100 Italian Economists Wake Up, Say Austerity Will Destroy Europe

Tyler Durden's picture

The Telegraph's Ambrose Evans-Pritchard points to a letter signed by 100 Italian economists (technically Keynesianites, but in the great Ponzi, the two have become synonymous) in which they note that "the austerity strategy imposed by Brussels/Frankfurt risks tipping Europe into a self-feeding downward spiral. Far from holding the eurozone together, it will cause weaker countries to be catapulted out of EMU. Others will leave in order to restore sovereign control over their central banks and unemployment policies." Not to mention that Italian university budgets will be slashed. These 100 establishmentarians would be wise to do the whole "look to your left, then to your right, in one year two of those people will be out on the street." While the core of the complaint has to do with the core premise of austerity, arguing that a fiscal injection is much more needed than a haircut, AEP does have a great point, that while conducting fiscal contraction is possible, it needs to be at least offset by monetary loosening. And the still relatively hawkish ECB has very little room in that regard. Evans-Pritchard's conclusion is well known in advance: "EMU has become an infernal machine. This will not be the last letter by angry economists."

AEP's translation of the letter:

For readers of Italian, it’s here. While I don’t share the big-state Left-Keynesian perspective of these professors — nor their implicit hostility to the free market — I do agree with much of their overall analysis.

My rough translation:

“The grave economic global crisis, and its links to the eurozone crisis, will not be resolved by cutting salaries, pensions, the welfare state, education, research …….. More likely, the `politics of sacrifice’ in Italy and in Europe runs the risk of accentuating the crisis in the end, causing a faster rise in unemployment, of insolvencies and company failures, and could at a certain point compel some countries to leave monetary union.

“The fundamental point to understand is that the current instability of monetary union is not just the result of accounting fraud and over-spending. In reality, it stems from a profound interweaving of the global economic crisis and imbalances within the eurozone …..

It blames the crisis on the “deflationary economic policies” of the richer states. “Especially Germany, geared for a long time to holding down salaries in relation to productivity, and to the penetration of foreign markets, gaining European market share for German companies…

They say the policy has led to growing surpluses in Germany, offset by growing debts in Southern Europe. The adjustment mechanism has not only failed. Matters have got worse, and worse.

“This is the deeper reason why market traders are betting on a collapse of the eurozone. They can see that as the crisis drags on this will cause tax revenues to fall, making it ever harder to repay debts, whether public or private. Some countries will progressively be pushed out of the eurozone, others will decide to break away to free themselves from a deflationary spiral… It is the risk of widespread defaults and the reconversion of debts into national currencies that is really motivating bets by speculators.

The economists denounced the “obstinacy” with which the EU authorities and governments are pursuing “depressionary policies”, and called on the European Central Bank to abandon its policy of “sterilizing” purchases of Greek, Portuguese, and Spanish bonds, and move to fully-fledged quantitative easing to boost the money supply.

“We must have an immediate debate on the extremely grave errors in economic policies now being committed..

Si, Signori .. Bravissimi.

And his summary:

ust to be clear, I do not share their Krugmanite view that huge fiscal deficits are benign. In my view, it is imperative that the whole western world reduces debt in a orderly fashion over 10 to 15 years. Pacing is crucial. Too fast can be self-defeating. Too slow is not an option.

My objection with the EU’s mix of policies is that extreme fiscal austerity is being imposed on a string of countries without offsetting monetary stimulus. (Yes, I know, some will say that I am mixing apples and oranges).

Ireland, Spain, and Portugal have already tipped into outright deflation. Ireland’s nominal GDP has contracted 18.6pc since the peak. They are falling deeper into an Irving Fisher debt-deflation trap.

This is reactionary folly. The College of European Commission should be taken out and horse-whipped outside the Breydel Building for demanding yet further cuts from Spain — which is already cutting wages 5pc this year, in an economy where total public /private debt is 280pc of GDP or more. Can nobody think of a more coherent way out of this?

Is the eruo and the eurozone on a crash course with reality (and parity)? Yes. However, in the meantime, Geithner's little propaganda ploy of the stress test is the last straw the drowning men in Europe have left. It will buy a month at most.

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Wynn's picture

Death by deflation, or death by hyperinflation. Hell of a choice.

centerline's picture

+1, I was thinking along the same lines the moment I started reading the article.

Cognitive Dissonance's picture

It always amazes me how people can make conscious decisions along a certain path and then use those disastrous decisions to justify additional disastrous decisions along the same path of destruction.

"Regardless of what we did in the past, if we don't continue to do it, all hell will break out."

And so what about tomorrow and next week and next month? At what point do you bite the bullet? Of course, by staying permanently in crisis mode, you can justify any sort of insanity indefinitely.

Welcome to the Insane Asylum.

Rusty_Shackleford's picture

The denial of A=A. 
The source of 95% of all human misery.

Cognitive Dissonance's picture

So does this mean all that tin foil I've been putting inside my baseball cap might just save me after all?

Nice. Long Alcoa. :>)

Rusty_Shackleford's picture

For the love of God, make sure it's shiney side out!!!

Or you could go with my own personal invention, the wearable Faraday Cage.

(still trying to work out some bugs with the design - especially with chafing in the bikini area)

Cognitive Dissonance's picture


You could always let your personal.......umm..........equipment just hang out. It's pretty much useless if those flares come along. :>)

Arthor Bearing's picture

The experiment didn't work, time to start over!

thisandthat's picture

That's gonna be tough on Big Brotha - someone's gonna have to have a little conversation with whoever's in charge of Sun's power regulation.


On a side note:

short > electronics; air travel; telcos; Apple;

long > lumber-jacking; stone quarries; candles; sun protector;

Ragnar D's picture

For those of us in the real world and not living on the public trough, deflation is not "death".  At worst it's soreness from cutting out the Nanny State cancer (with the silver lining of living cheaply).


The "too fast can be self-defeating" line is hilarious.  You know, because while politicians label slight decreases in the rate of gov't growth as draconian "cuts", the real threat is we'll somehow tighten the belt too much...

Catullus's picture

So long as G is seen as additive in the GDP equation, the economics establishment will always claim a reduction in G will cause GDP to be lower. Until one wakes up and realizes that the government doesn't produce anything and can ONLY transfer wealth, we're going to play this ridiculous game.

The economists in 18th and 19th centuries knew this. But I guess when your money is metaphysical, why should this group of losers figure it out?

Ragnar D's picture

Agreed.  The size of the productive economy is what should be measured.


Private economic activity MINUS gov't spending = actual economy size

Private employment MINUS gov't overhead = actual productive jobs

chrisina's picture

This doesn't make any sense whatsoever.

Suppose you have two countries that have the same economic activities except that:

in country A, roads are built by an entity called Govt which spends an amount G to build those roads and the inhabitants pay for the access to roads with taxes

in country B, roads are built by an entity called Private Corporation which spends an amount P to build those roads and the inhabitants pay for the access to roads with tolls

According to your equations, the size of the economy of country A is smaller than that of country B by the amount G. Why so ?

Other question:

in communist USSR there was no private economic activity. Everything was "Government Spending".

So if your equations are correct,

actual economy size of ex USSR = Private economy activity (0) - Govt spending (G) = - G

So the ex USSR had a negative GDP? 

Ragnar D's picture

Where to begin...governments don't just build roads.  The Keynesian socialists always bring up defendable actions of government when someone wants to scale back its excesses:  gov't can't tighten its belt, we'll have fewer cops/teachers/firefighters!

That's of course a joke.  It's the DMV/census/etc deadbeats we want canned, and they absolutely subtract from economic output.  Roads are such a small part of expenditures as to be irrelevant.  If we ever get to the point where gov't serves as night watchman, it will be ~5% of the economy and we can argue over whether (G)DP should be 13.1 trillion or 13.6 trillion.  But we're so far from having that "problem" it's not worth considering.

Back in the real world, country A will never have the "same economic activities" as B because 1/3 of its productivity is seized and rerouted through thug politicians.  So with the same GDP, it has half as many roads, with too many in places they don't need to be and too few where they're needed, while its citizens are poorer.

Do those roads provide some value?  Sure.  But the amount of value government spending adds to the economy will never approach its dollar amount, and adding it to the measure of the country's productivity is a fraudulent way to seize and spend everything and call it "progress".

Communist Russia, like every other authoritarian regime, had plenty of private economic activity.  Socialist poverty being what it is, people do what they can to avoid starvation.  I have no clue how you'd value those transactions, but considering its eventual implosion, I'd say a "negative GDP" is an accurate way to look at it.  They made a bunch of junk steel and bombs, but overall were the most economically destructive force the world has ever known.

Garbo's picture

It's all going down! And coming to US! Just today in Denver Post, state too broke to pay Medicaid! Poor and needy must wait! http://www.denverpost.com/ci_15314188

economicmorphine's picture

The Denver Post?  Seriously?

jimijon's picture

Go Italy in the World Cup! That will help those economists a bit.

monmick's picture

"Far from holding the eurozone together, it will cause weaker countries to be catapulted out of EMU."


So I guess Germany's secret plan is now out in the open. Man, those Italians are smart...

centerline's picture

Gotta give Benny boy som credit in a criminally insane sort of way.  You know this was a huge part of the extend and pretend, kick-the-can game.  Tread water like a mofo until the EU implodes and the in-fighting tears it apart.  The bond hyenas turn away from the US and start picking off the poor little EU countries one-by-one.

Anton LaVey's picture

And then, of course, the hyenas will turn back to the slow moving, and wounded buffalo named the USA.

As someone said, when you are chased by a bear, the question is not how fast you can run, but only if you can run faster than the other guy. Sounds adequate for the present situation: the USA are simply trying to run faster than the other guy (the EU) and keeps on throwing things in his legs, hoping the bear will catch the EU first.

Whizbang's picture

How is it that every major financial/political move for the last two decades has been so rife with fraud and leverage that when they blew up, it took down two continents. How the fuck did you bastards allow this to happen?


listening to tool when I read news stories like this puts me in the right frame of mind.



luigi's picture

There are a lot of interesting passages of the original letter which could spark an interesting debate and are missing here.

Since I'm supposed to be giving my contribution in stopping the decline of Italy's GDP right now, if and when I'll have some spare time from here till monday to dedicate to the task I'll try to give a somewhat decent translation at least of some parts of this letter.


Sudden Debt's picture

wasn't that already clear 1 year ago?

kaiten's picture

Does anyone know how to post a comment on Telegraph blog? I´m registered there but it doesnt allow me to post a comment. Seems like AEP doesnt tolerate any arguing or critique. ;p

EscapeKey's picture

I had to go in and setup some account details before it allowed me to post. This isn't mentioned anywhere, but it did the job in my case.


kaiten's picture


Thanks for your thoughts. I did some changes in my profile, but it´s still the same. There´s a blue "Add a Comment" box, but I cannot add a any comment there. There are also "Login" and "Register" signs there, even though I´m already logged in. And clicking on login just brings me to my profile page. Strange.


AnAnonymous's picture

Ah ah! Nice to see that the professional work by Pritchards has attracted another customer to his marketed controversy.

Add your comments as you wish, one bad comment, one good comment, it is one comment, more traffic and more popularity for Pritchards.

Still claiming this guy is not a good media professional?

kaiten's picture

You have a strange understanding of professionalism, that´s for sure. Professionals dont ban/censore discussions, in my world.

williambanzai7's picture

Sounds like the title of an opera....

centerline's picture

The fat lady is warming up the pipes.

deadparrot's picture

Just like an economist to start screaming that current policies are wrong, 5 years too late. Honestly, I'm not sure why economists aren't all fired. It's not like they ever actually provide high quality guidance. They have become modern day mystics used by corporations and politicians to legitimize the status quo. I think most economists are a lot like those misshapen, diseased men in the movie 300 whose "interpretation" of the will of the gods is for sale to the highest bidder.

mephisto's picture

FYI, there are estimated to be 150,000 economists in the US.

FYI, despite this huge number, they are all wrong.

Rusty_Shackleford's picture

But wait, "the fundamentals are strong", right?

I think the instant anyone utters this bromide they should be immediately tarred and feathered and made to ride the rail.

It must be said on CNBC a dozen times a day and it is completely meaningless.

svoboda59's picture

We've found the new Politburo for Italia

MarketFox's picture

Very simple....

Recently the world had access to 100/100 in terms of total borrowing power and capital.

This amount is now 60/100....

And because debt levels are so high, the credit card is maxed out....and it is time to start paying it off....

Thus the next question...

The banks put down 5% on assets that went down over 5%....

The only way they can keep operating is because of accounting legal largesse rulings....

But at the end of the day....The world overall will be moving as has Japan for the last two decades.....

Why ? Because all of the other options are politically infeasible....


Everyone....but especially what was middle class savers....who were strong willed enough to save....now they are being taken out by their very own governments....the governments are rewarding the foolish who lost....instead of the sensible who saved....

So the question becomes one whereby the only way to approach a normal economy is time and grind....a long slow process....and the elimination of a large swath of the middle class which will rapidly move into poverty....




BobWatNorCal's picture

Sure, but in the view of the gov't elites, those people were all kulaks anyway.

strannick's picture

If Italian economists can staightfacedly say

'Austerity will rip Europe apart'


'University budgets will be slashed'

Then university budgets aparently need to be slashed in order to stop creating Italian economists.

Assetman's picture

Q:  How many Italian economists does it take to screw in a light bulb?

A:  It appears that 100 isn't enough.

augmister's picture

Economists in Italy?  Really?  I think we just found one of the ten lost tribes.  Poor Italians, they don't know HOW to work.   Guess they will just have to learn or starve....


AnAnonymous's picture

Reads like those climate change scientists banding together to denounce the environmental conspiracy.

Save that, as economy means nothing as a science, it is useless to pursue who is wrong or right in this biz.

bugs_'s picture

Good thing pasta is cheap and keeps well.

mephisto's picture

And gold is up nicely.

How puzzling, bitchez.

strannick's picture


I cant decide if 'italian economist'

is an oxymoron or a redundancy.

I guess it depends on whether or not one giggles when pronouning 'economist'

Ripped Chunk's picture

Woke up???  Or someone cut off their wine supply??

carbonmutant's picture

100 Eyetalins can clearly see the future...

BlackBeard's picture

No.....the politicians and central bankers broke Europe. Austerity is merely the necessary cleansing of their sins.