Italian election farce may become our economic tragedy

While we here in the U.S. have been watching Congress battle over who gets to shoot the U.S. economy in the foot, the heat has risen under Europe’s financial crisis and it is now once again at full boil. The result could be a mess big enough to make people wonder why there was so much fuss over sequestration.

On Tuesday Italian voters, grown tired of austerity measures which made the nation’s economy worse, were offered a choice of political leaders seemingly borrowed from a Marx Brothers’ movie and in their infinite wisdom elected all of them. The resulting stalemate has many analysts thinking that a default is a possibility again.

 “The inconclusive outcome of the Italian election looks set to prompt a renewed bout of market pressure which may eventually force Italy to request a support package from the euro-zone,” writes Ben May of Capital Economics.

The fear is that already skittish investors will demand Italy pay more interest in order to borrow the money it must have to pay its bills. If that cost gets too high then Italy would have to seek some form of financial help from the European Central Bank. In the worst case scenario that help means a bailout and because Italy is the world’s 11th largest economy, it is far, far too big to bailout.

It is also possible investors might be fine with the current situation. As the Wall Street Journal noted, “Italy has never been known for strong governments so arguably not having one at all is a natural state for foreign investors.” While the interest rate on the Italian 10-year-bond has risen since the election took place right now it is around 5 percent, well short of crisis levels.

However, it is very hard to find an analyst who thinks this is likely to continue.

“With political chaos likely to be the prevailing wind in the next few months, our pre-election view that Italy could be in play in again with regards to the sovereign debt crisis is beginning to unfold,” says Raj Badiani, an economist with HIS Global Insight. “As expected, the general election has thrown up a substantial no-confidence vote on the current austerity plan and the need to reform further.”

It is not easy to explain how Italy got to this point. Like a great comic opera, the path to the current stalemate contains far too many improbable plot twists and outrageous stunts for even a quick summation, so let’s just focus on the election itself.

It came about after the resignation of Prime Minister Mario Monti who was appointed to the position in 2011 following the resignation of Silvio Berlusconi, a tycoon who owns most of Italy’s major media outlets, is about to face trial for allegedly having sex with an underage “night-club” dancer and has been sentenced to prison for tax evasion. None of that has anything with why he resigned, by the way.

Also, none of that appears to have hurt him at the polls as much as you might expect. His People of Freedom Party and its allies got 29 percent of the vote, which put him in a virtual tie with Pier Luigi Barsani of the Democratic Party and its allied parties. Coming in third with 25 percent was the 5 Star Movement Party which is headed by an acknowledged comedian, Beppe Grillo.

Grillo has so far refused to form a coalition with either of the other two and this is unlikely to change as his party is built around his low-opinion of the professional politicians. When Bersani tried to get Grillo to agree to an alliance Grillo called him a “dead man talking” who should resign as leader of his party and stop making “indecent proposals” to the Five Star Movement.

It is worth noting that Italy’s election law is known as the Porcellum, which is Latin for pigsty.

And, just like here in the U.S., all this would be tremendously amusing if the consequences weren’t so very scary.

(A very different version of this originally appeared on CBSNews.com)

Italy outclasses us by giving parmesan to the poor

Permetta loro di mangiare formaggio!

I am not in general a fan of any Italian government that holds power for more than a week and the current one is no exception. However my hat is off to them for this plan that will help both the poor and the cheese makers.

Agriculture Minister Luca Zaia has committed to buying 100,000 66-pound wheels each of Parmigiano Reggiano and the very similar Grana Padano cheese to donate to the needy. Producers sought government help in the face of prices that have fallen some 25 percent over the past five years.

Sure as hell beats the “processed American cheese product”* that our government gives away. It’s a great idea Mr. President-elect. Don’t just give food to the hungry, give them good food. I say we help out the Italian cheese industry too!

*Which I eat, too.

Italy unleashes PR stunt to stop inflation

Shades of Jerry Ford and Whip Inflation Now

WINItaly’s government has decided to appoint a special commissioner to try to curb price rises after inflation hit a three-and-a-half year peak in November … The ombudsman, dubbed “Mr Prices” by Italian media, will inform the industry minister of any “anomalous” or unjustified price increases and can also make proposals for legislation.

What exactly is an “unjustified” price increase? Isn’t that basically at the heart of the theory of capitalism? I set a price and either the market meets it or it doesn’t. If I can sell bananas at $500 each then shouldn’t I? I’m not saying this is a good thing but it is how we’ve designed the system.

This brings us back to the debate over “price gouging” by oil companies last year.

Just as no one can define terror, no one has any idea what price gouging is either. This fact is made plain in the GOP-sponsored House bill, which leaves it to the Federal Trade Commission “to develop a definition of price gouging.” You have to love a law that is so specific about the penalty and so vague about the crime. (and if I do say so myself the rest of that rant is pretty good … I suggest reading the whole darn thing.)

I expect Signor Prices will, in some form, be coming to the US soon.

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