Monday, 31 October 2011


The issue for the EU today is whether it can survive an Italian public debt crisis, perhaps combined with a Spanish crisis. Italy constitutes 25% of the eurzone's GDP, as compared with Greece that is a mere 2% and only symbolically significant. Partly because the US has been a strong advocate for Greece in the last sixty years and responsible for lobbying on its behalf to become an EU member and join the eurozone, Greece has been more or less forced upon Europe, although it is true that European multinationals control a good deal of the Greek market that is a gateway to the Balkans and the Middle East.

For all intents and purposes, Greece is no longer as relevant with regard to the broader EU public debt crisis - the recent haircut may be the last gesture EU makes toward Greece before its exodus. On the other hand, Italy is really the focal point as it proved last week when it tried borrowing from the markets at a rate that reflects serious investor concern and what the future holds. I listened to Silvio Berlusconi castigating bond speculators; I read about Italian trade unions threatening a series of labor strikes, if Berlusconi makes good with a threat to cut 300,000 public sector jobs; I listened to Italian politicians trying to define the solution for Italy's transition from the debt crisis, and I recalled that officials in Greece, Portugal and Spain going through the same rhetoric only to go along with what Germany and the IMF dictated.

Today, the bond market looks very bad for Italy, Spain and Belgium, and the question remains whether EU will survive an Italian public debt crisis, and if it does what kind of European union will it be? That China is reluctant to help EU unless it receives not just commercial but political concessions (on human rights, etc.), and that EU is willing to bargain at all cost, no matter what is said publicly, reveals a great deal of EU's future. On the other hand, the EU is under pressure from both the US and UK to adopt decisive steps on the public debt crisis, indlucing easing interest rates and pouring more money into bailouts, a policy that would substantially weaken the creditor nations like Germany. How long can international pressures on the EU continue without erupting into a major political crisis is another interesting question.

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