An interesting article from WaPo about a rising political star in Italy. (Link) [12] Some details:
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Beppe Grillo is a well know TV personality/comedian in Italy. At age 64 he ran for political office in Parma, and won. He has been doing a lot of talking since, and his philosophies have become very popular. His message is Italian nationalism, an end to the link with the Euro, he has even advocating defaulting on Italy's debt. From the WaPo article:
Four months after his Five Star Movement swept into government here in a surprise victory that sent his national profile soaring, he stood in a town square and delivered a breathless tirade against “the forces” seeking to destroy Italian society.
He called for a referendum on the euro and said Rome should follow in the footsteps of Argentina and Ecuador by suspending payments on the national debt.
In the country that could make or break the future of the euro with its next election, he described Germany and France as European paymasters who would bleed Italy dry.
“He is a thermometer of Italy’s political temperature, and the success of a demagogue like him would send a dangerous message to our allies in Europe that credibility and sacrifice are no longer on Italy’s agenda.”
Recent surveys suggest that almost one in five Italians now back it, placing his movement only single digits behind the nation’s two leading parties in popularity.
I have no real understanding of Italian politics, but I think there is an important message in Grillo's meteoric rise in popularity. My conclusion is that Mario Draghi’s effort to save the EU (and the Euro) is doomed to failure.
We have a bizarre status quo today, there is calm in the Euro bond markets. The stability is driven by the belief that Spain will soon accept a bailout (and all of the very bad things that this implies). And when Spain does get down on its knees and begs, the ECB will quickly act, and begin to buy unlimited amounts of dodgy Spanish paper. The problem is that Spain is very reluctant to ask for that ECB bailout.
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We are in financial fairyland today. It won’t last. In the not too distant future the markets will push Spain to the edge, and the country will be forced to accept the ECB/IMF terms. Very shortly thereafter, the pressure will grow for Italy to accept the same terms as Spain. And that gets us back to Beppe Grillo.
When these events unfold in Italy, the "Italy First" message now being sent by Grillo will rise higher and higher. It’s possible that Spain will be forced to accept the strict conditionality of an ECB/IMF bailout, but there is no way that Italy will. The Italian people will simply not accept their country becoming a (bigger) serfdom of Germany.
Mario Draghi knows what the political mood in Italy is. He is keenly aware of the rise in popularity of Grillo, and his message. Mario also understands what Grillo could mean to his efforts to put his home country into economic jail.
Draghi has always spoken with great confidence. He has used words like “unlimited” and “forever”. But he also reads his hometown newspapers. He has to know that he can’t carry off his plan. The economics of his bailout might work, but the political side of the equation is going to fail. I’m sure Draghi is aware of all this; that means he is one hell of a bluffer.
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Votes Bought and Paid For
The Administration sneaked out a bit of sleaze over the weekend. The White House changed the rules on the WARN act for workers involved with military contracts. Some details:
The Worker Adjustment and Retraining Notification Act (WARN), requires that military contractors who rely on government contracts provide advance notice to the workers who will be laid off as a result of government cutbacks.
The Fiscal Cliff (sequestration) requires that the government cutback on defense spending. This means that some programs are cut, workers would get laid off and WARN notices would be required by law.
But the WH blew the WARN Act away with this notice:
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The Hill (Link) [17] had this to say:
Lockheed Martin and other defense contractors backed down from issuing layoff notices to employees on Monday after the Obama administration promised to pick up the tab for severance costs resulting from sequestration.
The Administration offered to “pick up the tab”? So that the WARN notices would not be sent? How can Obama promise that? And why would he do this? The Hill explains:
The news provided welcome relief for President Obama, who faced the prospect of mass layoff notices in battleground states just days before the election, and outraged Republicans, who accused the administration of bending the law to hide job losses from the public.
One of those “outraged Republicans” was Sen. Lindsey Graham (R-S.C.), he called the administration’s actions "illegal". He said:
“I will do everything in my power to make sure not one taxpayer dollar is spent reimbursing companies for failure to comply with WARN Act.”
I suspect that Senator Graham is right; what the WH did was illegal. But who cares about laws? After all, there is an election weeks away. The real issue here is the state of Virginia, and how it will vote on November 6.
Thousands of defense-industry employees live in Virginia’s northern suburbs, and the cuts from sequestration could hit the state especially hard.
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