Things are truly heating up on the European Economic-War front. Since so much of the global economy and recovery from the Great Recession depends upon the political economy of the European theater of war, we will continue bringing you updates from the front lines and elsewhere.
This from Ambrose Evans-Pritchard, Telegraph:
Italy’s president Giorgio Napolitano is exploring the creation of a second technocrat government to break the political log-jam and calm markets after key parties failed to reach an accord, risking a serious popular backlash.
Ambrose Evans-Pritchard lays out the current battle between the small-d democrats versus elitist financial forces who seek to further their domination of Europe via handpicked technocrats. Evans-Pritchad reports:
“Nothing like this has ever happened before in the history of the Italian Republic. We are seeing a true crisis of the regime,” said Professor Luca Ricolfi from Turin University.
Investors have discounted Mr Grillo’s wild rhetoric as comic chatter, but his relish for shattering taboos in putting unthinkable ideas into play. “People in Brussels can handle old-style politicians like Silvio Berlusconi but Grillo really worries them because this is a protest against the entire system, and they are afraid it is spreading to other countries,” said Giles Merritt from Friends of Europe.
He's not exaggerating.
What's at stake are the bond holders on one hand, whose calls for austerity so that they will not have to take the haircut will bring an ever-deepening recession and even depression in parts of Europe that will dampen global recovery and even threaten to reverse it wholesale, against the anti-austerity populists on the other hand, who remind one in many respects of the anti-organization Occupy Wall Street Movement. However, Occupy has been so anarchistic that they've eschewed running for office; however, the Grillini have run for, and now won, many seats. Just how far they will get not being a political party before they disintegrate remains to be seen.
In the meantime, Angela Merkel, who is closely aligned with the sentiments of the Austrian School (austerity in a time of massive private deleveraging) must be dizzy from the turn of events.
Where should a real estate investor in the US come down on all of this?
We saw what happened when the interests of a very select few were overly represented in the US Congress. We failed to maintain proper regulation and oversight. Without proper risk management, the US economy ended up pulling itself and much of the world into the Great Recession (still happening), not that there weren't plenty of mistakes made around the world; but the US subprime, spurred on by very lax lending standards pleaded for by Wall Street investment bankers that then even spilled over into GSE's such as Fannie and Freddie, was the bale that broke the camel's back.
Here's what Yves Smith reminds her readers about: Michael Hudson's historical account of this process that's still going on in Europe:
The Italian elections are simply laying bare a dynamic that Michael Hudson described in 2011:
Book V of Aristotle’s Politics describes the eternal transition of oligarchies making themselves into hereditary aristocracies – which end up being overthrown by tyrants or develop internal rivalries as some families decide to “take the multitude into their camp” and usher in democracy, within which an oligarchy emerges once again, followed by aristocracy, democracy, and so on throughout history.
Debt has been the main dynamic driving these shifts – always with new twists and turns. It polarizes wealth to create a creditor class, whose oligarchic rule is ended as new leaders (“tyrants” to Aristotle) win popular support by cancelling the debts and redistributing property or taking its usufruct for the state.
Since the Renaissance, however, bankers have shifted their political support to democracies. This did not reflect egalitarian or liberal political convictions as such, but rather a desire for better security for their loans…But the recent debt protests from Iceland to Greece and Spain suggest that creditors are shifting their support away from democracies. They are demanding fiscal austerity and even privatization sell-offs.
This is turning international finance into a new mode of warfare. Its objective is the same as military conquest in times past: to appropriate land and mineral resources, communal infrastructure and extract tribute. In response, democracies are demanding referendums over whether to pay creditors by selling off the public domain and raising taxes to impose unemployment, falling wages and economic depression. The alternative is to write down debts or even annul them, and to re-assert regulatory control over the financial sector.
It does not take familiarity with Aristotle to recognize financiers as the new oligarchs. Simon Johnson made the same observation in 2009, based on his experience with the IMF, in his article The Quiet Coup. Italy may wind up being the last stand of the democrats. Let’s hope they prevail.
See also: Beppe Grillo, Italy’s Movement?