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Either the Eurozone as we know it is dead or Italy goes out – latest research

Summary:
It’s Wednesday and my snippet day, which just means I don’t write as much so that I can write more elsewhere. But today, I summarise some research that has just been released which seeks to assess the sensitivity of the commitment by the Italian population to the euro to tolerating further austerity. The research finds that if the technocrats start forcing Italy into austerity measures via a return to the Excessive Deficit Mechanism (and enforcement of the Stability and Growth Pact fiscal rules) then the majority will prefer to leave the Economic and Monetary Union. The majority are happy to retain the euro but only if there is no austerity and structural reforms imposed on the nation. This is a big swing in public sentiment and will give the neoliberals in Brussels one huge headache.

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It’s Wednesday and my snippet day, which just means I don’t write as much so that I can write more elsewhere. But today, I summarise some research that has just been released which seeks to assess the sensitivity of the commitment by the Italian population to the euro to tolerating further austerity. The research finds that if the technocrats start forcing Italy into austerity measures via a return to the Excessive Deficit Mechanism (and enforcement of the Stability and Growth Pact fiscal rules) then the majority will prefer to leave the Economic and Monetary Union. The majority are happy to retain the euro but only if there is no austerity and structural reforms imposed on the nation. This is a big swing in public sentiment and will give the neoliberals in Brussels one huge headache. Either their neoliberal monetary union is done, or they will face instability from one of the largest euro economies.

So Brussels is being warned

I read an interesting academic study over the last weekend – Till austerity do us part? A survey experiment on support for the euro in Italy – which was published in the journal, European Union Politics.

The study by Lucio Baccaro, Björn Bremer and Erik Neimanns, who are associated with the Max Planck Institute for the Study of Societies, in Cologne, Germany investigated the sensitivity of Italians to the decision to remain in the Eurozone or not.

Specifically, the research asked:

… how Italian voters would evaluate the trade-off between remaining in the euro and implementing austerity in case of a fiscal crisis. To what extent would they accept the costs of austerity for the promise of a bailout and continued membership in the common currency?

They note that when a Member State can no longer “fund itself” (remembering the 19 states use a foreign currency – the euro) then they can access the European Stability Mechanism (ESM) but only if they accept the requirement to impose “austerity measures and structural reforms as a condition for assistance”, which are deeply unpopular.

They used survey data where they posed “six different hypothetical scenarios to elicit preferences for the trade-off between austerity and euro membership”.

You can read the paper yourself to dive more deeply into their methodology.

Their conclusions:

1. “in the control group, a majority of respondents favours remaining in the euro”. No surprise.

2. But, “informing participants about the conditionality associated with a bailout package changes the majority for remaining in the euro into a majority for ‘Italexit’.”

That result has been brewing for some time.

Remember that Italy had a much lower support tolerance for remaining in the euro than other Member States before the pandemic.

3. “Overall, our results suggest that opposition to further austerity trumps support for the euro in Italy.”

4. While they used a number of other variables to condition the analysis, the “dominant effect of austerity” stood out.

5. While citizens in the Southern European states are “cross-pressured: “on the one hand, they are opposed to austerity; on the other hand, they are attached to the euro” and the latter attachment has been dominant, this study found that the situation is now very different.

A majority of Italians now are no longer prepared to endure the costs of austerity just to remain in the Eurozone.

If remaining requires austerity, then the respondents preferred to exit and take their chances.

So if this research is reliable then it presents the technocrats and neoliberals in Brussels with a major headache.

Essentially, it spells the end of the Eurozone as they have constructed it.

Effectively, the stability of Italy within the EMU, if these survey results are indicative, depends on the continued relaxation of the Stability and Growth Pact rules, which were relaxed under the extreme circumstances allowances within the Treaty annexe.

As soon as the Commission starts reasserting the Excessive Deficits mechanism, which will require massive austerity to bring the nations back within the fiscal outcomes dictated by the fiscal rules, then the instability will intensify.

In other words, the fiscal rules are dead or Italy will be pressured by its citizens to leave.

Further, implicit in all of this is the fact that the ECB continues to fund the Member State deficits through its various government bond buying programs.

If you reflect on that reality then you see how nonsensical the whole arrangement has become.

It set out in the Maastricht process to be the exemplar of mainstream macroeconomic thinking – tight fiscal rules imposed on Member States, no bailouts from the central bank, and all the rest of it.

But in 2021 it has become the exact opposite of that surplus-biased mentality.

It is now ‘allowing’ Member States to run whatever deficits they like, even though none of them have any currency sovereignty, and to make that work, the system is allowing the central bank to fund these deficits and keep funding costs around zero or better.

Think about that for a moment.

An amazing state. And expect the technocrats and mouthpieces to continue denying all this as they try to work out how they can get their neoliberal show back on the road.

While people die in droves because they cannot even organise a vaccination process effectively.

Music – J.J. Johnson

This is what I have been listening to while working this morning.

This song – Gone with the Wind – features – Jay Jay Johnson – on trombone and was released on his 1957 album – Blue Trombone (Columbia Records).

I put this record on when I just want to cruise along in a hard bop sort of way and collect my thoughts etc.

The foot doesn’t stop while listening but it clears the mind a bit.

J.J. Johnson was a pioneer of the trombone in the bepop tradition, making the transition for the instrument from trad jazz and dixieland music into bebop.

The early bebop bands didn’t particular favour the trombone because they considered the sliding intonation (rather than the valve-based trumpets etc) was ill-suited to the fast tempo changes that characterised the genre.

J.J. Johnson proved them wrong and it was – Dizzy Gillepsie – who gave him his break.

He had a terrific career, particularly during his Blue Note label period

After contracting cancer, and still mourning the death of his wife, he committed suicide in 2001 at the age of 71.

The other players (who were in the J.J. Johnson Quartet) are:

1. Tommy Flanagan (piano).

2. Paul Chambers (bass).

3. Max Roach (drums)

Before the more modern bass players turned the bass into a solo instrument, Paul Chambers created beautiful bowed solos on his double bass and played with Miles Davis for 8 years betweeo 1955 and 1963.

Unfortunately, he was an alcoholic and became addicted to heroin and died of tuberculosis at the age of 33. A big loss.

Max Roach is, well, Max Roach – one of the greatest drummers in the history of bebop.

That is enough for today!

(c) Copyright 2021 William Mitchell. All Rights Reserved.

Bill Mitchell
Bill Mitchell is a Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the University of Newcastle, NSW, Australia. He is also a professional musician and plays guitar with the Melbourne Reggae-Dub band – Pressure Drop. The band was popular around the live music scene in Melbourne in the late 1970s and early 1980s. The band reformed in late 2010.

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