December 15, 2019
Finance

Grazie Günther!

BERLIN — Günther Oettinger is right. Like it or not, markets do decide how people vote.

Just ask the Greeks.

In early 2015, still intoxicated by their resounding election win, the leaders of the leftist Syriza party made good on their promise not to comply with the terms of the countrys bailout.

After months of chest-beating by Yanis Varoufakis, the countrys Marxist finance minister, Greeces already-dire economic situation worsened. Five months after the leftists took over, market pressure forced them to shutter the stock market, close the banks and implement capital controls.

In an attempt to save face, Prime Minister Alexis Tsipras called a referendum over whether Greece should accept the bailout terms. The No vote won with over 60 percent.

One can bemoan the reality that decades of overspending left Italy beholden to financial markets.

Instead of embracing the polls outcome, however, Tsipras fired Varoufakis. To keep the bailout funds flowing, Tsipras set about implementing everything the EU and other creditors had been demanding for months with the zeal of a convert. The reason? As tough as the bailout terms were, the alternative — default and ejection from the euro — was worse.

All that Tsipras and his band of wannabe communists achieved was to derail Greeces fragile recovery and increase its bailout tab by tens of billions of euros.

Italians may opt to learn Greeces lesson the hard way. If they do, theres a good chance the euro wont survive. Considering the difficulty Europe had coping with Greece, a country the fraction of Italys size, theres little hope the common currency could withstand such a crisis.

The consequences of such a scenario would obviously be catastrophic, not least for Italy, whose savers would see the value of their assets decimated if the country reverts to the lira. Italys massive debt load, now at €2.4 trillion, would continue to balloon as its borrowing costs surged, assuming it could even find investors.

Thats why Europes leaders should perhaps be thanking Oettinger for speaking hard truths instead of scolding him like a wayward schoolboy. Given whats at stake for Europe in Italy, the real question is why Oettinger was the first one to say anything.

Italians may have to learn Greeces financial lessons the hard way following their election | Jeff J. Mitchell/Getty Images

That European leaders first instinct on Italy is to stand on the sidelines shows just how hollow the EUs political foundation is and how feckless its political class can be. As with the Brexit referendum, Brussels strategy appears to be to say nothing until its too late.

Most puzzling is European Commission President Jean-Claude Junckers reaction to Oettingers comments. It was Juncker, after all, who declared his Commission would be “political,” a standard he appears to apply only to himself.

“Italy deserves respect,” Juncker said in response to Oettingers remarks.

Yet by being honest and not hiding behind the usual political double-speak and platitudes that dominate EU pronouncements, Oettinger is showing respect.

One can bemoan the reality that decades of overspending left Italy beholden to financial markets. As Greece proved, however, pretending otherwise wont alter the outcome; it merely worsens the reckoning.

Italys populists have seized on “the German” Oettingers comments as further evidence of Europes heavy hand.

“Im not afraid,” a defiant Matteo Salvini, leader of Italys League, wrote on Twitter.

If Italys borrowing costs continue to surge, its banks teeter and investors flee the country, he and the rest of Italy soon will be.

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