Italy’s Economic Problems Under The Spotlight

As Manuel points out in the accompanying post, Romano Prodi’s resignation as Italy’s Prime Minister is a rather sudden and dramatic, but scarcely unexpected, development. The immediate political crisis may be resolved as rapidly as it appeared, but again as Manuel indicates it may only serve as a prelude for further things to come, and the fragility of any government coalition which may be put together only underlines the difficulties Italy will almost certainly have in addressing what are important ongoing economic problems. The present post will simply attempt to outline some of the main economic problems Italy faces, in order to contextualize the political problem a little.
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Getting Hotter in Hungary

As we have noted on Afoe in recent weeks Hungarian society seems badly divided and faces daunting economic adjustments (and here). This weekend’s municipal elections seem to have resolved nothing, with both sides seeming effectively able to claim some sort of victory:

Preliminary results released by the election office, with some nearly all the votes counted, showed Fidesz winning the mayorships in 15 of Hungary’s 23 largest cities, as well majorities in 18 of 19 county councils.

The Socialists retained power in most of Budapest’s 23 districts and Budapest Mayor Gabor Demszky — supported by the two-party governing coalition — won his fifth consecutive term since the 1990 return to democracy.

Not surprisingly under the circumstances the temperature is rising fairly rapidly. Prime Minister Ferenc Gyurcsany yesterday asked the Hungarian parliament to hold a vote of confidence in his government (and this will now take place on Friday). On Sunday night Hungarian President Laszlo Solyom called on Gyurcsany to step down.

With the outcome of Friday’s vote seeming to lean in Gyurcsany’s favour the opposition Fidesz party are getting frustrated and restless. Opposition leader Viktor Orban is already crying ‘foul’:

Opposition leader Viktor Orban of the Fidesz party said the confidence vote was a “deceitful and worthless trick.” He called instead for a constructive vote of no-confidence in parliament, in which the coalition would be forced to name a new prime ministerial candidate.

While Lajos Kosa, a Fidesz vice president, is being downright provocative:

The budget will come and further austerity measures worth 1,000 billion forints ($4.6 billion) will come too and then in the spring all of us will be chased out (from parliament), all of us, because a general uprising may break out in the country

Indeed the party is currently threatening to boycott the vote:

We will not be there… we won’t take part in this comedy,” Fidesz parliament faction leader Tibor Navracsics told a news conference.

Which all takes us back to that early guest post by P O’Neill where he perceptively warned:

But an older concern is working its way back onto the agenda: how to handle an economic crisis in a member country……However, the risk of the latter type of crisis in a member country is now quite high.”

What A Surprise!

The results of the latest GfK’s consumer confidence survey are just in. The results are hardly a surprise. (Btw there is a good discussion of consumption in Germany in this post and comments):

Consumer confidence in Germany, Europe’s largest economy, fell for a second month in three as Chancellor Angela Merkel’s government decided to raise sales tax.

GfK’s confidence index, based on a November survey of about 2,000 people that aims to forecast household spending one month ahead, fell to 3.1 from last month’s revised 3.3 reading, the Nuremberg-based market-research company said in an e-mailed statement today. GfK reiterated its forecast that private consumption won’t increase more than 0.2 percent this year.

Higher energy costs are leaving German shoppers with less money to spend in the holiday season while the prospect of a sales tax increase and an 11.6 percent jobless rate dent sentiment. With the European Central Bank poised to raise interest rates as soon as this week, increased borrowing costs will also crimp spending.

Incidentally Wolfgang Munchau in the FT today states that the recent announcement by Jean-Claude Trichet that the ECB was going to raise eurozone rates “must rank as one of the most bizarre monetary policy decisions of recent times”!

Who am I to disagree.

More from Ukraine

I’m starting a new post for the latest information as the old one was starting to get a bit long. The session in Parliament has broken up as there were 191 deputies there, but 226 (50%+1) were required for a quorum, so no action could be taken. However, the Kyiv Post reports that Yushchenko has taken a ‘symbolic’ oath of office as President:

After the session ended, Yushchenko swore an oath on a 300-year-old Bible. The Ukrainian constitution, however, stipulates that the president swears allegiance on a copy of the constitution. Lawmakers chanted “Bravo, Mr. President!”

There’s other interesting information in the story as well, such as how a no confidence vote would also be symbolic rather than binding:

“All political forces should negotiate and solve the situation without blood,” said parliament speaker Volodymyr Litvyn.

“The activities of politicians and the government … have divided society and brought people into to the streets,” Litvyn said. “Today there is a danger of activities moving beyond control.”

A no-confidence vote in parliament would have carried political significance, but it would not have been binding. According to the Ukrainian constitution, a no-confidence vote must be initiated by the president – and outgoing President Leonid Kuchma has staunchly backed Yanukovych.

Opposition leader and Yushchenko ally Yulia Tymoshenko, wearing an orange ribbon around her neck, called on lawmakers “not to go to into any negotiations” with the government. Instead, Tymoshenko said, they should “announce a new government, a new president, a new Ukraine.”

However, there are welcome signs that direct confrontations are being avoided:

Mykola Tomenko, a lawmaker and Yushchenko ally, said some police had joined the opposition, although the claim was impossible to independently verify. One police officer, wearing an orange ribbon in his uniform, ordered a group of police outside a government building to retreat inside, defusing tension between them and Yushchenko supporters.

Kyiv’s city council and the administrations of four other sizable cities – Lviv, Ternopil, Vinnytsia and Ivano-Frankivsk – have refused to recognize the official results and they back Yushchenko.

Elsewhere, idiotprogrammer discusses (the lack of) American coverage of what’s going on (though we have now been mentioned on Instapundit).

Update: BBC News 24 reports (from the AFP wire) that Yushchenko has called on the police and army to come out and support him while miners are threatening to march on Kiev in support of Yanukovich. AFP also reports that Dutch Prime Minister Balkenende – the Netherlands currently holds the EU presidency – has informed Ukrainian President Kuchma that the EU has doubts about the result of the election.

Update 2: The Periscope has lots of information, including translations of what’s being broadcast on Ukrainian radio right now. They also report that Javier Solana will be addressing the European Parliament’s Committee on Foreign Affairs tomorrow focusing on events in Ukraine.
Latest breaking news from the Kyiv Post reports Putin saying that “criticism of the Ukrainian election by the Organization for Security and Cooperation in Europe is “inadmissible” because there are no official results.”
More blogging from Kiev at Le Sabot Post-Moderne.
Interesting BBC News article on some of the background to the protests. It mentions a Ukrainian student group – Pora – who have connections with Georgia’s Kmara and Serbia’s Otpor movements, both of whom were at the forefront of the protests in their countries that overthrew governments. As several people have noted, Georgian flags are being displayed quite prominently amidst the protests.
There’s a good Financial Times article on the processes going on behind the scenes:

Although Mr Kuchma has spent a decade building an authoritarian regime, he has not established complete control – unlike President Vladimir Putin in neighbouring Russia – and it is unclear whether he can assure victory for his prime minister, Viktor Yanukovich.

In particular, he does not control parliament or the Supreme Court, both of which could play a vital role in determining the victor.

The core of Mr Kuchma’s power is his dominance of the bureaucracy, law-enforcement and state security structures inherited from Communist times. Even before Mr Putin made similar moves in Russia, Mr Kuchma established presidential control over regional governments and placed close allies to oversee the news on the main state and private television channels. […]

Critically, the president has failed to establish a reliable majority among parliament’s 450 members. Recently, Volodymyr Lytvyn, the speaker, and more than 30 deputies deserted the pro-presidential bloc, creating a stalemate in which neither Mr Yushchenko nor Mr Kuchma have a majority.

Mr Kuchma cannot take the support of domestic institutions for granted, especially the Supreme Court, where judges enjoy independence thanks to lifetime appointments. Before the polls, the court acted in Mr Yushchenko’s favour by ordering the Central Election Commission to exclude 41 extra polling stations in Russia for the numerous Ukrainian citizens there amid concerns that they might be used for ballot fraud. After the first round, the court ordered the Central Election Commission to reverse a decision to exclude votes from a pro-Yushchenko district.

As the widespread allegations of second-round fraud have shown, the government has attempted another challenge to institutions Mr Kuchma does not fully control.

The authorities successfully ordered and bullied civil servants to co-operate in ballot-stuffing operations – ranging from university professors who applied unfair pressure on students to police officers who were paid to tour polling stations and vote more than once. But the machine did its job too well. The sheer scale of fraud required to swing the official results in Mr Yanukovich’s favour has provoked huge protests and international criticism.

Update 3: Victor Katolyk’s live reports from Ukraine are in this Periscope thread. BBC News 24 just had live pictures from outside the Presidential offices where police are present in full riot gear and standing about 10-15 deep, completely blocking access to what appeared to be a large crowd of protestors. However, despite all that, things still seemed peaceful – the crowd was quite orderly and there was a gap between them and the police, with no signs of imminent trouble. At times like this, though, it only takes one hothead to spark a flame.
There’s a brief post on Siberian Light that makes an interesting couple of points:

* Putin seems to have made a major error of judgement in backing Mr Yanukovych. If the election result is overturned, he will have made an enemy of Yushchenko.
* And if Yushchenko does win the Presidency he won’t have such a strong mandate from the people as Saakashvilli did in Georgia’s Rose Revolution (which, by the way, is celebrating its 1st anniversary today). Even if the election had been free and fair, I doubt Yushchenko would have won by more than a few points. There are deep East-West divisions in Ukraine which have bubbled to the surface this week. They won’t just go away.

BBC News reports that Yushchenko has asked former Polish President Walesa to mediate in the crisis. Walesa is reported as saying he will if Ukrainian President Kuchma asks him to.
Update 4: Right, one last set of updates then I need to get some sleep. Things seem to have quietened down now – it’s 2am in Ukraine right now (for reference, it’s GMT+2, CET+1, EST+7). Victor has continued to updates at The Periscope– the general trend seems to be reports of public and international support for Yuschenko, coupled with rumours of potential trouble from forces allied with Yanukovich tomorrow. There’s nothing we can do but sit and wait to see how those pan out.
Yuschenko’s website in English (click on ‘ENG’ at the top of the screen) has lots of news, including a story that Mikhail Gorbachev has backed Yushchenko.
Interesting posts from
Daniel Brett and Coming Anarchy.
There are many reports of international demonstrations and protests for Yushchenko tomorrow – I’ll add those to the thread above.
Two more sites gathering and reporting news from Ukraine in English – Maidan and Brama.

Economic Consequences of Spain’s 11M

Italian consumer confidence has remained near a 10-year low in March in the wake of the Madrid terrorist bombings. In fact the bombings may have hurt sentiment in Italy more than the Sept. 11 attacks on the U.S. according to a statement from the government-funded Isae institute. The confidence survey, which was carried out between March 1 and March 12, showed that consumers who had been growing more optimistic about the prospects for lower inflation and improvements in unemployment turned pessimistic in the two days after the bombings. In fact while the 22-year-old Italian consumer confidence index touched its all time record low of 93.7 in April 1993, March was the third month in a row that the index has been below 102, the last time it was that low being in February 1994.
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Italy’s No-Growth Update

OK I’m on a roll, so I’m going to stick my neck out. This slide in the Italian confidence index apparently surprised the ‘experts’. Well it shouldn’t have surprised Fistful readers who have been following what I have been saying. Clearly these confidence indexes are not the last word in sliced bread. But they do mean something, and Germany’s Ifo index just turned in another bad reading too.

Ever since Parmalat, I have been asking one simple question: will Italy ever grow again? Of course, the simple answer is possibly it will: never say never. But will it ever get back to vigorous growth: this I doubt. I am even half asking myself if we will see positive numbers in more than say 50% of the forthcoming quaters. Remember, if my demographic thesis has any predictive power it should be precisely here in Italy that the Titanic starts to take in water. Parmalat was simply the iceberg. Of course my thesis could always be wrong. Any takers?
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