Italy could learn a thing or two from Spain
The Eurozone states seem to be stuck in quicksand, and yet no one seems to be able to do anything to stop it. Sir John Major has been lamented by many as being one of our more underwhelming Prime Ministers, but he is intelligent and savvy in his way, and knows when to hold his tongue; it is all the more pertinent therefore to take notice when he does speak. His views on how the Eurozone should try to make its way out of its current mess seem to make a great deal on sense, but so far nobody seems to be listening. For anyone who has not heard what he said (and with all the shouting about the Rugby and important things like that, it’s quite understandable), he suggested the banks recapitalising and then Greece defaulting on her loans. If the European Financial Stability Facility were then given a banking licence, he says, they could either buy Greek government bonds centrally, or else use the money to recapitalise the bank. This move could not only restore confidence in the Eurozones ability to control the extent of the crisis, but also allow countries like France and Germany to focus on the fate of other countries such as Italy and who knows, even the possibility of a spanish bailout.
With regards to Italy, I should like to make it clear that I take no pleasure in predicting the riots. Not simply because the rising cost of the clean up operation is money the country can ill afford; but also because rioting, as those that took place in Britain earlier this year proved, achieves nothing. What is more, it is becoming increasingly obvious, in my opinion, that Berlusconi really needs to consider his position. The extent of how tenuous his grip on power really is, has become ever more apparent, as was demonstrated by the fact that he survived the recent vote of confidence by the skin of his teeth. His wafer thin majority was a very telling indication that it may be time to move on, and considering his performance in recent months, his credibility is in tatters. He has demonstrated the potential damage that can be done by a Coalition government; the bickering and in-fighting, the collapse in confidence due to the inertia created by ineffective financial legislation.
This neatly brings me onto Spain and the recent downgrade to AA-; some have said Standard & Poor’s actions were inevitable, while others have argued that it is this downgrading, which can put future growth at risk. Rating agencies are really in a difficult position, if they rate countries too highly and the debt proves to be toxic as it did in 2008, then they are accused of irresponsible behaviour, when they downgrade, they run the risk that they will get sued for endangering the reputation of organisations, as we saw in Italy. In the short-term at least, the event of the Spanish downgrade has not caused as much commotion as the Italian one a couple of weeks ago; European stock markets closed up on Friday. This in itself may have something to do with the fact that the Spanish government passed the proposed austerity measures with relative ease (compared to Italy), which will have gone some way towards cooling uncertainty in the markets. In fact, the whole sanguine fashion with which the Spanish have dealt with the crisis is bound to inspire some confidence. All their strikes for the summer were called off, in part I’m sure, because they knew it would be damaging to their economy. When one Spanish newspaper polled their readers in reaction to calls from unions for a general strike, only 9% said they would actually strike. Mercifully the Spanish seem to realise that it is a waste of energy. This is not to say that any one country is out of the woods yet, far from it; the G20 summit raised hopes up though that at the European Summit next week there will be a concrete plan established to tackle the Eurozone crisis. We can but cross our fingers that they will reach some credible solutions.
Posted on October 16, 2011, in Comment, Foreign Affairs, General and tagged Angela Merkel, France, Germany, greece, italy, John Major, Nicolas Sarkozy, silvio berlusconi. Bookmark the permalink. Leave a comment.