As if their problems end with lower borrowing costs.
No mention of needing to run much larger deficits:
Yesterday Berlusconi put it plainly and simply:

Berlusconi says Italy may be forced to leave the euro zone

Silvio Berlusconi said that Italy would be forced to leave the euro zone unless the ECB gets more powers to ensure lower borrowing costs. Berlusconi, who will again lead his People of Freedom party (PDL) in a national election, said that the ECB should become a lender of last resort for the currency bloc. “If Germany doesn’t accept that the ECB must be a real central bank, if interest rates don’t come down, we will be forced to leave the euro and return to our own currency in order to be competitive,” Berlusconi said.Berlusconi is already campaigning hard for the election with a spate of television interviews in an attempt to close the wide gap with the center-left Democratic Party which is polling at above 30 percent, some 14 points above the PDL.

58 Responses

  1. My daughter just returned from a semester at the Warsaw School of Economics. She was very impressed with Poland’s infrastructure, cleanliness and how inexpensive it was.

    A short article on their fiscal policies.{%2210151295322934826%22%3A396380853780245}&action_type_map={%2210151295322934826%22%3A%22og.likes%22}&action_ref_map={%2210151295322934826%22%3A%22scn\%2Ffb_ec\%2Fdont_forget_poland%22

    1. reads well for them:

      Sure enough, when the crisis hit and Western European lenders started pulling their money out of Poland, the zloty lost more than a third of its value against the euro. (Matt O’Brien highlighted this yesterday.) While it has appreciated somewhat since then, the zloty is still about one-fourth cheaper than it was in mid-2008. Since Poland’s private sector denominated most (but not all) of its debt in zloty, the devaluation was unambiguously stimulative. Between the middle of 2008 and the beginning of 2009, Poland’s trade balance swung from a deficit of more than €1.7 billion to a surplus of more than €100m. The trade balance returned to deficit as world trade rebounded, but at about €500m, it is now far smaller than it was. None of this was mentioned by Mr Balcerowicz.

      Of course, the devaluation of the zloty would not have been sufficient to keep Poland out of recession had it not been for an act of flagrant government intervention into the private financial system: the Vienna Initiative. This is the second thing you need to know about to understand Poland’s post-2008 performance. In one of the wiser acts of European policymaking, the Vienna Initiative encouraged Western European lenders to maintain their exposures to Central and Eastern Europe. While it was not entirely successful, as the Bank for International Settlements noted in their most recent quarterly review, this programme definitely made a difference to nations like Poland. It was not mentioned by Mr Balcerowicz.

      The last thing you need to understand about Poland is that it practised robustly counter-cyclical fiscal policy. During the boom years, its government budget deficit shrank from more than 6% of GDP to less than 2%. Then, in response to the downturn, the deficit ballooned to nearly 8% by 2011. The government explicitly rejected austerity and was the only nation on the European continent to avoid a recession. Again, Mr Balcerowicz does not mention this. In fact, he recommends cutting government spending during downturns because it will encourage private investment through the “confidence effect”.

      Poland’s economic performance contains many interesting lessons for those who want to learn from it. But that requires examining all of the evidence, not just what is most convenient.

      1. @y,
        There is a constitutional limit on the public debt ratio.
        It is true that “creative accounting” was used to bypass some of the limitations.

      2. @WARREN MOSLER, What hurt some of younger relatives out there was the practice of issuing mortgages tied to the Swiss Franc, one could save a few interest points vs. borrowing in Z’s. At the beginning of the crisis, interest rates on those pegged mortgages soared. But at least they kept their jobs.

        When the Swiss intervened couple of years ago to suppress the Franc, it did help those mortgage holders a bit.

        Lots of new infrastructure in Poland. There are politicos that want to join the EZ, the zloty has served them very well.

    2. @Dan,
      It is true that there are many places in Poland (especially in Warsaw) which look as good as in any Western capital city. Fiscal transfers from the also EU played a significant role in making the cities looking better. There is a significant group of people who seem to be content with their income.

      However if you have a look at the unemployment rate, the illusion of the stability and prosperity is gone forever. What about the homeless people, the “industrial waste” of the transition from communism?

      What about the toxic nationalism bordering fascism and religious hatred peddled to the economically disadvantaged groups of the society by Radio Maryja and “Prawo i Sprawiedliwosc”? What about the mass hysteria related to conspiracy theories “explaining” the Smolensk plane crash?,1342,title,Polacy-wierza-w-zamach-w-Smolensku-Sondaz,wid,15057665,wiadomosc.html%3Fticaid%3D1fbcd&usg=ALkJrhgxVbo7hfj8ZI_cpqOynIENXjiMCg

      Why do people believe in this kind of rubbish? Just because they were thoroughly brainwashed by the mass media and Catholic Church? What about the macroeconomic factors which make them prone to manipulation?

      People who don’t speak Polish are not aware of the insanity of Polish public life. People who speak Polish are mostly Polish “patriots” and don’t talk to the foreigners about the “domestic issues”. That’s why it all looks so good.

      The fact that the unemployment rate is lower than in Greece or Spain is not an excuse. It is also not an excuse that there are probably fewer fascists in Poland than in Hungary.

      NB Leszek Balcerowicz is one of the most rabid “global” neoliberals. He is not only a professor at SGH (Warsaw School of Economics) but also a board member of the Peterson Institute for International Economics.

      It is true that the current Polish government may have a few “closed Kaleckians” as advisers. They managed to get some sensible expansionary policies implemented despite vocal opposition from the hardcore neoliberals such as prof Balcerowicz and despite the pressure from the EU. So not everything is black-and-white.

      It is better to stay away from that part of the world. Not only from Poland. Poland is certainly not the worst case.

      Regarding Italy – the choice is either “bunga bunga” or Monti Python and starvation. Regarding Poland – the choice is either Catholic fanatism and fasicsm or worshiping the pan-European neoliberal utiopia.

      “There is no alternative”.

      1. @Adam (ak),
        You have quite a good model of Polish society
        I’m polish i speak polish and i can talk to you about anything. Please try not offend Pole with too definite statements. I’m not Church Catolic and don’t belong to “Prawo i Sprawiedliwosc”, ok ?

        You should add also that almost 2 mln polish workers gone, probably for good, to work within EU mostly UK, Ireland, Germany. Current unemployment is close 13%. Apparently Poland is far from prosperity.

      2. @Adam (ak),

        What do you mean by the statement that it is better to stay away from this part of the world ? Why and who are you advising to stay away from Poland ? Do you mean people here are less important than you ?

        What game are you playing and who are you ? A nick name ? Come to our group on LinkedIn and introduce yourself.

      3. @Cezary Wojcik, OK so I poked the hornets nest. Your personal attack not only on my views but my integrity proves exactly my point. This is what I meant by saying that Polish culture is toxic. It is also deeply totalitarian – “whoever is not with us is against us”. I am a libertarian and the language I sometimes speak doesn’t define or constrain me as a human being. I have nothing to do with Poland any more because the majority of people living there have views I strongly disagree with. I don’t think I should make any attempts to “liberate” anybody against his or her will.

      4. @Cezary Wojcik,

        Please treat my last post as deleted. You have already answered this question before. I think the best solution for me is to withold my judgement about your opinion on Poland and this part of the world. Let readers decide for themselves what to think about it.

        Stay in peace.

      5. @Cezary Wojcik, Polish culture is very contradictory. Of course there is the church and its influence. There are progressive elements and yes, the government is neo-liberal.

        The countryside is conservative, even reactionary, but this isn’t universal. Calling a culture toxic is an extreme statement that needs a lot of explanation and clarification.

    1. @Fr@ncesco,Looks like our Japanese friends have their doubts.
      “If the BOJ starts underwriting debts…market participants will instantly lose trust in the Japanese government bond market,” Hiroyuki Kubota, a financial analyst and former bond trader, wrote on his blog.
      “Given the current fiscal situation, this idea is a little too dangerous,” Masao Tsuri, an assistant professor of economics at Okayama University, wrote on his blog, as he explained how the BOJ’s underwriting of government debt triggered hyperinflation in Japan soon after World War II.

      Anybody any idea what caused the hyperinflation soon after WWII and why this time it’s different?

      1. @walter, “Anybody any idea what caused the hyperinflation soon after WWII and why this time it’s different?”

        Just a guess: in the past there was a structural scarsity of goods, while today it is a diffent story. Today you can set up a factory and produce one million pieces per year of everything you want thanks to automatisation. So, providing that you have the money to set up this factory, production bottleneck is not a problem anymore (as it was in the past instead). Today almost the only bottleneck is in the scarsity of money.


        Shinzo Abe on the need to change Japanese monetary policy:

        “Its very rare for monetary policy to be the focus of an election. We campaigned on the need to beat deflation, and our argument has won strong support. I hope the Bank of Japan accepts the results and takes an appropriate decision,” he said.

      2. Devastation during WWII
        Japan was devastated during World War II (1941-45). The human loss mounted to 1.85 million (about 4% of
        the entire population) and 680 thousand injured or missing. The material loss mounted to about 25% of
        national wealth excluding military stock (Economic Stabilization Board report of 1949). Another estimate of
        the death toll was 2.8 million (Heibonsha Encyclopaedia, 1989).
        Industrial production dropped just after the war to one-tenth of the pre-war level (24% of the pre-war level in
        consumer products and only 8% in industrial input products). An increase in budgetary expenditure such as
        veterans’ payment and compensation for the war damage, together with a commodity shortage, caused

      3. @Fr@ncesco, I thought myself that after 2 atomic bombs their production capacity had been destroyed and hence demand had exceeded the inflation barrier. I read 5300% between 1944 and 1948.

        As far as I understand the assistant professor, Masao Tsuri, is wrong in his analysis. This hyperinflation had not much to do with the BOJ’s underwriting. Instead more another case of collapsed production capacity. In that sense comparable to former USSR and Zimbabwe.

        Warren, we have discussed the topic of hyperinflation before and time and time again we see that it comes from the supply side that almost nobody warns about.

        With regards to hyperinflation you mentioned before that the cases in Latin America could almost all be explained by index linked debt in own currency.
        Belgium has salaries inflation linked. There is increasing pressure from EU to stop this link, but each time whole Belgium goes on strike. How do you see the danger for Belgium?

      4. because it’s a user of the euro, and has a balanced budget imperative, and is relatively small,
        seems to me the increases are more a transfer from taxpayers than a redefining of the currency.

  2. a foreigner, in my opinion, have some point to know before comment Berlusconi’s speech :

    1) first goal of B. from 1994 to now is procect his private interest for his businesses (3 televisions + 1 bank) and his problem with justice (in this 15 years he has changed many and many laws to cancel his frode).. there are also report of Us Ambassadors and Intelligence of UK that say that he gain bribe from strange gas&oil affairs with Urss & Libia but this thing are quite completely censured in Italy

    2) to obtain this goal hi say to people what people want to say

    3) he ever says that want to cut tax (before all for rich with and a little bit for medium class) and he say that he failed with this goal because he was stopped when he tried to cut public expense by many italian lobbies.. so he don’t want make budget deficit but change the mix between tax (hated by his right voters) and expenditure (that benefits the left voters)

    4) he say that 2011 fianancial market attacks was an international plots to remove him and put a commissioner instead of him (I am a strong oppositor of B. but on this point I agree with him)

    5) now his opinions poll are down because the quite default of 2011 and many scandals, but afert an years of Monti (more tax & more cuts & more unemployments) e is trying to regain a part of his ex voters promising less tax and less expenditure and ask the help pf Bce (but Draghi is a friend of Monti and an enemy of B.)

    6) my forecast : 2013 new market attacks to Italy to move in panic mode voters/massmedia + Monti Bis + Bce print for us (OMT+LTRO) in exchange of the last quote of austerity.. now you cas say : Peter you see gost and have too muche fantasy.. my ansewr is : wait 6 moths and see…


      1. @walter,
        Bersani will never leave the euro, soft-left politicians like him firmly believe the goal is to do everything they can to modify the emu structure and make it better, but they won’t leave the euro in any case even if they won’t realize their will

  3. So what is the primary reason that Eurozone can’t run large deficits if not due to high borrowing costs? Things like the Stability and Growth Pact don’t seem to hold much weight.. is it unwillingness for politicians to embrace the need for them (similar to US)?

    1. @jerry, Ideology. The technocrats in charge here are all fanatics of Hayek and of the rest of the State budget haters. I investigated this in my work. They’re so blinded by their ideology that they regularly publish reports that correctly point to all the ills of EU economics, but then draw the entirely opposite conclusions. Like a hospital that acknowledges that all of their patients never recover, then states: “it’s got to be the patients, not the cures”. Paolo Italy

      1. @y, In an essay called The Gravest Crime 2011, all in Italian, sorry, plus in many of my articles. To give you one example: in 2005 the top echelon of EU technocrats gathered (those that created the Eurozone) at the F. Hayek Foundation to award Mario Monti the Hayek Award. You read their speeches, blood curling stuff, like “Today’s Europe is the dream of Hayek come true… He’d be proud of us” and so on. PB

      2. @y,

        The agenda of neoliberals in Europe is dismantling not only the social security system but also modern semi-democratic nation-states (see “the agenda of independence of Scotland / Catalonia”).

        They want to replace nation-states with their own version of “Imperium Romanum Sacrum”, run by technocrats (Monti, Draghi, Samaras) to the tune of the extreme anarcho-capitalist ideology.

        The neoliberals can be easily attacked not only from socialist positions as the enemies of working people but also from the nationalist positions as “traitors” – what indeed happens in Eastern Europe. They can also be attacked from the Catholic Integrist positions because the ultra-capitalist Europe is 100% God-less and driven by “Mammon”.

        Both lines of attack can be an easy utilised by Mr B and his followers. This is a risky strategy because true fascism may emerge at some point.

  4. For Warren. I know from first hand knowledge that Mr. B has read our/your ME-MMT Manifesto. Problem is that the guy wants to bend ME-MMT to his own agenda, scrapping too many essential parts of it. Not a chance Mr. B will ever do the right thing. P

    1. @Paolo Barnard,

      It this is not relevant whether he does his tricks because he wants to help the poor or just because he craves more power. If he understands which strings to pull and actually pulls them this might be good enough to change the paradigm of the public debate. There is nothing worst than the well-intentioned neoliberal idiots and Euro-philes who run the show now – except for the outright fascists. However these have moved Eastwards…

      1. @Adam (ak), No, look, first if you do Mosler Economics MMT wrong as Mr B would certainly do, what comes out is a mess, then first time some goes wrong in our economy the whole wold of the deficit hawks rises up and yells “Told you so, ME MMT just doesn’t work!” and we’re done for good. No buddy, just trust me, Mr B is a peabrain egomaniac surrounded by cronies. PB

      2. @Paolo Barnard,

        But Paolo if he throws a spanner* into the working of the neoliberal propaganda machine by raising the issue of currency sovereignty (for a whatever reason) – this is more than enough.

        The underlying economic dogma is that fiscal policy is always bad, deficits lead to hyperinflation and fiscal policy won’t work anyway so the monetary policy can and should be outsourced to the European supervisory body consisting of the smartest sages – what would push the misguided and lost European nations to unite, etc. Mr B. heresy could be that he wants the fiscal sovereignty back. It is about rocking the boat hard enough.

        Once the euro-consensus is broken the system reverts to the state from circa 1998. Then suddenly people have words to describe the reality and start arguing what is best for whom. “Oh they really can create money, let’s argue who should benefit.” Mr B’s mission is accomplished even if he screws up things badly. The lefties could start demanding Job Guarantee etc. The right-wing guys may want lower taxes and higher spending on defence etc. Do you see my point? There is currently no debate because the dogma prevents certain things to be said loudly – even in the countries which are not in Eurozone. The lambs should silently go to slaughter because T.I.N.A, because they are lost for words. The Euro and the rigid fiscal rules are sacrosanct otherwise the world will end (NB it was supposed to happen today).

        I am not a follower of anything and I have no ready-to-use prescriptions I just want the sanity and common sense to be restored to the debate about economy – here in Australia and also elsewhere in Europe and in the US. Where this debate would lead us next is another issue.

        But one cannot discover America until he realises that the Earth is not flat.

        *Brit for wrench

  5. Could the ECB be a “real central bank”, given that each national government makes its own spending decisions?

    The central bank/treasury setup can work when there’s only one treasury, or one central government. What happens when there are multiple governments?

    1. @y,

      Can’t find the reference now, but I listened to S. Kelton explain very vividly how the EU countries are constrained in the fiscal policy space.

    2. @y,

      I’m not really convinced that an “independent” central bank can always coexist with even one sovereign government. They both bear responsibility for economic management and thus overlap heavily. If they each maintain their independence and decide on differing overall policies then each is capable of (and likely to) undermining the other. In practice one must be subservient to the other; in the recent history of the US and EU this has meant handing all economic policy over to the central bank and pretending that national budgeting is not a factor in the economic situation. In other countries and other eras the central bank has been controlled by the government, officially or unofficially.

      This all goes double for the EU system with one central bank and many governments. It can only work if economic policy is handed over entirely to the ECB and national governments simply spend from revenue on whatever programs they prioritize, without attempting to properly manage their economies. In practice this is what happened.

      If they want to have a single currency and a healthy economy then they need a central European government (I would say democratically elected but that’s not necessary from the economics side) with authority to manage the European macroeconomy through taxation, spending, and currency issuance. That means it needs to gain some powers currently held by the member nations and the ECB.

      What Berlusconi seems to want is simply for the ECB to give him low interest rates. That would help, and might possibly be enough for Italy, but it doesn’t fix most of their problems. It still leaves Greece and Spain dead in a ditch. It runs into the problem that one nation could run deficits at 100%+ of GDP at a zero interest rate, essentially receiving masses of imports at the other nations’ expense, because those nations would have to cut spending themselves to compensate, impose contractionary ECB measures, or accept EU-wide inflation. This is not really a problem at present in my view, but potentially could be in the future, and the Germans &co live in constant fear of it. This is a problem with one central bank/currency covering many governments, and it is one reason the ECB and EU crowd have been so rigid about deficit limits and so miserly with ECB financing. The funny thing about this theory is that it’s so MMT and directly contradicts the idea that trade surpluses are good–Greek and Italian deficit spending would give Germany huge trade surpluses–but the orthodox EU crowd go for it totally while simultaneously loving austerity and trade surpluses.

    3. @y,
      Actually the budget of each Euro country has to be approved by the European Commission, before of the debate in the parliament.

  6. forced? by whom?

    What do they write as if leaving the Euro is a negative?

    Leaving the Euro is easily the best option for the vast number of Italian citizens.

    Defaulting and refusing to pay back a dime of paper money or at a minimum pay back in a highly devalued Italian currency is the best economic decision Italy could make.

    1. @Jackie, Leaving the Euro the right way with ME MMT. It’s what Warren Mat and Parguez taught us here in Italy in 2 massive events last Oct. We then published a national Manifesto out of that, a sort of a step by step ME MMT guide to safely leave the Euro. Mr Berlusconi has read it (see comments above) but so many others here did. However it’s not simple to change things, as you surely know. PB

      1. @Paolo Barnard,

        Hy Paolo..

        yes, I agree with you about Plot to put away Mister B. from Liberist Monti/Draghi/Goldman&C (have you listen that also Grilli finance minister will go to work with GS next year ?) .. I forecasted in June 2011 the financial attacks of August 2011 and the name of Monti/Draghi like new boss..

        but :

        1) what you say about the great level of corruption of Mister B.,
        of his strange affairs with urss gas, of his giant tax evasion, of many and many laws that his made for his personal interest on Tv sectors and cacelling the offence with false balance sheet.. like you can hope that a person like that could sincerely work for people ?

        2) the Internal Strong Power = Industrial Association + Bank Association + Catholic Vatican => have founded a New Centre Party to Support Monti… a strange allaiance between greed/money/Hayek and cristian charity..

        3) Mister B. want cut tax (in theory to chat voters) but in practice he want finance this with cut of public spending or impossible selling of public assets.. he is not MMT on a strategic point of view = low T and high G.. he want print money only to protect tactically Italy from another financial attack (i.e. try protect himself from the harm that his foreign enemies used in August 2011)..

        what do you think about my point ?

  7. What about creating a monetary policy mechanism whereby the central bank simply distributes newly created money to its citizens and they employ the funds as they wish. This way the funds enter the system in a balanced manner, you get rid of the cronyism and you make the money system democratic and participatory.

  8. I expect more ambitious but questionable politicians like Berlusconi to be elected. This IS what it looks like when voters begin to toss out the democratic and “smart” institutions in favor of anything that opposes Euro-Babble.
    Berlusconi is the anti-Merkel. And the Italian voters might be fed up enough to re-elect the unabashedly corrupt man with his baggage of drunken parties with teen age hookers simply because he opposes the German plan.

    1. @Ryan, Excuse me, who are according to you the “democratic and “smart” institutions” of Italy? Those that in a single year and through a financial coup d’etat have plunged Italy into its worst living standards, highest unemployment, widespread family poverty, drop of wages and purchasing power and to the highest bankruptcies for firms in its entire history since 1948? I’d be curious to know. PB Italy

  9. here’s my prediction…

    if, by some small miracle, berlusconi wins the election and he’s not just talking out of the side of his mouth, but he actually intends on taking italy out of the euro, he will meet an “untimely” death.

    i just find it too difficult to believe they will let him or anyone else leave the euro, cuz you just need one to leave and then they all leave and then there’s no more euro.

    1. @Yuu Kim, Berlusconi Claims Deutsche Bank Led A ‘Coup d’Etat’ To Oust Him From Office:

      “Deutsche bank imposed a sell-off of all its Italian and Greek government bonds. American and international investors questioned the move,” he said. “Some assumed that the German bank had some specific information that nobody else had. It was a huge lie.” His resignation led to the appointment of technocrat Mario Monti as Italian Prime Minister, but Berlusconi said Monti’s government had failed by pushing the economy into a worsening decline. Berlusconi’s comments advance a theory put forward by Renato Brunetta, an Italian economist who served in Berlusconi’s cabinet as Minister of Public Administration and Innovation until the former prime minister’s resignation last year.

      Brunetta’s claims involve Deutsche Bank’s alleged cover-up of billions of dollars of losses on derivatives positions during the financial crisis. Earlier this month, the FT’s Tom Braithwaite, Kara Scannell, and Michael Mackenzie reported that story:

      The three complaints, made to regulators including the US Securities and Exchange Commission, claim that Deutsche misvalued a giant position in derivatives structures known as leveraged super senior trades, according to people familiar with the complaints. All three allege that if Deutsche had accounted properly for its positions – worth $130bn on a notional level – its capital would have fallen to dangerous levels during the financial crisis and it might have required a government bail-out to survive. Instead, they allege, the bank’s traders – with the knowledge of senior executives – avoided recording “mark-to-market”, or paper, losses during the unprecedented turmoil in credit markets in 2007-2009. Deutsche Bank’s alleged mismarking of derivatives positions as reported by the FT (which the bank denies) occurred two years before the period in which Brunetta and Berlusconi accuse the bank of manipulation.

      However, the charge still plays prominently into Brunetta’s version of events. Chris Emsden of Dow Jones reports:

      Mr. Brunetta sought to link allegations that Deutsche Bank AG (DB) hid potential derivative losses from regulators to the bank’s large-scale sale of sovereign bonds issued by peripheral euro-zone nations, including Italy. The U.S. Securities and Exchange Commission is investigating allegations made by two former traders. Deutsche Bank has denied the claims. Mr. Brunetta said that German bund yields had been inching up in early 2011, highlighting fears of the solvency of Germany’s banks. He claimed the banks, “probably with the implicit support of Berlin, decided to transfer the potential crisis of their own private banking system on to countries considered the weakest in the euro area.” As yields rose in peripheral countries, they fell sharply in Germany, allowing Ms. Merkel to seek to “create a hegemony over the euro zone” and turn the focus from banking to public finances, Mr. Brunetta said, describing the operation as “almost a victory in the third world war.”

      In other words, Brunetta and Berlusconi are saying that Deutsche Bank sought to manufacture a sovereign debt crisis in Italy, which would have the effect of bringing bond yields down in Germany as investors sold their holdings of peripheral bonds, including those of Italy, and fled to the “safe-haven” status afforded by German bonds.

  10. But only Mr berlusconi as an important politician said that words about quit the euro? There are other parties that say that?
    Otherwise people will associate young free mafia sex (berlusconi television propaganda cases) to ME-mmt.

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