Italian President Sergio Mattarella just blew up the European
Union. His refusal of the coalition agreement between The League and Five
Star Movement threw the best chance for the EU to face its burgeoning political
crisis before it became a full-blown sovereign debt crisis.
With U.S. and U.K. markets closed today the full force of the
damage done by the EU’s Hail Mary to prevent the Italians forming a government
to their specification is actually muted. Things like this always happen
on a weekend where the powers that be have enough time to figure out a
messaging game plan and reassure markets they’ve got everything under control.
But, let’s round up a bit shall we?
Italian bonds off 25 basis points (!). The euro flirting with
$1.16. Spanish and Portuguese debt sold hard, off 5 to 12 basis points.
Gold is off a few dollars.
Mattarella, nominally, did this because he didn’t like the
choice of Finance Minister, a man who was in favor of Italy leaving the
euro. Whatever, he found an excuse. And someone in one of Berlin,
Brussels or Washington told him to give a non-hacker the reins to try to form a
government.
As Zerohedge reports this
morning, that’s simply a non-starter. There is no way that the
Italian parliament will approve another technocratic Vishy government on Italy,
circa 2011 and Berlusconi’s ouster during the last flare up of Europe’s
intractable debt problem.
No, this has to be about something else. This is simply
yet another instance of Europe kicking the can down the road.
Sanctions
Uber Alles
Look, at the risk of sounding like a guy with a hammer looking
to pound in some nails, I have to think that the re-authorization of the EU
sanctions on Russia in July is what prompted this desperation move.
But, if a re-vote in Italy can be put off until August
(convenient that) then that gives the Trump Administration another six months
to exert maximum pressure on our “allies” on trade and tariffs.
It makes sense that Washington is mostly behind this, but don’t
underestimate the stupidity of people like Donald Tusk and Jan-Claude Juncker
who will literally burn the continent to the ground before giving up their
dream of an Europe united in their Orwellian Nightmare.
It is
the U.S., however, that stands to gain the most from this move. As I’ve said in previous blog
posts, Italy gave German Chancellor Angela Merkel a way to leave the
sanctions regime, move closer to Russia and end the sanctions without having
to do anything which looked disobedient to the U.S. empire.
The ECB
wants debt consolidation and greater control. For the EU to survive this
is necessary. Germans and the rest of the northern countries don’t
want to be seen bailing out the “Club Med” countries. That would be
interpreted as yet another submission to Washington and New York. Merkel
cannot go through horrific debt relief talks like she did with Greece in
2015. It would destroy what’s left of her political capital. If she stands tall against Trump over Iran, however, she gains a
lot. The uncertainty over how Trump will react sends the
euro down, pressuring the ECB to finally move on dealing with the debt.
Europeans
want normalized relations with Russia and open trade, especially German
industry. There are tens of billions in investments in
Russia and Crimea waiting for the sanctions to end to travel to Russia, especially
with such a weak Ruble, thanks to Trump’s moronic sanctions.
Only
Poland and the Baltics don’t. But, they don’t matter. It only takes
one finance minister to vote against extending Russian sanctions to end
them. If Merkel stands up to the U.S. on Iran, it
makes it easier for Italy to force Germany to stop bullying everyone into
maintaining them.
It looks like Merkel and company want to stand up to Trump over
trade sanctions and tariffs. Public opinion turns in her favor strongly
if she does.
Own Goal
So, to me, the big loser in the long run would be the U.S.
because Italy will force the EU’s hand to finally come to grips with its
internal contradictions or break apart. And when that happens, any
benefit the U.S. gains from cleaving off countries like Spain and Italy from
the EU it loses due to a loss of leverage over them vis a vis Russia, China and
Iran.
Trump wants solidarity in pressuring Iran and North Korea to
give up its nukes and submit totally to U.S. primacy. Without it he can’t
get what he wants. Holding onto sanctions against Russia and invoking a
debt crisis in Europe again will unleash chaos that cannot be controlled.
No longer could we use quislings and satraps in the EU
bureaucracy to scuttle big projects like Nordstream 2 and force 27 nations to
act in our favor. And with Trump going full scorched earth to define who
is and who isn’t with him, an EU break up over political divisions works
against his stated goals.
But, then again, the Italians may already be a lost cause from
that perspective and any move to keep them where they are for the time being
could be seen as a win.
Don’t forget the U.K. in all of this, either. London is
now looking at this situation and wondering just why it is they are playing
footsie with the EU over Brexit. If anything this is a further wake-up
call to the people of the U.K. that their government doesn’t work for them and
heeds to be overhauled, held to account and do their bidding.
EU Only
Die Once
The bottom line is that regardless of who instigated this move
it will be a terminal one for the EU. Italians are not going to go back
to the polls and weaken the mandate for The League/Five Star. The latest
polls have them up near 56% total.
By the time an August re-vote rolls around that number could
easily be 60% and at that point, any obstruction by Brussels or Washington will
need to take the form on military occupation to install a government to their
liking.
And at that point, however, the whole EU charade is history.
I don’t give that high odds, but the stakes are high enough that
anything is possible. If they weren’t Mattarella wouldn’t have done what
he did yesterday.
Those who wield the real power in the world will not go gently
into that good night. 2018 was always the focal year from a cycles perspective
according to Martin Armstrong. And here we are.
The U.S. is literally lashing out like an abusive drunken father
at anyone who dares to look sideways at him, reflecting his own sense of
inadequacy. The EU is holding onto dreams of power it never earned and
behind them the banks are scared to death that the central banks won’t be able
to paper over the cracks and keep them from collapsing.
Things will spiral out of control from here. The EU is
headed for a debt crisis the likes of which the world has never seen. The
dollar will rise from here, gutting emerging markets creating a gyre of
widening defaults.
All in
all not bad for a Monday morning. Meanwhile in Moscow after
a very successful St. Petersburg International Economic Forum where more than
$38 billion in deals were agreed to …
