Brexit as a sideshow

I have an inkling that Brexit might be viewed by future scholars as the largest distraction in history. Consider this story:

The European Commission has told Italy to revise its budget, an unprecedented move with regard to an EU member state.

The Commission is worried about the impact of higher spending on already high levels of debt in Italy, the eurozone’s third-biggest economy.

Italy’s governing populist parties have vowed to push ahead with campaign promises including a minimum income for the unemployed.

The country now has three weeks to submit a new, draft budget to Brussels.

The Commission said the first draft represented a “particularly serious non-compliance” with its recommendations.

Now I knew some branch of the EU could fine countries if their budget deficits exceed certain thresholds, although the Stability and Growth Pact mysteriously got abandoned when it was France and Germany, rather than Spain and Portugal, that were found in breach. What I didn’t know is that EU member states had to submit their budgets to the EC for approval, and they could be rejected if they weren’t to the Mandarins’ liking. Now Italy has joined a club with certain rules, but how many Italians were aware their own elected government can have their budgets rejected by Germany the European Commission? Was this explicitly made clear by the politicians who signed them up, or are many only just finding out now? How many Brits were aware their governments’ budgets are subject to approval by Jean-Claude Juncker’s mob?

I once worked for a company who didn’t bother with job descriptions for many of its employees, and their employment contracts were shoddy at best. None of this mattered while things were going well and everyone was happy in their position, but as soon as circumstances changed these documents suddenly became rather important. Similarly, I don’t suppose the EC approving member states’ budgets was a problem so long as they just rubber-stamped them; now they’ve decided to reject Italy’s, the whole setup is going to get examined and I suspect it will be found wanting. I don’t know what the Italians will do, but this was their initial response:

“This is the first Italian budget that the EU doesn’t like,” wrote Deputy Prime Minister Luigi Di Maio on Facebook. “No surprise: This is the first Italian budget written in Rome and not in Brussels!”

His co-deputy PM Matteo Salvini added: “This doesn’t change anything.”

“They’re not attacking a government but a people. These are things that will anger Italians even more,” he said.

I doubt this will cause Italy to leave the EU, but it is one more enormous crack that has appeared in the whole edifice which those sitting atop the walls seem unwilling or unable to see. The EU’s censuring of Poland and Hungary is another example, as was their callous disregard for ordinary people in Greece. Britain leaving is a huge blow for the EU, but it’s not their most serious threat. That is populist governments getting elected in member states who then refuse to leave, but disobey, cause trouble, and eventually pull the whole thing down around them. If the EU Mandarins had any sense, they’d make the Brexit transition as painless as possible for both sides and get to work shoring up the foundations of what’s left. I have a feeling Brexit is just a sideshow for what’s coming.

Liked it? Take a second to support Tim Newman on Patreon!
Share

33 thoughts on “Brexit as a sideshow

  1. I am reminded of the break up of Yugoslavia.

    The first state to leave, Slovenia, endured some upset and violence that seemed shocking at the time (Small war in Europe! etc) but actually managed it relatively easily, compared to what happened when the next one or two tried: many years of unpleasantness followed.

    I rather think the UK is playing the role of Slovenia this time around.
    Maybe Italy is auditioning for Croatia’s role?

    Best out soon, before the chaos engulfs us too.

  2. I just hope the Italians keep their nerve.

    It’s not so long since Berlusconi was pushed out by the EU and a placeman (Mario Monti) installed instead. Nobody minded much at the time because Berlusconi seemed to be a bit of a joke, but it shows the EU is utterly ruthless in imposing its will; the same thing had better not be allowed to happen again, otherwise Italy won’t even be able to pretend to be a democratic country – or indeed, a country at all.

    Forza Italia!

  3. What I didn’t know is that EU member states had to submit their budgets to the EC for approval, and they could be rejected if they weren’t to the Mandarins’ liking. […] How many Brits were aware their governments’ budgets are subject to approval by Jean-Claude Juncker’s mob?

    I believe that this is only for countries which use the Euro. So it doesn’t apply to Britain.

    I can’t imagine how it would ever have got past the British public, mainly because Britain has a load of awkward eurosceptic politicians who would have ferretted it out and made sure to loudly broadcast it if ever it because an issue, regardless of their party leaderships’ view on the issue.

    Whereas countries like Italy, the politicans were desperate to be accepted into the Euro club because they saw it as a matter of national pride and dreaded being left out, so they contrived with each other to not mention it to the public.

    (And, to be fair, the currency union wouldn’t work without it — indeed the currency union won’t work unless the EU actually goes further and imposes direct EU taxes along the lines of US federal taxes, with an EU finance ministry and an EU treasury. Whether they can get that past the peoples of Europe — and the Germans will probably be one of the hardest — is highly debatable, but without it, the Euro will just keep lurching from crisis to crisis until it finally falls apart)

  4. I believe that this is only for countries which use the Euro. So it doesn’t apply to Britain.

    I don’t know; Britain was part of the Stability and Growth Pact, I’m not sure it’s related to use of the Euro.

  5. I don’t know; Britain was part of the Stability and Growth Pact, I’m not sure it’s related to use of the Euro.

    Gosh. Looking up the treaties you may be right, altough it’s very unclear under what auspices these warnings are actually being issued. But if it’s Article 121 of the Lisbon Treaty then that could apply to Britain although there might be an opt-out? It’s difficult to tell.

    That’s probably part of how they get away with it, because it’s practically impossible to actually disentangle what is going on unless you spend your entire life living and breathing this stuff, which only committted Eurocrats do.

    Everyone realises right that the UK would never have left the EU if we’d actually got a referendum on the Lisbon Treaty and been able to reject it? They’d have had to carve out some sort of ‘Associate Membership’ for the UK while the Eurozone countries forged ahead with ever-closer union, and that would certainly have relieved the pressure. Whereas imposing the Lisbon Treaty on the UK, especially after the bait-and-switch where a referendum had been promised when it was called the Constitution only to be withdrawn just because the name had changed, only increased the pressure that eventually blew a hole in the whole thing in 2016.

  6. … But if this budgetary monitoring is not taking place under Article 121 but under Article 136, then it only applies to countries that use Euros.

    See, this is practically impossible to make sense of.

    And they like it that way.

  7. This is only for the Eurozone as far as I understand. Its actually logical from the EU’s standpoint that if you share a currency, there has to be rules for budgets.

    But that is actually why the creation of the Euro was the most irresponsible thing to happen in Europe since, well, you know what. They created a system that was bound to lead to crisis, in the belief that they could use the crisis to their advantage.

  8. Okay here’s a report, from 2013, which suggests that this only applies to Eurozone countries:

    https://www.euractiv.com/section/future-eu/news/brussels-wins-new-powers-over-national-budgets/

    ‘The European Commission will check eurozone countries’ draft budgets to verify whether they are in line with EU rules and will ask for changes if they are not, under a deal struck today (20 February) with the European Parliament, which adopted the so-called two-pack bundle of legislation.’

    and which says it is under article 136 powers, not article 121.

    So, phew, we’re not required to get Juncker’s permission for our budgets. But this is clearly the direction of travel of the EU, and that’s why we’re leaving.

  9. The Euro really is a case of the irresistible force (the indebtedness of the south which obliges fiscal transfers at some point or everybody starves and not just the Greeks) meeting the immovable object (the Germans will never sign up to it).

    From the start this was the unspoken contradiction at the heart of it and is other posters have said, it was assumed that the resulting crisis would enable a great leap forward in Euro-area integration.

    However, great leaps forward, as planned by politicians anyway rather than astonauts, have a chequered record (see what I did there?), and that was then and this is now, and it is crystal clear that the Germans will never stand for that great leap of integration if it involves trowelling hundreds of billions of quid south across the alps.

    If they don’t do that of course then they risk losing all their 2 trillion of target2 imbalances.

    Hoist on their own petard!

    No one does schadenfreude quite like the Germans

  10. How did intelligent, educated people ever think European nations could integrate politically and fiscally without something like this being necessary?

    How could you possibly have such an organisation without the organisation having some measure of control over the members?

    “…the Germans will never stand for that great leap of integration if it involves trowelling hundreds of billions of quid south across the alps.”

    I suppose in the 90’s it must have seemed like they would, since they’d just trowelled hundreds of billions of quid east across the Elbe.

  11. How did intelligent, educated people ever think European nations could integrate politically and fiscally without something like this being necessary?

    They didn’t — this was always the plan.

  12. “the currency union won’t work unless the EU actually goes further and imposes direct EU taxes along the lines of US federal taxes”

    Not necessarily. All that is needed is for ECB to prohibit individual Eurozone countries from forcibly offloading their risky/worthless debt onto their banking systems, thus causing a banking crisis. See how California went bankrupt without any global repercussions.

    The Italian government should be allowed to go bankrupt. Then they will have to do what e.g. Latvia has done in the wake of the last financial crisis: cut the salaries for all (how many are there?) co-deputy-PMs and their mistresses.

    That would be a grown-up way to do it instead of creating a super-nanny-state to look after nanny-states. But, of course, the EU will choose a long painful suicide instead.

  13. l that is needed is for ECB to prohibit individual Eurozone countries from forcibly offloading their risky/worthless debt onto their banking systems, thus causing a banking crisis

    Won’t work: the Italian government’s creditors are mainly German banks. If Italy goes bankrupt, those banks have to write off those debts. Cue instant German banking / political crisis.

    Might have worked if that had been the deal all along, because then the German banks would have known not to lend to such a risky proposition as the Italian government (but then, that also would have reduced the attractiveness for countries like Italy of signing up to the Euro and suddenly being able to borrow at German rates as everybody assumed Italian bonds were basically backed by Grmany and therefore as safe as German ones).

    But as a way forward from here? Nope.

    (And again: this was the intention all along. The idea was to get the economies of all the Eurozone countries so intertwined that when the inevitable crisis came, as the systems’ designers knew it would, the only solution was to jump to full federalisation as disentangling them would be too complex and painful.)

  14. Tim Coder: That’s my reason for getting out now. The EU is on a path to destruction, possibly with people shooting each other. Hopefully we’ll be well out of it when that happens. Yugoslavia had deep ethnic & religious divisions that were papered over by Tito, so it wasn’t too surprising it went badly pear-shaped after he went. The EU isn’t quite the same but rebellions against the centre (effectively Germany) for economic and nationalist reasons will give the lie to what the original founders thought they were doing. As in all things, be careful what you wish for!

  15. I’ve been reading about this for 18 months now on the ‘Capital and Conflict’ email. Apparently there is a sort of EU interbank balancing mechanism called Target2. What this means (please if there are any finance guys who can correct me on this, please do) is that as the Germans are selling goods to southern Europe, they have a trade surplus. But a trade surplus doesn’t work when all countries are using the same currency. Target2 is a way of balancing the books. Essentially an IOU is written from the buying country to the selling country via the ECB. Now Italy ‘owes’ Germany nearly 1/2 a trillion Euros via this method. So these emails I’ve been reading have been saying that Brexit is the side show, and Italy will bring down the Euro. Also that when the Germans realise that they won’t get their money back, they (the German citizens) might well want to revert back to the DMark. I keep telling my Remainer friends, that it doesn’t matter what happens now, Italy and Target2 will destroy the Euro. Watch out for T2 to be talked about in mainstream media over the next year or so. It will become one of those unknown-household phrases like sub-prime mortgages did.

  16. What I didn’t know is that EU member states had to submit their budgets to the EC for approval, and they could be rejected if they weren’t to the Mandarins’ liking.

    It gets better than that.

    Sometimes you get to see where the power lies.
    https://www.thelocal.de/20111118/38953

  17. Italian PM Warns ‘No Plan B’ After Brussels Rejects Italian Budget

    Italian Prime Minister Giuseppe Conte has warned that there is no “plan B” for Italy following the European Commission’s unprecedented rejection of the Italian budget.

    …“The EU has rejected the Italian economic manoeuvre, but nothing changes,” Salvini said and added: “They simply irritate the Italians more and then one wonders why the popularity of the EU is at a minimum in Italy and Europe.”

    Salvini’s comments allude to a recent study which revealed that only 44 percent of Italians would actually vote to remain in the European Union if a referendum on membership were held…..

    EU decrees only the 44% matter, the 56% are stupid, racist, xenophobic, populist deplorables. Democracy verboten in EUSSR

  18. @a different James on October 25, 2018 at 8:52 pm

    Same as May scuttling over to Berlin for Merkel’s approval of Chequers Surrender on Friday before imprisoning cabinet on Saturday until they agreed.

  19. So should Italy keep spending like a drunken sailor on shore leave, or tighten its belt?
    Euro or not, the former is the route to bankruptcy. If they thumb their noses at the commission the market will force them to budget better anyway – and stop lending. As they did with Greece.

  20. So should Italy keep spending like a drunken sailor on shore leave, or tighten its belt?
    Euro or not, the former is the route to bankruptcy

    Not if it had its own currency. A government with its own currency can never go bankrupt (unless it chooses to) because it can always print money to pay the debt and effectively inflate it away.

    That causes its own problems, of course, and a country may decide to go bankrupt instead of facing rampant inflation (lika Argentina), but it seemed to be woking okay when Italy had the Lira and just periodically devalued it.

    (Of course also the fact that people knew their Lira debt would get devalued eventually also acted as a natural brake on Italian spending as it couldn’t simply borrow as much as it wanted, as it could when it joined the Euro and suddenly everyone assumed that Italian debt was backed by Germany, so German banks lent Italians money to buy German goods assuming that the German government would bail them out if (when) ever the Italians got into trouble.

    I mean in a lot of ways this isn’t an Italian crisis at all, it’s an internal German crisis in which Italy was a patsy who has now been hung out to dry.)

  21. So should Italy keep spending like a drunken sailor on shore leave, or tighten its belt?

    Nobody other than ordinary Italians give a sh*t what happens to ordinary Italians. What the EU is terrified of is Deutsche Bank going bankrupt.

  22. I mean in a lot of ways this isn’t an Italian crisis at all, it’s an internal German crisis in which Italy was a patsy who has now been hung out to dry.

    Exactly. The famed German economy we keep hearing about was propped up in large part by the ruling elites of poor countries buying cars they couldn’t afford using public money the Germans had lent them in the form of Euros.

  23. Oh, Deutsche is toast, the only question is when. I doubt the commission gives a shit, except working out the details of how us German taxpayers get to pay for it without it being too obvious.

    Ultimately Italy has no more right to run a perpetual deficit in euros than it does in dollars , pounds, or Swiss francs. They and everyone else will learn that, the easy way, or the hard way. Currently it is looking like the hard way

  24. Ultimately Italy has no more right to run a perpetual deficit in euros than it does in dollars , pounds, or Swiss francs.

    Sort of. But when you have for years had a political elite running that deficit with the full encouragement of the EU elites and the population, who have been shafted by their own elites, mount a populist revolt and take matters into their own hands it’s a little churlish for the EU elites to start kicking up a fuss. And who doesn’t run a perpetual deficit these days?

  25. Governments never (for everyday values of never) die so they can, assuming continued growth, run perpetual deficits. But those still need to be proportional to future growth. Otherwise it is just theft from the future. Or your future creditors.

    No one has ever solved this problem in the last several millennia of government indebtedness, so why should the euro have the magic formula for it now?

  26. Ultimately Italy has no more right to run a perpetual deficit in euros than it does in dollars , pounds, or Swiss francs.

    They could do it perfectly well in Lira, though (and did, until they sold that inheritance for euro-pottage).

  27. And they could do it again. But the perpetually-falling lira was a product of post-war and particularly post bretton-woods chaos. Euro critics are wont to forget that floating currencies were the brief 40 year experiment in seven millennia of global gold standard. Your own currency works kinda ok when your debts are all internal (Japan). All others take gold only (pre bretton-woods), and there there isn’t even credit to be had.

  28. Euro critics are wont to forget that floating currencies were the brief 40 year experiment in seven millennia of global gold standard

    Um, an experiment that is still ongoing and seems markedly more successful than what it replaced.

  29. key word being “seems”, surely

    In the way that capitalism ‘seems’ more successful than communism, yeah.

    Nobody serious actually thinks it would be a good idea to go back to a gold standard, right?

  30. These are things that will anger Italians even more,” he said.

    Well, that’s not hard to do…

  31. One of my many claims to fame on here and in other boozers I drink at was calling it that Brexit was off.

Comments are closed.