At the time Italy joined the
European Monetary Union (EMU) in 1999 on its way to full-fledged membership in
the eurozone in January 2002, economists debated whether this
never-tried-before experiment will succeed or not. One of the most compelling
debates at the time was between two giants of monetary thought, Robert Mundell
and Milton Friedman. Mundell, who is occasionally referred to as the ‘father of
the euro’, for having laid out the theoretical foundations of a common
currency, was optimistic, Friedman, the opposite.
Friedman is now dead while Mundell
is 85, but the events in Italy may be bringing us closer to a resolution of the
argument. So it is worth remembering the key points made by the two luminaries.
Mundell, of course, pointed out the numerous and rather obvious benefits of a
common currency, such as the dollar in the United States, Friedman believed
that the “political consequences of a monetary area that is not coterminous
with a political entity” would
result in instability. He also believed that Europe had too many rules and
regulations and lacked sufficient economic freedom to make the experiment
successful. More fundamentally, though, he argued that the euro was an effort
to achieve political objectives by economic means and that, more than anything
else, doomed it to failure.
Today, with an euro-sceptical
government in power in Italy, the first such government in a EU founding
member, we may be close to finding out who was right. Unfortunately, the
argument that has flared out in the aftermath of the swearing-in of the Lega –
5 Star government in Rome has been anything but civil. Partisans of the latter
have accused Germany of crushing Italy’s economy and even of pursuing Nazi
domination objectives in Europe by other means, while the Germans and European
Commission president, Juncker, just as hysterically have slammed the Italians
for being lazy,
undisciplined and profligate. The factual information backing these wild
accusations may go a long way to providing an answer to the likely outcome of
the conflict. And here, the Italians have most of the data working in their
favor. Not necessarily, proving that they have been a victim of economic
manipulation by others, but explaining why most of them feel that way.
And the data shows that far from
being an economic basket case, let alone Greece-like dissemblers, the Italians
had a very distinguished economic record until they joined the euro. It is true
that they changed their governments about as often as most people do annual
Spring cleaning (65 governments in 72 years), but that did not prevent them
from amassing an outstanding record. Beginning in 1951 and for more than 30
years, Italy grew economically at over 5% per annum and passed the United
Kingdom in 1987 as the third largest economy in Europe. Then it joined the euro
and stopped growing. According to the latest figures available, between 1999
and 2016, the country has had zero growth and its income per capita, which
equalled the German one in 1999, is now at $34,200, while the latter stands at
$45,500. There could be and probably are other reasons for this dramatic
decline, but it is easy to see why for most Italians the euro is the real
culprit.
On the other side of the equation
stands the European Central Bank (ECB), dependent as it is on German dictates
and European Commission mandarins, and its record has been anything
but stellar in the 20 years since its founding in January 1999. Its modus
operandi has been throwing money at each and any problem it encounters by
printing it at the expense of European savers, who often dealt with near zero
interest rates. Beginning with 700,000 euros, the ECB now has 4.5
trillion euro on its books of mostly worthless government and private
bonds that, at best, are worth 2.5 trillion. How this gigantic debt would be
unwound is anybody’s guess and nobody at the ECB or Brussels has any clue. More
likely, if something cannot continue, it will not!
What is more significant politically
is the nature of this massive rebellion. Contrary to what the European
mainstream pundits tell us, this unlikely alliance of ‘prosperous’ right-wing
northerns and ‘impoverished’ leftist southerners, is not a temporary marriage
of conveniance, but a massive
revolt against the unaccountable Brussels elites. As such, it strikes at
the very heart of the system that aims to build a happy community of European
socialist republics. Take a look at the program of the new coalition and you’ll
see that, apart from asking for debt forgiveness, it wants to lower taxes and
do away with open borders – both key imperatives to a promising European
future. Milton Friedman may yet turn out to be right.
But there is more. As Victor
Davis Hanson reminds in a brilliant new piece, the 75 year old Pax
Americana has broken down and it is yet unclear what’s going to replace it.
Trump’s election was a hopeful sign, but a reflection rather than a catalyst of
the demise of the status quo. As far as Europe is concerned, the events in
Italy are part and parcel of the long-overdue rebellion of the peasants against
their new overlords. As Hanson has succinctly explained the problem, “The
often-crude imposition of democratic socialism, pacifism and multicultaralism
under the auspices of anti-democratic elites, from the Atlantic to the Russian
border is spreading, not curbing, chaos.” The serious discomfort Italy is
causing the European elites may be the most hopeful sign yet.
Alex Alexiev is
chairman of the Center for Balkan and Black Sea Studies (cbbss.org). He could
be reached at alexievalex4@gmail.com.
Read more: https://www.americanthinker.com/articles/2018/06/italy_and_the_end_of_the_euro.html#ixzz5HZseAOx7
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