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Ghost Dog

(16,881 posts)
Sun May 1, 2016, 06:41 AM May 2016

Could Italy be the unlikely saviour of Project Europe?

... Italy is resuming its historic role as a source of Europe’s best ideas and leadership in politics, and also, most surprisingly, in economics. Draghi’s transformation of the ECB into the world’s most creative and proactive central bank is the clearest example of this. The enormous programme of quantitative easing that Draghi pushed through, against German opposition, has saved the euro by circumventing the Maastricht Treaty’s rules against monetising or mutualising government debts.

Last month, Draghi became the first central banker to take seriously the idea of helicopter money – the direct distribution of newly created money from the central bank to eurozone residents. Germany’s leaders have reacted furiously and are now subjecting Draghi to nationalistic personal attacks. Less visibly, Italy has also led a quiet rebellion against the pre-Keynesian economics of the German government and the European commission. In EU councilsand again at this month’s International Monetary Fund meeting in Washington, DC, Pier Carlo Padoan, Italy’s finance minister, presented the case for fiscal stimulus more strongly and coherently than any other EU leader.

More important, Padoan has started to implement fiscal stimulus by cutting taxes and maintaining public spending plans, in defiance of German and EU commission demands to tighten his budget. As a result, consumer and business confidence in Italy have rebounded to the highest level in 15 years, credit conditions have improved, and Italy is the only G7 country expected by the IMF to grow faster in 2016 than 2015 (albeit still at an inadequate 1% rate).

Padoan has more recently created an imaginative public-private partnership to finance a desperately needed recapitalization of Italy’s banks. And he has launched his initiative without waiting for approval from ECB and EU officials, who blocked an earlier “bad bank” plan under German pressure. Financial markets immediately rewarded Italy for its defiance, with the share price of the country’s biggest bank, Unicredit, jumping by 25% in three days.

Italy’s increasingly assertive resistance to German economic dogmas may not be surprising: The country has suffered from almost continuous recession since joining the euro. Moreover, Padoan, who was formerly the OECD’s chief economist, is the only G-7 finance minister with professional economics training. He understands better than anyone that misguided fiscal and monetary policies have been the underlying cause of Europe’s economic underperformance, and are largely responsible for the political tensions threatening to destroy the EU...

http://www.theguardian.com/business/2016/apr/29/could-italy-be-the-unlikely-saviour-of-project-europe
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