By Going Nuclear the EU Has Already Lost Its Battle with Italy
By Going Nuclear the EU Has Already Lost Its Battle with Italy by Tom Lougno – Gold, Goats and Guns
“Here’s where we hold ’em by the nose, and kick ’em in the ass”
If you ever want to know who’s losing an argument simply look at who’s doing the most threatening.
Not who’s shouting the loudest or who’s the angriest, but who is threatening.
Those who threaten are doing so because they feel their power is, itself, under attack.
It doesn’t matter if it is an argument with your kids or a big, geopolitical disagreement, as I always say, he who goes nuclear is losing.
Now, you might think I’m talking about the U.S. and President Trump’s incessant financial bullying of allies and enemies alike. I am somewhat, but not primarily.
Because as important as Trump’s mad flailing to try and remake the U.S.’s trade position around the world is, it pales in comparison to the acute crisis brewing in Europe.
Yes, Europe is more important. Why?
Because the EU just went nuclear on Italy.
Former Dutch Minister of Finance and former President of the Eurogroup, Jeroen Dijsselbloem, went on CNBC on Friday to declare all-out financial war on Italy.
That’s the way Zerohedge put it.
As a ‘former’ big wig it was his job to go out and state the position of those currently in power who can safely hide behind his words.
And if you watch the clip from CNBC in the linked article you’ll note that CNBC excised the most important quotes, where Dijsselbloem threatened the Italians that no exit from the euro is on the table.
But, why would he say this when Italy hasn’t brought it up at all?
In fact, Italy’s leadership has been nothing but supportive of the European Project while standing firm on it adopting fairer rules for member countries.
The response from Italy was calm and direct, not hyperbolic. They would not violate their budget deficit targets and are trying to work with the European Commission on this.
Ignore the reality that Italy can’t grow their way out of this without shaving the scalps of bondholders and issuing its own currency. Italy’s calm demeanor is what is important.
Dijsselbloem is lying when he says that most of the Italian debt is domestically owned. A large portion of it is.
But, tell me again, Jeroen, what is that $1+ trillion TARGET 2 balance on the ECB’s books?
A lot of it is Italian debt.
Seeing marginal improvement in Italy’s 42% Non-Performing Loan portfolio after seven years of enforced austerity is not an endorsement of the policy but an indictment.
It’s a real liability which ECB President Mario Draghi says Italy must re-pay before it can leave the euro.
Of course Draghi is acting like a loan shark, continuing to backstop purchases of Italian debt under TARGET 2 and then telling the debtor, Italy, it needs to pay up.
The bigger these TARGET 2 imbalances get the more leverage Italy has in these budget negotiations. Because no one is buying that the European banking system is not exposed to horrific losses if Italy defaults.
And while Dijsselbloem would have no problem bailing-in Italian depositors and ruining the Italian banking system I don’t think he realizes just what the secondary and tertiary effects of that action would be.
Why would anyone ever invest in a European bank that can be seized and sold leaving the investors to suffer 100% losses all because the technocrats in Brussels refuse to give up one iota of power?
That’s what he’s saying in the video, though.