolcsy Joins Japan’s Abe In Practicing The Ancient Art Of Verbal Intervention

It’s amazing what you can achieve these days just by promising to do something. It’s also fascinating to watch just what a storm you can stir up.

Last July Mario Draghi surprised markets when he  vowed to do anything – whatever it would take – to save the Euro. He didn’t go into details, he didn’t really need to. He simply informed his audience that whatever he did it would be enough. What I suppose no one – not even Mr Draghi himself -  imagined at the time was that doing precisely nothing would turn out to be sufficient. Yet since that time that is just what has happened, he has done nothing, nothing whatsoever – no bonds have been purchased and no country has even asked for aid. So to date this verbal style intervention has been exactly what he said it would be, enough. Continue reading

Point Counterpoint in the Italian Campaign

Let’s forget about the Pope’s retirement, OK? Not that it doesn’t have huge implications for the theology of the Church and the role of future tenants of St. Peter’s see, but none of that is an electoral matter. And please, let’s pay no further attention to the antics of Silvio Berlusconi, that bad little boy who wants all our attention, all the time. Just ignore him. Let’s notice instead where the Italian electoral campaign is really happening, where it has always been happening, and where in the aftermath of next Sunday’s vote all the political action will be concentrated. Let’s look at the wonderful triangulation between Pier Luigi Bersani, Nichi Vendola, and Mario Monti.

For background, recall that Bersani and Vendola both came of age in the old Italian Communist Party, both participated in the Rifondazione movement in the ’90s, and both retain a fondness for working people and the venerable culture of the Left that comes with that territory. When Bersani was consolidating his hold on the big-tent Democratic Party a half-decade ago, Vendola still held on to his Left purism, enough so, some say, that he helped bring down Romano Prodi’s center-leaning government in 2008. Since then his SEL (Left Ecologist Freedom) Party has governed Puglia with a red/green slant, but has embraced as well the business growth and market logic that have made Puglia a rare success story in Italy’s Mezzogiorno.

What does any of this have to do with the technocratic Monti, the former EU Commissioner, professor at an elite business school, unelected premier in the ‘government of the professors’ that made Italy take its austerity medicine for the last year? Well, all parties declare a grudging mutual respect, and indeed Bersani’s PD was a solid if reluctant pillar of Monti’s reformist government until Berlusconi chose to kick out the props and make it fall. More to the point right now, though Bersani still polls well ahead in the race for the lower house, and thus the premiership, his alliance seems unlikely to pick up enough seats in the regionally skewed Senate to control it. He can’t govern without it. SEL’s seats won’t do it–he’ll need the centrist senators controlled by Monti. Which may explain that grudging but persistent respect.

Meanwhile day after day Vendola and Monti go at each other, like rival siblings competing for the attentions of a fond but slightly absent-minded father. Except of course for a few things: Bersani’s aloofness is anything but accidental, Monti HATES being bracketed with a leftist politican, and the differences they are flourishing are the essential policy questions that will determine Italy’s future. Such as:

  • On Monday Monti declared he could sit in the same government with Vendola as long as it was ‘reformist’; Vendola quickly noted that for Monti ‘reform’ means rolling back workers’ rights, while for his part those rights are the cornerstone of any reform.
  • Vendola has consistently deplored the benefit reductions Monti has imposed at the behest of the ECB, referring yesterday to his austerity measures as the “same old conservative ideology.” Bersani meanwhile lamented Monti’s “lack of gratitude” for the support his government received from Bersani’s Democrats.
And so forth. What is playing out is a classic competition between management strategies, as Vendola advocates for activist stimulus and Monti calls on Italians to tighten their belts for one more round. Bersani meanwhile tries to walk a fine line he calls “austerity with justice,” whatever that turns out to mean. But as Hollande waffles along the same line, and Merkel prepares to defend her mercantilist fundamentalism this fall, Italy–for all its woes, still the Eurozone’s 3rd biggest economy–will be helping to arbitrate the larger EU’s path through this intractable crisis. And it is Vendola and Monti who are waging that struggle day by day.
Sadly, American readers are at risk to miss the whole show. Rachel Donadio, the Times’s estimable Rome correspondent, managed to write a whole story about the election last Friday without mentioning Vendola’s name. But that’s OK–as I noted at the time she wrote a similar article a month ago that lovingly catalogued Berlusconi’s clown acts but failed to even mention Bersani, the clear front-runner. With the EU leadership openly campaigning for Monti, along with David Axelrod (hired by Monti’s campaign) and maybe President Obama himself (Gianluca Luzi in today’s Repubblica calls the President’s support for continued reform “a sort of endorsement for Monti”), one might almost suspect an aversion to the ex-Communists of the center-left. But like ‘em or not, they are poised to take over Italy’s government, though on what terms is precisely the contested terrain of this election.

 

Japan’s Looming Singularity

by Claus Vistesen and Edward Hugh

According to Wikipedia, in complex analysis an essential singularity of a function is a “severe” singularity near which the function exhibits extreme behavior. The category essential singularity is a “left-over” or default group of singularities that are especially unmanageable: by definition they fit into neither of the other two categories of singularity that may be dealt with in some manner – removable singularities and poles.

———————————————————

No need to panic, a lot of analysts tell us, since far from being on the verge of some earth shattering event Japan  has invented the economic equivalent of a mechanical perpetual motion machine. Or as Nobel economist Paul Krugman put it recently, “while there is much shaking of heads about Japanese debt, the ill-effects if any of that debt are by no means obvious”. Maybe there is just one word missing here – yet. Continue reading

Irish bank debt deal breaks deposit taboo

Never has so much joy emanated from a statement by a Central Bank governor that he “notes” something, but so it is with the unwinding of the Irish Central Bank’s Emergency Liquidity Assistance to Anglo Irish Bank and the consequent refinancing arrangements, as not vetoed by the ECB (hence the importance of that noticing by Mario Draghi). But amid the clear improvement in Ireland’s fiscal sustainability, one aspect of the deal has not yet gotten much attention: it almost certainly imposes a haircut on some bank depositors.

Continue reading