The Danger That Italy’s Political Crisis Poses for the Global Economy

Very clarifying. Thank you.

The problem with the "hellenes" is their pre-euro currency printing ways.....or maybe it was not a problem. All currency regimes have side effects. Maybe the Germanzied Ostrogothic northern Italy are whining because they got such bargains from the single market, yet are whining because the government is trapped from printing or spending more. The southern Italia's are the real Romans. Hollywood has always depicted the Roman's as too light skinned. That only came after the barbarian raids. Maybe it is time for Roman restoration and weakening of the barbarian control of Italia. They sure got all the bankers debt expansion "benefits".

The worst won't happen. It never does. In such a tightly-managed global economic order as we have now, there will be safeguards to control the damage. What *will* happen is that the Italian voter will continue to make a mockery of governance as it has for decades. Until they take take their structural issues seriously, they will lurch from crisis to miscreant regime to crisis ad infinitum. They have no one to blame but themselves.

Now, hypothetically, add to the risk factors that Mr. Irwin lists an additional one -- a run on the Italian lira -- and evaluate how the situation changes.

GREED is truly the most terrible challenge of our times, and capitalism is its tool, its means to power and more greed. Greed is a (contagious) mental illness, an unfillable hole, a hunger that denies justice, a brutal expression of broken egos. Greed is having a million times as much as the poor and still feeling you don't have enough. Greed consumes the earth without respite, and is a cancer on humanity. Greed destroys us and our children and their future. Greed is death.

Three months ago weren't we hearing how the world economy was running like a well oiled machine "all the gears were meshing" for continued growth. Italy and Spain leaving the Euro--Redeux Indian Rupee--falling like a rock Chinese accounting irregularities Yup sounds like a well oiled machine to me.

It's the usual Protestant work ethic versus settling into the cafe with a nice cappuccino.

'The markets' are signalling what they always signal. Help, we don't know what's going to happen. Help, we don't understand a foreign country or its people We're scared we might lose money because of our ignorance. Trying to read anything more subtle than that is a pointless exercise in kite flying.

Japan has a debt/GDP ratio twice that of Italy, yet Mr. Irwin seems to have no interest in its meaning, if any, for national or int'l economic outcomes. Moreover, if Italy's creditors have their loans denominated in Euros the name a future Italian currency is immaterial. As for fiscal probity, Germany had no problem in the pre-Euro era to run deficits substantially higher than 3% of GDP in order to finance its unification. Indeed, France wanted the Euro to reign in Germany's assumed profligacy as it used deficit finance to stimulate the German economy. Turning to ITALY, Irwin does not mention any salient facts about the performance of the Italian economy since the adoption of the Euro. Prior to the adoption of the Euro, Italy's GDP was roughly on par with that of the UK, today it's about one-third lower. Unemployment in Italy is over 10% and among youth its is over one-third. Moreover, many of the employed youth are in part-time or full-time jobs that offer no prospect of longer-term continuity and income. The purchasing power of the average Italian family in about 10% below the pre-recession level. All the above is nothing to the unelected and unaccountable global investment community and the bureaucrats in the EU and ECB. The real issue that Irwin misses is whether global financial interests and supra-national organizations can overrule the desires of the people demonstrated through democratically conducted elections. That is real issue facing Italy and globalization.

There's no telling what Italians will do out of devotion to their culture and history. But it's a pretty safe bet they won't do anything at all out of devotion to the lira. They mat hate the euro as much as any country in the EU, but chucking it requires a complementary nostalgia for the alternative. This suggests a possible arbitrage opportunity if a significant mass of fundage is being invested without thinking that one through.

“No one would have thought that a crisis centered on home mortgages in the United States would prove the trigger for crises in Greece and across Europe all those years ago.” Oh, I guarantee you....SOMEONE knew that such a crisis was looming, and what the potential effects could be. No one wants to be a “party-pooper”, however.

So many comments here saying the same thing in polite words. Why don’t we say it impolitely? The rich take more of everything, everybody else gets less, demagogues rise, and the global financial system crashes, enriching the rich even further. In a different world at a different time ordinary people would rebel and turn on their slavemasters. Now they either vote for them or slink off into the night, defeated and afraid. As well they should be.

Not to mention trade wars and ensuing problems triggered by Trump's tariffs on Chinese exports...

I can't wait to hear Mr. Trump's considered opinion on the macroeconomic and geopolitical implications of these events.

From an outsider point of view, it looks like the Italian President, while acting legally, overstepped his bounds. Imagine the uproar if Queen Elizabeth II tossed a Chancellor of the Exchequer, something she also can do, put forward by the Labor Party, if it wins the election, because she did not think he or she represented the election or had a Socialist or Communist background.

An obvious data point would be who holds Italian bonds. That is where the wave would hit first.

It would seem the EU gave little thought to the differences in northern and southern European financial conditions and cultural mores when it was initiated. They’ve repeated this mistake with the eastern European countries it has admitted more recently. It is a Western European organization and countries should be admitted to the EU only after they’ve risen to these standards. Expect more crises.

It does not pose an imminent risk for the rest of the world, but it is indicative of the stagnation there and the rest of the world. Italy’s productivity decreased 1.6% since 2006. It is not profligacy as the German bankers suggest, it is that Italian products are becoming relatively more expensive than in similar countries. They want more austerity for the Italians -just the same recipe prescribed a few years ago to the Greeks. It won’t help though as the cause of stagnation is another one.

Unless Italy elects leaders that are ideological purists, one would guess that the Italians and Europeans will work this out. What worries me more is that we in the U.S.A could find ourselves in a similar pickle in half a decade. Our debt is poised to grow to an unsustainable level, thanks to the 2017 tax cut. And we are slowly eroding the U.S. as a trusted partner in international cooperation. So today, investors flee stocks to the relative safety of U.S. Treasuries. What happens when those are no longer considered relatively safe?

Interesting post by Jonas Goh The ECB (i.e. the Euro) buying of Italian bonds has allowed Italy to run up a debt that it otherwise could not have. For believers of stimulus spending, that's what was needed to get the Italian economy going. (Keynesians) For believers in austerity, that permitted an Italy to run up a ruinous debt. (Austrians) The major difference between the US and Europe is not the Euro but that Europe operates under implicit guarantee of bailing out member States that run up unsustainable debts. The precedent was set by Greece Not so in the US When 7 US states and two US territories went bankrupt at ~ 1841, as the result of running up unsustainable debts (mostly to British banks), Congress debated for 2 years their appeal to be bailed out by the Federal government . It decided not to do so "lest others be tempted to do the same". That set the precedent that no US States will be federally bailed out in the US should it fail to balance its books

Thanks for the optimistic conclusion, Neil: "If things go badly in Italy, there’s no telling where the damage could end up." Well, here's hoping that things don't go badly in Italy. I suppose that if they start to go downhill, the EU will muster some remedial action. I just bought a great Italian tripod for my camera, so I'm doing my part. I can't spring for the Lamborghini, however.

It's time to marvel at what our Founding Fathers brought about in America - so long ago. By creating a simple system of recognizing rights of individual States while also enabling a Federal Government - they created a true shining city on a hill. EU as it happens borrows our ideas but completely tramples them when it comes to State rights - by forcing a universal currency that is anything but universal. Money matters - not so much as wealth but as an identity of centuries - historic and practical. While Britain's decision on Brexit may be debatable, it's retention of British pound since the beginning - is looking like one bright note in this debacle. Stupidity is defined as doing the same wrong thing all over again and expecting a different result. Euro is that one stupidity put upon unsuspecting European countries by Germany which has benefited the most - but keeping this currency weak and helping German exports. I remember when Euro was introduced. With much fanfare, it was expected to soon eclipse mighty dollar. The Petro economy countries talked of switching prices to Euro. Euro was also supposed to foster cultural closeness of a European identity. Yet, EU is forced to create a program of a year long free travel for young Europeans to "feel majesty of EU." Well, we now know nothing is succeeding. It's time for Europeans to slowly dismantle this currency and let European countries decide their own future.

If the wealthy showed some commitment to the community in policy and wealth, a significant release of pressure would occur in the system.

What’s obvious is that the world economy enriches the few at the expense of the many. The Euro is nothing more than a monetary scheme that will ultimately fail because there are too many countries tied to it. They often have different priorities and that will be the catalyst for the fall of the Euro. It was a feeble attempt by Europe to match the American dollar and it first it worked. But time has shown that the Euro is most likely to go extinct.

As any economic textbook says European Union is not an optimal currency area. If economic conditions are differ among European nations crack is likely to appear in Europe. Germany might need austerity while Italy needs devalued currency to compensate for slack in demand in domestic market. The euro might become a yoke for many Italians as monetary policy is determined in Germany and not in Italy. I just watch carefully wondering what this will bring to the world.