An interesting article from WaPo about a rising political star in Italy. (Link) Some details:Beppe Grillo is a well know TV personality/comedian in Italy. At age 64 he ran for political office in Parma, and won. He has been doing a lot of talking since, and his philosophies have become very popular. His message is Italian nationalism, an end to the link with the Euro, he has even advocating defaulting on Italy’s debt. From the WaPo article:
Four months after his Five Star Movement swept into government here in a surprise victory that sent his national profile soaring, he stood in a town square and delivered a breathless tirade against “the forces” seeking to destroy Italian society.
He called for a referendum on the euro and said Rome should follow in the footsteps of Argentina and Ecuador by suspending payments on the national debt.
In the country that could make or break the future of the euro with its next election, he described Germany and France as European paymasters who would bleed Italy dry.
“He is a thermometer of Italy’s political temperature, and the success of a demagogue like him would send a dangerous message to our allies in Europe that credibility and sacrifice are no longer on Italy’s agenda.”
Recent surveys suggest that almost one in five Italians now back it, placing his movement only single digits behind the nation’s two leading parties in popularity.
I have no real understanding of Italian politics, but I think there is an important message in Grillo’s meteoric rise in popularity. My conclusion is that Mario Draghi’s effort to save the EU (and the Euro) is doomed to failure.
We have a bizarre status quo today, there is calm in the Euro bond markets. The stability is driven by the belief that Spain will soon accept a bailout (and all of the very bad things that this implies). And when Spain does get down on its knees and begs, the ECB will quickly act, and begin to buy unlimited amounts of dodgy Spanish paper. The problem is that Spain is very reluctant to ask for that ECB bailout.
We are in financial fairyland today. It won’t last. In the not too distant future the markets will push Spain to the edge, and the country will be forced to accept the ECB/IMF terms. Very shortly thereafter, the pressure will grow for Italy to accept the same terms as Spain. And that gets us back to Beppe Grillo.
When these events unfold in Italy, the “Italy First” message now being sent by Grillo will rise higher and higher. It’s possible that Spain will be forced to accept the strict conditionality of an ECB/IMF bailout, but there is no way that Italy will. The Italian people will simply not accept their country becoming a (bigger) serfdom of Germany.
Mario Draghi knows what the political mood in Italy is. He is keenly aware of the rise in popularity of Grillo, and his message. Mario also understands what Grillo could mean to his efforts to put his home country into economic jail.
Draghi has always spoken with great confidence. He has used words like “unlimited” and “forever”. But he also reads his hometown newspapers. He has to know that he can’t carry off his plan. The economics of his bailout might work, but the political side of the equation is going to fail. I’m sure Draghi is aware of all this; that means he is one hell of a bluffer.