Opening the European Treaties; The Union Needs Refounding

David Cameron (with more than a little help from the Germans)  has also done more than is obvious at first glance in pressing a north European take onto the European Union.  Between his efforts last February and his efforts in the last week he has reduced the EU budget (for the first time ever) and resisted attempts to alter the basis upon which budget calculations are made (and not just for calculating the UK rebate) as well as using the threat of a veto (but not a veto itself) to ensure that the budget is put in place for the full period and there is no reversion to a much more expansive year by year fall-back if the full term budget had not been approved.

France and particularly Italy are making the best of a bad job by talking up the allocations from the budget for alleviating youth unemployment and the further direction of resources to this end from the European Investment Bank (though this last is purely speculative and has no German assent) but the sums are trivial and need support from unspent and unallocated budget resources every year.  All in all the main objective, to make nebulous the basis for budgetary calculations co-opting the unpopularity of the UK's rebate as a vehicle, has failed.

Germany has seen off any advance in centralising  bank resolution,  direct EU bank recapitalisation and the use of these means for  legacy debt redistribution which is sought by the debtor member states (again particularly Italy).  The cover explanation is that the German elections preclude any threats to German taxpayers for the moment, but the underlying obstacle is Germany's insistence on re-opening the treaties if a redistributive Union, by any means, is to be installed; at the very least their insistence that legacy debt must be cleared up at a national level before any progress in bank supervision, recapitalisation, and resolution is really installed.

If threat of veto-use is a powerful weapon, threat of treaty-opening is nuclear.  Mutatis mutandis opening the treaties is like holding a general election.  Difficult as it may be to achieve against vested interests  these occasions (and it could be argued these occasions alone) can inflict a sea change  on embedded elites, ideologies and interest.  Both Germany and the UK now have limited any further use of the under-definition of treaty provisions to achieve meta-policy ends. 

Doubt is creeping in that the German elections will end German determination to re-open the treaties, to recast the European Union and free it from its 20th century objectives;  that the UK too is not going away but means to reopen the treaties, change the existing Union template, and then vote on what is put in its place has just  been demonstrated vividly.  And this policy may well be more to the UK and Europe's advantage than a simple In or Out UKIP-style referendum and abandonment of the field by the UK.

Furious Italian Left Media Denounces Cameron

David Cameron has stopped the painstakingly constructed European Union budget in its tracks this evening.  The Italian media are beside themselves at his insistence that Europe should live within its means and, most importantly, not seek to redirect some of the United Kingdom's rebate, negotiated (if that is quite the word) by Margaret Thatcher in 1984, to European agriculture and alleviating European youth unemployment.

The Italian prime minister, his own and his Party's reputation sullied  by association with his administration's coalition partners and their Leader (among other things) had intended to make a splash in Brussels by leading the discussions on policies for work and youth; clean up his image after last night's dinner with Berlusca.  Instead all the careful choreographing  of the responsible, pragmatic progressive, social democratic  leader caring for the fair society and its means within the European framework has gone for a burton under withering English fire.

'Not with our rebate,' Letta has been told sharply.  David Cameron has forced Van Rompuy to explain to the other 27 heads of government precisely the terms of the agreement reached this morning on the EU budget that must be agreed by all heads of state as well as the EU Parliament.  Where it departs from what was agreed last February, particularly on the UK rebate, it must be renegotiated.

Letta's government looks ever more distasteful at home and  ineffective in Europe.

UPDATE

The United Kingdom rebate has been maintained, after David Cameron's rejection of any change to what had been agreed in February. Angela Merkel also noted that "In February we reached agreement that there would be no alteration in the basis of calculation".  The budget then went through. 

Alla Deriva

At the end of the last century derivatives were used by  national Europhiliacs to bring the ratio of deficit to GDP below 3% in Italy.  This was known quite widely then, and since as a practice used by others (Greece for example) and shrugged off in the over-riding interest of setting up the currency union as a mechanism for driving ever-closer European Union.

Unfortunately some of these contracts dating back to the 1990s were renegotiated last year   which once again brought them to wider attention when the renegotiated contracts attracted losses of 8 billion euros - not good considering the state of Italian public debt. 

Much worse, however, is that La Repubblica  writes that Italian total derivatives exposure is of the order of 160 billion euros; this, at the same rate of loss, would involve an additional 32 billion euros. The scale of irresponsibility is such that we are running out of directions in which to look where nothing disastrous is happening: political, institutional, economic, ethical, all areas are desolations.  

A Coalition Government With a Party Leader Currently Condemned to 11 Years in Prison

There's something very seriously the matter with Italian politicians.  I recognise that politicians and elites in many countries display scant regard for the ethical stances of others - and call it real politique - but the Leader of one half of the coalition governing Italy has just been condemned to seven years for involvement in under-age prostitution and abuse of office, while over 30 of the witnesses at the trial have been referred by the judge for investigation for perjury during the trial. 

Giorgio Napolitano, President of Italy, has called for maintenance of the Coalition government and a period of governmental stability.   The People of Liberty, whose Leader has been condemned, are crying 'foul' and 'persecution'.  The other Coalition party, the Democratic Party, has stated  it respects the judgment and the court.  That's it.

No suggestion that there be a vote of confidence in the Coalition government in the Parliament, seeing as offering the resignation of the Executive hasn't crossed anyone's mind, let alone lips.   No suggestion that perhaps Prime Minister Letta is now maintained in office by a Party led by a man with not one but two current convictions, and such a conviction, and is currently condemned to a total of eleven years; a Party who supplies the Minister of the Interior who denounces the judiciary in simply outrageous terms.

Letta gets up in Parliament and announces he has a very important European meeting in Brussels tomorrow.  What's he going to say there?  Hope no-one mentions this petty embarrassment to his government?  He's meeting Silvio Berlusconi this evening.  Let's hope that after the meeting Prime Minister Letta will go to the President and offer his resignation, and that it will be accepted. 

There's no need for fresh elections (not a need, in the first instance, though a clean slate would be nice)  but certainly another form of coalition must be sought and if not found then elections would be required.  Required in a normal, decent democracy with a normal decent head of state that is.

Delusional Italy

The Italian Parliament (such as it is and if it sees out the day) is to vote today on whether to proceed with Italy's purchase of 90 F35 fighter bombers. 

In Italy's current situation - economic, political, institutional, constitutional, ethical - existential might be the word,  it would be best to put such an aircraft purchase  on hold and rethink. 

After all, there are iffy government coalition partners to reconsider,   Constitutions to rewrite in groups of 75 talking heads plus Napolitano (88)   (not least because constitutionally Italy is bound not to make war and the F35 is indubitably an attack aircraft)  taxes to lower and rescind, and a 2.03 trillion euro public debt. There are the fabled  youth unemployed (and all the other unemployed who aren't even consoled by their youth) in need of being 'kick-started' into work  - though why  use imagery from getting your motor scooter going when imagery from flying your F35 would be so much more  blue sky thinking in our modern Italy?  And are we sure that the state automatically accessing and monitoring all bank account activity is going to stop (rather than merely confirm the turn of speed now displayed in) the great Italian wealth exodus?

Even the hope of dragging some sort of administration on over the summer (which isn't here and everyone is too poor to go the seaside anyway)  until the currency union can get its rescue mechanism ducks in a row  and then try rescuing one of its largest participant economies, is collapsing. 

All a vote to commit to the F35 will bring is more debt in the shape of penalty  clauses, not sleek fighter bombers like Turkey will have.

Should Judges Take Away Electorates' Rights by Banning Candidates Found Guilty of Crimes

Exclusion from public office in perpetuity seems a bit hard, and not just on Silvio Berlusconi.  It's one thing to strip  convicted criminals of their right to vote while serving their sentences, and the European Court  says we are not to.  It's quite another to  strip away such civil rights in perpetuity.

And entirely another to strip electorates of the leadership and the possibility of returning to office a popular leader playing a charismatic role in the leadership of a political party. 

Berlusconi Condemned

Seven years for abuse of office and prostitution of a minor. (6 + 1).  A long list of witnesses have also been referred for investigation on the evidence given during Berlusconi's trial.  Berlusconi has been excluded from public office in perpetuity.

Lawyers for Silvio Berlusconi have announced he will appeal and used the word 'hallucinatory" to describe the proceedings.

The spread has risen to 300 with the  yield at 4.82. 

Bringing Down Berlusconi

Conviction for  tax and fraud  in business activities offences, in a state noted for its poor international ratings as a country in which to do business, is a danger on a purely technical front. Clear indications that  "the problem is as much about how the laws are interpreted by the bureaucracy and the judiciary, as it is about the laws themselves.", make the situation worse.    Malcolm Barr and David Mackie point out this problem, with specific reference to Italy, in their piece on sorting out national legacy problems, both economic and politico-institutional, before an EMU 2 steady state can be achieved.

It can be argued that the judicial pursuit of a popular political leader is both commonplace and dangerous in authoritarian states, and that Italy's current reversion to its default mode authoritarianism is now causing any impartial observer to take Silvio Berlusconi's assertions that he is the victim of judicial persecution seriously. 

Anyone attempting to conduct business in an institutional, socio-economic and structural environment like Italy's  is always going to be vulnerable to a state or political assault (or both as at the moment in Italy the first is being subjugated to the second).    But if our popular, elected politician then compounds his right-wing, economic liberalism with a spicy anti-European contempt, and a robust rejection of the received national myth 'fascism bad / communism good', then the Unspeakable are after the Inedible (or rather the indigestible for Italy's leftist hypocrite occupants of the ethical high ground) with a vengeance.  And if fraud, tax or political activity accusation doesn't do it for criminalisation there's always the Strauss-Kahn moral-assassination-by-sexual-slur option.

Nevertheless the vecchio, glorioso comunista Napolitano (88) requires and expects that  there should be no impact on the present peculiar government (which is having its strings jerked by Brussels and Germany via his office)  if former Prime Minister Berlusconi is stripped of immunities, dignity, condemned, and excluded from Parliament.   

Napolitano may wish all he likes that we would all, like him,  put the European Union first, last and always in our actions and our justifications; but most of us regard much of the 20th century, and particularly Italy's 20th century, as no excuse  for anything at all, never mind for an EU political mindset as outdated as it is outrageous.   Further, quite a lot of us, having had our faith in electoral democracy undermined recently, are now looking askance at the Judiciary, the Executive, and the Presidency (our view of the Italian bureaucracy  rests undisturbed).

Rules and Their Making

All contracts, treaties, agreements are under-determined.  Why would there be courts, if not for lack of clarity?  Whether the under-determined nature of arrangements backed by law in general is inherent or deliberate is worth thinking about.  But we can be quite sure that the under-determined nature of the European Union Treaties is  their modus operandi.  They were written thus to cover  objection from just about any direction to anything within them we care to think of.

So when the Bundesbank's Jens Weidmann calls into question the precise mandate of the ECB, by questioning the German constitutionality of OMT,   a great fissure opens in the  common front of europhile argument that the Treaties set out the rules.  And not just for Article 123 where, as he amiably admits,

"...there are few countries in the currency union which place such a high worth on article 123 as Germany."   However, as he goes on, "There would be a very wide discussion on what else could be changed, apart from the mandate of the [European] Central Bank."

Any EU member-state choosing to determine the constitutionality of European requirements under their own constitution and before their own constitutional court without, as Germany never has (and Hell would freeze over before it did), referring to the ECJ,  has means to resolve deliberately under-determined EU Treaty statements, and  in conformity with their own constitutional requirements.

For the United Kingdom, whose whole approach to constitutional determination is flexible to the point of idiosyncrasy,  the German challenge to the EU treaty-drafters cunning plan may yet facilitate the growth of a UK constitutional spine. 

Not "Whatever it Takes to Save the Euro"

Central bankers described the process as "containment."  The European Central Bank has commissioned legal opinion on how much and what can be involved in OMT.  This is an attempt to influence the German Constitutional Court as it considers the use of OMT to rescue European Member States - and particularly Italy -  drowning in sovereign debt.

Often described as 'Eurobonds by any other name'  OMT runs counter to both the laws governing the European Central Bank (pace Draghi's opinion) and  the German Constitution.  Furthermore, telling the markets that the rule is 'whatever it takes',  and the German Constitutional Court that effectively OMT is capped at 524 billion euros because of the maturities of the bonds it would purchase isn't reassuring either.

Berlusconi All Mouth and No Trousers

"We face  a straight choice: either the economic motor is decisively activated within the Eurozone, including  expansionary policies in the financial sector,  abandoning the paralysing emphasis on public debt or  the strategic foundations of European solidarity, from banking union to  all the rest, shrink and ultimately vanish, ending in the collapse of the current set-up."* 

Sounds like such clear-minded common sense, doesn't it?  Berlusca does it again, cutting through to the heart of Italy's difficulties and expressing so succinctly what we all feel.
C'mon Germany!

But what is involved?

First of all, Silvio ignores all the things that can be done by Italy within the current set-up.

 - pay off state debt to enterprises (the EU has given permission for a bit of an overspend for this).
 - end Italian intervention in foreign wars
 - stop the purchase of the F35s
 - a modest wealth tax based on all wealth-forms, not on housing regardless of actual market values and  outstanding mortgages
 - ensure the Church pays taxes like everybody else
 - auction tv frequencies properly.
 - end all state political funding - parties, newspapers, other media, internet.

Say 70 to 100 billion euros.  As long as the state put that into the hands of enterprises that should do a great deal of good.  Not to Silvio though so he proposes none of the above.  He has suggested:

 - cut taxes  on hiring workers
  - cut VAT, cut income tax
but without proposals on how, other than "abandoning the paralysing emphasis on public debt" - perhaps if we don't look all those trillions won't frighten anyone anymore.

What could, indeed must,  be read into his remarks (if they are to be taken with the seriousness the media are reporting them as 'plain speaking') is:

 - monetary expansion - after all, in 2011 he thought Italy could just print its own Euros.   That's what led to his defenestration by Napolitano (88) and substitution with Monti.

 - lower  the interest rate - even to a negative interest rate.

 - buy government debt (they'd have to change the law brought in to control inflation but who needs law when Italy has Napolitano (88).

 - reschedule debt  and reduce debt interest.

-  nationalize under-capitalised banks

- re-organise learning and research

 - migration controls  (filling only high and missing skills categories, though a nod to genuine asylum for political reasons might help those being rendered currently.)

- an industrial policy setting out criteria for enterprise support: ie exports, high value-added, environmentally sound initiatives (very important in Italy - no more steel works in the South, no more chemical plants in Venice etc.)

 - devalue 10-15% .  Well,  leaving the Euro will deal with that; the devaluation will be 20 -25%.

 - Concert the exit otherwise Italy will be victimised worse than  Greece and Spain and Portugal have been already and, as it's best to leave with friends, Cyprus and France had better come too.

Not unnaturally, after that lot,  a robust foreign  and defence policy (other than buying F35s) will be necessary.

- introduce national service and military training on the Swiss model.
- enlarge the Italian navy for a lot more welly in the Mediterranean.

Finally, institutional reforms applicable in our out of the Eurozone

 - Abolition of provincial levels of government.  All regions to become autonomous.  Parliament made up of a federal Senate and a  national lower house.  Constitutional reform on the lines of Germany except for a directly elected president but, as in Germany, whose powers are residual and ceremonial.

That'd do it, or a lot of it. But it isn't what he wants at all, never mind what Europe (and Napolitano (88) intends to have.



* "siamo di fronte a una alternativa secca: o si rimette in moto in forma decisamente espansiva il motore dell'economia, compreso quello finanziario legato alla moneta unica, uscendo dalla paralizzante enfatizzazione della crisi da debito pubblico, oppure le ragioni strategiche della solidarietà nella costruzione europea, dall'unione bancaria a tutto il resto, si esauriscono e si illanguidiscono fino alla rottura dell'equilibrio attuale".

The Eurozone's Third Largest Economy: An Overview

Any European recovery will exclude Italy.  Data on the economy are so bad it is clear that  Italy would be unable to respond. 

55,000 manufacturing companies closed down between  2009 and 2012.

Numbers employed in manufacturing have fallen by 10% since 2007, with 539,000 manufacturing jobs lost for good.

Confindustria reports that 15% of Italian manufacturing capacity has been destroyed  (and you wouldn't turn to Italy for anything else would you?  Well, perhaps an outing to Venice or something, but no primary products, no financial, or legal services anyone in their right mind would want to use, no research and development or tertiary sector educational attractions, no institutional solidity or even propriety.

32,000 fewer firms.

Credit cuts of between 50 and 60 billion euros (that's Confindustria) from 2012; S&P  says Italian banks in 2012 cut 44 billion euros of credit to  companies in Italy.

Mass unemployment.

Welfare funds running on empty.

Government debt at 134% of GDP by the end of 2013 -  some 2.03 trillion euros.

Italy's democracy  is a shell.  Its economy is hollowed-out and dying where it stands.

Italy Renders Woman and Child While Oiling Up to Kazakhstan

If staying indoors might be thought  to preclude being beaten bloody by state police for publicly questioning  EU and global policy, think again.  You can be sitting quietly in your villa in the Rome countryside when 50 armed state police arrive, and take you off forthwith to the nearest expulsion centre.  Whereupon both the Italian minister of the Interior and the Italian minister of Justice  declare all the rules to have been followed, all the papers are in order, and the jet that has just arrived at Ciampino from Kazakhstan can take you away in under 48 hours from your seizure.  Oh, yes, and remember to go back to the villa and get the six-year-old daughter for rendition to Kazakhstan too, otherwise her presence in Italy might disturb the rendition of the mother, they add thoughtfully.

And if you thought the 'pardon' granted by out-going president Napolitano (before he had fully organised his incoming once more) last February to a United States officer tried and condemned, confirmed through all appeals, to seven years for rendition of another unfortunate kidnapped in Milan and sent for torture in Egypt, was a constitutional stretch too far, now you know.  Rules are for wimps.  Women and little girls are for Kazakhstan and its mercies.

The United Kingdom granted political asylum to Mukhtar Ablyazov, whose wife and daughter have been rendered to Nazarbayev, in 2011 (not that the UK didn't fine him for various financial sins but they didn't and haven't handed him over).   There's the difference, you see. The United Kingdom has a default freedoms and rights history and culture, no matter how infuriated we get with lapses, collapses and downright failures in its implementation.  In Italy Berlusca goes for the weekend to visit Putin and jets are landing at Ciampino for little girls. 

Knocking European and Global Sense into the Workers of Italy

This is the Mayor of the city of Terni (Umbria) beaten with truncheons by police during a workers' demonstration this morning against the multinational Finnish Outokumpu AST steelworks' refusal to discuss wages and conditions and the role of the works in the Umbrian and national economy.

De facto the constitution of Italy has  been suspended since the 'election' of Napolitano as head of state for a second term, and all that has come in its wake.  Now we seem to be getting down to brass tacks, and local and regional heads.

UPDATE

The state police declare the mayor was hit on the head accidentally by an umbrella.   Good thing he wasn't on Waterloo Bridge or he'd be dead.  Dangerous things umbrellas.