Yesterday in my post
after hearing the declaration of Prime Minister Berlusconi I wrote my conclusion that Italy had lost effectively sovereignty becoming a protectorate of the ECB.
Today we have even an official confirmation that Italy is now administered by the ECB under mandate of France and Germany which are the new masters of the country and will dictate to Trichet (then Draghi in October) what he has to order Italian politicians to do.
This is major news which has been reported so far by only one Italian Newspaper Repubblica
EU president Van Rompuy and EU Commissioner Olli Rehn contacted Berlusconi and made clear that either Berlusconi follow orders or it is the end game.
It has been confirmed that France, Germany and the USA have reached the conclusion there is no other solution than seizing power in Italy and run the country as they see fit in order to prevent its default and an economic armageddon.
Both the EU and Washington have decided with the “Washington Consensus” that unreliable governments will fall under protectorate rules, bailout money provided only if following orders.
Berlusconi and the entire Italian political class will be mere puppets who will enforce any order they receive regardless of the electorate opinion. After all, the current state of Italian politics is perfect, Italian voters are currently unable to decide the name of the person they elect, they can only decide which party to vote, the name of the elected MPs are decided by the party, this is causing a major disconnection of responsibility toward the electorate which favour the implementation of blood and tears austerity measures.
Italian MPs do not have any allegiance to their voters but only to their party and their boss and therefore will not have any constraint in following the lead when requested to.
Berlusconi has been forced to accept the dikat but if with his collapsing popularity both among the electorate and with other coalition parties he will be able to implement it, well this is a different story.
Tremonti is right when he said yesterday that this week the world has changed forever, we are in uncharted territory and following US credit rating downgrade we are on the verge a major financial breakdown. Even China’s traditionally diplomatic aplombe is being tested with furious official attacks to the US Government.
Events are turning sour fast and the choices left to solve the Global Crisis are getting worse every day.
News from Germany today are complicating things even more: Der Spiegel
that Germany is opposing any EFSF increase and any bailout of Italy, it appears it is opposing also ECB purchase of Italian bonds and it is pretending harsh cuts in Italy regardless.
According to Daiwa’s Head of Economic Research, Grant Lewis, the increase of the EFSF should reach the astonishing amount of 3.5 trillion euro this is the only act that could convince financial markets of euro area resolve to save Italy and Spain. Lewis says: “France, Germany contribution to EFSF’s capital would increase to 80% if Spain, Italy had to drop out of guarantee structure. France, German contingent liabilities would be > 50% of GDP if EFSF expanded; added to France, Germany current debt it may trigger downgrades to both countries.”
There is no safe option anymore if the debt crisis spreads to France as it is becoming probable given the exposure of France to Italian Treasury bonds for over 25% of its GDP, the bailout system will become useless, if they pursue harsh austerity measures in Italy the country will start to paralyse ending like Greece and given the size of the Italian economy effectively pushing the global economy in Depression zone.
If Germany is successful in blocking both the EFSF increase and the ECB purchase of Italian bonds, the Eurozone is dead and will break apart.
Even if the Italian government has agreed in principle to the enforced austerity will face a revolt both from the opposition, the unions and the Italian people whose patience with a rotten and corrupt Berlusconi’s government was reaching boiling point already before this last crisis.
The amount of things that can go wrong and turn into a Black Swan are too many at this stage to discard a possible incoming Great Depression. Brace yourself!