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Thursday, 10 November 2011

What goes around

An Italophile friend writes expressing his sympathy for Silvio Berlusconi and the people he governed. He thinks Silvio got a raw deal, having been forced out by the ECB/Merkozy. And this happened despite the fact that Italy hasn’t really done a lot wrong in recent months; their deficit is about 120% of GDP which is pretty much where it has been for decades. The combined debt of government, businesses and individuals is similar to that for the UK and the US. Also excluding debt interest their budget is in surplus.

All of which is perhaps true. But the Italians have chosen not to be a sovereign nation like the UK or US. They are in trouble because their economy is not growing to enable them to pay their debts and lenders know it. Not being a sovereign nation, they cannot print money or lower interest rates.
The morals of this are threefold:
1.    You don’t create a single currency to cover nearly 20 different countries with different economies, languages and cultures
2.    You don’t – once the whole thing has inevitably blown up in your face – bone-headedly refuse to relax monetary policy
3.    You don’t ever get away with calling someone an unf***able lar**rse
In the event, I suspect that Merkel will give in. It’ll make her feel like vomiting into her pickelhaube but she’ll persuade her fellow countrymen to step into the breach and keep the show on the road for a bit longer.
But it won’t solve the inherent problems of the euro. And it won’t solve the problem of the West, namely that we owe far too much money and can’t pay it back and passing it around, like a parcel in a 1970s Belfast pub - from banks to states and from states back to banks and then to the Germans - won’t solve it either.
No, that problem will be with us for awhile yet. Until the politicians do what they always do – and inflate it away.

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