Home » Why we're ungovernable » Why We’re Ungovernable, Part 7: Italy Does Chaos With Style

Why We’re Ungovernable, Part 7: Italy Does Chaos With Style

by John Rubino on February 26, 2013 · 14 comments

As an Italian-American I’m allowed to say it: Italians are an amusing mess. They go on about “la dolce vita,” the sweet life of long lunches and short work days and pretty girls on little scooters – without acknowledging or apparently even realizing that the whole show is based on other people’s money.

Take away the credit card and they, addicts forced to go cold turkey, descend into existential confusion. Which brings us to today’s national election. Held as the euro crisis seemed to be abating – thanks to trillions of new euros from the European Central Bank – the contestants were: the technocrat ex-premier who was recently forced to resign for undisclosed reasons, the media mogul and former premier whose creepy/criminal lifestyle nearly landed him in jail last time around, a stand-up comic known for raunchy humor who can’t hold office due to a manslaughter conviction, and an ex-communist who represents the workers and students most likely to stage the next general strike.

A bad bunch, sure, but at the end of the day one of them will have the power to at least try to address the country’s problems, right? Nope, that’s not how bankrupt countries work, at least on the way down. (At the bottom they’ll give absolute power to a “strong leader” who promises to restore order, but for now Italian voters, like their American counterparts, still cling to the illusion that normal life can be restored with a few tweaks of the tax code or short-term interest rates.)

Instead, my ancestral homeland got a hung jury:

Italy faces political gridlock after crucial election

ROME (AP) — The prospect of political paralysis hung over Italy on Monday as partial official results in crucial elections showed an upstart protest campaign led by a comedian making stunning inroads, and mainstream forces of center-left and center-right wrestling for control of Parliament’s two houses.

The story of the election in the eurozone’s third largest economy was shaping up to be the astonishing vote haul of comic-turned-political leader Beppe Grillo, whose 5 Star Movement has capitalized on a wave of voter disgust with the ruling political class.

Another surprise has been the return as a political force of billionaire media mogul Silvio Berlusconi, who was forced from the premiership at the end of 2011 by Italy’s debt crisis, and whose forces now had a strong chance of capturing the Italian Senate. His main rival, the center-left Pier Luigi Bersani, appeared headed toward victory in Parliament’s lower house.

The unfolding murky result raised the possibility of new elections in the coming months and bodes badly for the nation’s efforts to pass the tough reforms it needs to snuff out its economic crisis and reassure jittery markets.

“This has never happened before,” said James Walston, a political science professor at American University of Rome. He predicted such a swirl of political chaos that new elections may need to be called as soon as the new legislature chooses the nation’s next president this spring.

So nothing gets done, the debt continues to accumulate, and the financial system shambles ever-closer to the cliff’s edge.

Just to be clear, Italy isn’t wallowing that much more deeply in denial than France with its 75% marginal tax rate or the US with our monthly debt ceiling/fiscal cliff soap operas. It’s just the latest example of what happens when a country goes broke but can’t accept the fact – and is armed with a printing press to maintain appearances beyond what would be possible in a sound money world.

In the meantime, this isn’t just a local story. Italy is the third biggest country in the eurozone and it owes German and French banks a ton of money. Chaos there is chaos everywhere. See the next chart, which tracks the Dow Jones Industrial Average as the Italian results came in towards the end of the trading day.

Dow after Italian election



  • Bruce C.

    I couldn’t be happier with today’s result!

    Maybe because I’m a Scottish-American or maybe just because any sentient being these days would like to see crappy ideas finally meet crappy results. Frankly, I’m pleasantly surprised that the DOW, etc. reacted so negatively to these results. Maybe there still is intelligent life on Wall Street. Of course, everyone could decide by tomorrow that Italy isn’t that big of a deal and the ECB isn’t going to let things go too far, so maybe European stocks, etc. are a good deal now.

    Full disclosure: I can’t stand European intellectuals and I don’t like European style socialism either.

    If only these unsustainable systems would crash and burn more quickly then people might figure them out sooner. As it is, it takes about 3 generations for bad ideas to manifest. That seems to be too long for most people to make the connections.

    • PaperIsPoverty

      Yeah, who knew stocks could still have a bad day? I thought central bankers had fixed all that (in two senses of the word “fixed”).

  • Erc Seitz

    “It’s just the latest example of what happens when a country goes broke but can’t accept the fact”

  • Erc Seitz

    “It’s just the latest example of what happens when a country goes broke but can’t accept the fact”

    Oops. HIt the post button by accident on the last post. Anyway, great comment.
    I equate the situation in the US as Weekend at Bernie’s part III. The whole bunch of anti-Americans in DC are pretending that the US economy is alive and well so the “good times” keep rolling.

    I wish the whole thing would explode already. Nothing worse than not knowing how to prepare for the future. Everything thing that I have been taught has been deemed useless including my degree in Finance.

    • PaperIsPoverty

      Agreed, let’s get the crash over with. My older kid will be college age in 5-6 years and I don’t know whether we should be thinking SAT’s or potato farming.

  • Uncle Snickers

    The Dow is just another tool of the master of lies. The Dow goes higher as the Fed pumps billions of paper fiat into it. [To the tune of 85 billion a month] The only way to prevent a collapse is to prop it up. Once interest rates go up to real levels, the whole mess is toast.

  • dvautier

    Reminds me of the old joke about heaven and
    hell. St.
    peter was giving a tour of heaven to some new people and he explains. “Everything
    works so well here. The English run the
    Government, the French are the cooks, the Germans are the mechanics and the Italians
    are the lovers. Wonderful place. Somebody then asked, “What is hell like?” St. Peter said. “Well it’s almost the same. The English are the cooks, the French are the
    mechanics, the Germans are the lovers and the Italians run the government.”

  • Uncle Ruckus

    Ungovernable. Perfect so now anarcho capitalism will prevail !!!

  • Chris

    US, Japan, UK and EU are doing QE. The Asian economies depend on export to do well. So they will also match the QE to maintain parity or lower in their exchange rates. Will inflation ever be low in this kind of condition. In fact I believe inflation already high as oil price at US$120 a barrel is the point when interest rate before the GFC was at close to the peak. Inflation figure is an instrument used by Central Banks to adjust interest rates to try and maintain a Goldillock economy. However, if interest rate had been manipulated, then it would be like driving a car with a faulty speedometer. Before GFC, the mortgage securities were considered AAA and risk free. The mortgage market was deepened with the introduction of CDOs and CDSs, giving the mortgage market more stability as well as increasing the size of the market. Unfortunately, greedy Wall Street abuse the risk free status. Similarly, sovereign bonds are AAA and risk free. They are risk free only if they are not abused. For example if you go to an auction for a house, you do not expect the owner to be bidding. Inflation do not wait for CB to take action. It burns on its own. The more fuel (excess money) the bigger the fire. If CB had painted themselves to the corner and they do not have any way of controlling inflation, then it is like driving with faulty speedometer and faulty brakes. I hope that CBs are not thinking only about the present but go a bit further and see what actions they can take if inflation becomes untolerable.

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  • Bill johns

    So here we are 4 days later and it is as if nothing happened. European markets are rallying, US markets are rallying, Asian markets are on an awesome tear up. What did that splash of cold reality really accomplish. Very little. Bernanke came out on Tuesday and Wednesday and all is well. We were assured that the fiscal cliff would be like the end of the world. NO WAIT, that would be the sequestration that would be the end of the world. We are only about 86 Dow points away from an all time high and as I type on Thursday AM it looks like we are on our way. I’m obviously not understanding something. Could someone please explain this all to me? Please.

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  • Pingback: Nation Investment And Commodities Trade Lower On Competitive Currency Devaluations As Italians Give Support To Politicians Who Reject Austerity And In Some Cases The Euro … The Fiat Money System Starts To Die As The Dollar Rises | EconomicReview Jou()

  • fred
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