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  1. Wealth
May 1, 2013

Will Enrico Letta lead Italy out of the eurozone?

By Spear's

Italy is the only country that might unilaterally pull out of the eurozone

Italy has a new coalition government which will try to get to the other side of summer before it crashes and burns. Beppe Grillo refused to join this coalition, which he said was formed over ‘a quiet weekend of vomit’, whereas Berlusconi did join in, but with his stiletto at the ready.

The man in charge of this white-knuckle ride through the forthcoming heat and haze is Enrico Letta, an EU technocrat in the same mould as the previous incumbent Mario Monti, but Letta has pledged to lead the charge against austerity. The last man who came to power with such a pledge was President Hollande in France, but he and his pledge of growth lasted three days until he had to go and meet the Berlin.

Now he’s reported to be hiding in the Elysée Palace and still shaking like a Flanby, while the French economy craters around him and goes rapidly backwards, but not forwards.

German productivity is the problem

Unemployment in Italy is over 11%, rising to 38% for the under-25s, and in France has hit five million, and six million in Spain. It’s the same old problem: as German productivity is much higher than in the PIGS, and now clearly in France as well, under the single currency the devaluation ends up as devaluation within the actual economy.

This is now known as austerity, inflicted by Germany’s political requirements not to be seen to be bailing everyone else out, and its control over the ECB.

There are two important upcoming dates in Germany’s political calendar: June 12 when the Constitutional Court in Karlsruhe must opine once again on the liabilities being taken on by Germany; and then September come the general elections, and Merkel is determined to get there with the eurozone intact, which means more austerity.

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When will the social structure of southern Europe snap and lead to overwhelming civil demonstrations and disobedience? The political elite’s sacred cow, the euro, is wreaking social and economic havoc throughout Club Med, which now includes France as well.

The Greeks have been bought off; France blindly believes in the tie with Germany; the Spanish are too proud to fail and will suffer in silence, while Portugal has no option but to follow Spain. That leaves Italy as the only country that might unilaterally pull out of the eurozone, as it has a primary budget surplus of 2.5% of GDP and could fund itself going forward, whilst enjoying a 30% devaluation against the euro.

If Italy, the third largest economy in the eurozone, pulls out, then it’s the end of it, as the politico-economic argument would soon be obvious to all the other Club Med vacationers: Italy would immediately thrive outside it and return to growth.

That is why Germany is determined to hang on to Italy. Beppe Grillo’s Five Star Movement has 25.5% of the vote; Berlusconi has 24%, and hates Merkel, and has openly talked about leaving the euro; and Letta had better deliver against Austerity, or he’ll sleep with the fishes.

Now, where are the likes of Mazzini and Garibaldi to lead the people when they’re needed? It would be such a great Italian story: how the comedian, the bunga-bunga host and now a guerrilla-godfather combined to save Italy and hand Berlin a real whipping!

Read more from Stephen Hill


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