Thursday, April 26, 2012


Remember the old joke about the definition of hell being the place where the Germans were lovers, the French soldiers, the English the cooks and the Italians ran the place?  Time can change a lot of things.  These days the two most respected managers in Euroland are Mario Draghi the head of the ECB and Mario Monti the temporary PM of Italy.  Monti, despite the fact that the legislature jumped up and bit him on the bum has done more in the last three months to rationalize the chaos that is state of employment in Italy and in pointing out the absolute folly of guaranteed employment and retirement at 50 in discussing the sustainability of the Italian state.  This week, Draghi has become the darling of the near and far left who, while not listening entirely to what he said, nonetheless were totally supportive because they heard the magic word, "growth."

You see, to the left in any location, "growth" equates to the government printing as much money as possible and spending it as quickly as possible on "investments" (see; The Leader c. 2009) which project as "shovel-ready projects" that may or may not come about (see; The Leader c. 2011).  The candidate, M. Hollande lept for joy at the thought of having Draghi on his side and governments toppled all over Euroland.  "No more austerity," rose the cry.  "Growth NOW!" "Tax the rich."  "Abandon the Brussels accord..." except that's not really what Draghi meant.

Surprisingly, the two Italians who have never been known to be particularly close, were pretty much in lock-step over the past few days in their ideas concerning the economies of Italy in particular and Euroland in general.  Growth by all means but what both suggest as to what was needed was a complete structural reform of the economies coupled with an intelligent monetary expansion, not a mere opening of the floodgate of the central bank and watching money pour out.  In addition, Sig. Draghi spoke quite openly on the pressing need to restructure and recapitalize the banking system in order to get credit once again flowing to where any advance have been totallyabsent for half a year now with the only activity being the so-called "round tripping, " i.e, borrowings from the ECB in order to buy the bonds of the nation of incorporation of the individual bank.  I spoke with Massimo this morning as to credit availabilty in Italy.  His answer was one word;


It's worse than that.  The only activity is the afor-mentioned round tripping.  There is no interbank market; banks will not lend to each other.  There is no external debt market.  There is no external (public) purchase of sovereign debt.  I have no way of confirming this but Massimo stated that 80-90% of Italian debt was being purchased by the banks.  Remarkable.  Europe is a credit wasteland except perhaps for Germany where activity is serious in decline as well.

The Marios are right of course but the messages are getting muddled.  Why?  Elections.  It's simple, really.  Time is running very short;  indeed, I wonder if there is any time left.

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