Tag Archives: Italy

God! Save us King!

16 Feb

Mervyn King: “Right chaps. What d’you say we chuck money out of helicopters?”

Sometimes I wonder what would happen if the government did something stark-raving nuts. If, say, RAF helicopters were ordered to sprinkle billions of banknotes all over the country. The dosh would be fresh from the printing press and would be designed to disintegrate within six months. What would actually happen? How would serious broadsheets actually react? Would they tut at or cave in to the populist glee that a shower of gold will descend from the heavens on to Burton-on-Trent?

This is the scenario painted by ex-editor of The Times Simon Jenkins. It would get consumers spending, add not one penny to the national debt and – the most brilliant thing of all – it is utterly bonkers. How workable it is, I am not sure: were fights to break out on Britain’s high streets, the tabloids would tear the coalition to shreds. It is a reasonable concern: we saw the avaricious abandon of Brits in the riots last summer. But the idea is the point: it fuels cash to the most desperate of consumers, those most likely to spend the money; it will earn huge publicity, providing grounds for a great shift in confidence; most importantly, it will get money flowing back round the system.

Helicopter money: let’s make it happen! If not this scheme, something like it. It’s either chopper lunacy or cutting madness. I have already written that we can’t spend or tax any more: fiscally-speaking, we’re stuffed. The Left’s indifference to huge debts in a monstrous free market is worrying. The Right’s zeal to cut regulations – mostly green ones, mostly fair ones – won’t come to much. No politician can save us, save Angela.

Our fate is in the hands of a King. An unelected technocrat can bring us aid or, if he so wished, ruin. It is like being under the rule of Robert Walpole. Only Mervyn King, the head of the Bank of England, can choose to print more money. He has done so already, under the guise of quantitative easing (QE), a process of buying bonds from banks, injecting money into the banking system. In so doing, we have handed riches to the banks, not the people.

If the aim was to get banks lending again, QE has failed. Last February, red-faced at the paltry levels of lending to small British businesses, David Cameron threatened to hammer banks with higher taxes if they did not lend more. Since then, banks have not lent more. They have lent less. Though banks are awash with cash, bank lending to small/medium-sized businesses has dropped month-by-month. What is the point of injecting all this moolah if the banks just sit on it?

Far better it is for this money to be given to the people in tax breaks, tax cuts, helicopter money, whatever…  We are suffering from a lack of demand. If we cannot boost demand through state spending, we should do it by making Brits spend their money. Let firms be flooded with newly-printed cash and see if it heartens them to create jobs. There is a wealth of skilled, able-bodied Brits to fill these posts. What use is it to anyone for them to be economically inactive?

I can think of no serious objection to it. If it is short-term money, no hyperinflation can result. If money is to be printed, give it to those who will put into circulation: the buyers, not the bankers. This is hardly a radical idea. It simply goes against the past 30 years of economic consensus – and which good-thinking gentleman swallows that?

There are those who thinking printing money, whatever the situation, is the road to Harare. Niall Ferguson has admitted he has these monetariphobic fears. I recall the Spectator bewailing the dizzying highs of, er, 5% hyperinflation – levels that even inflation-conqueror Maggie Thatcher would be pleased with. These fears are irrational, especially since inflation is dropping back to the region of 3%. We should be losing sleep at the lack of jobs, not price rises.

We should put aside these Teutonic-style fears. We are not Weimar Germany. We have more in common with the present despotic regime of Italy. With one exception: we can print our way out of this mess. To refuse this option is to tie ourselves as rigidly as Italy, a technocracy with no control over monetary stimulus. QE2 may not save us, but the King can.


The decline of Italian civilisation

10 Nov

I have just been reading a book by Robert Hughes on the history of Rome – well, it beats Flog It – and it reads like the decline and fall of a once great civilisation from antiquity to satellite TV.  Hughes believes Italy has declined for two reasons: first, Italian modern art is shit, sometimes literally; second, perhaps more importantly, Italy no longer cares about art.

Modern art has always had a bad reputation.  That mad dog Khrushchev once denounced his own country’s modern art exhibition as “worse than a donkey could smear with his tail”.  Hughes is slightly more scathing – we see this in his commentary on futurism.  While Baroque sculptors pontificate and enlighten, Italian futurists “prate” and “bloviate”, and when they do, he mocks them for it.  Having quoted a long passage from futurist writer Marinetti, Hughes comments, “There is more, much more, in this vein.  No-one could accuse Marinetti of terseness.”

Hughes likens futurists, with their obsession with cars and all things speed, to ranting Mr Toads.  “Off they go,” he says, “Vroom vroom, in a sort of mechano-sexual delirium.”  He could hardly get more sardonic.  Hughes concludes:

One can have a certain sympathy with the annoyed Italian writer who, when asked if he didn’t agree that Marinetti was a genius, retorted, ‘No. He’s a phosphorescent cretin’, but in fact he was less than the first but a good deal more than the second.

One is more tempted to agree with Hughes when he describes the art of Piero Manzoni, a more modern artist.  Manzoni crafted an exquisite exhibit called Merda d’Artista: the artist’s shit (no kidding, you can hear Hughes say).  This objet d’art consists of Manzoni’s freshly-produced excrement, sealed lovingly in a tin can.  One wonders which – the shit or the tin – took more artistic merit to produce.  No matter: the final can sold for $80,000.

This must be the finest embodiment of a decline of a civilisation.  Having read Hughes’ rising odes to Bernini and Caravaggio, Michelangelo and Raphael, this is the perfect finale, proof that art is not relative, evidence of Rome’s fall from grace.  Once-democratic Rome, ruled by the people, is now a coprocracy: ruled by shit.  Hughes’ message is familiar: like all books that chart the decline of a civilisation, the point is that civilisations wither from the inside, not from without.  It was not the Goths that destroyed Rome, but the destructive forces of vapidity and inertia.

This explanation carries some weight.  Where Hughes goes wrong is in saying Italians no longer care.  The epilogue to the book is over-brimming with rage towards Italian modern culture.  Here is an extract which decries the constant chattering and inane photo-taking in galleries.  Art, he says, is

not meant to be a social experience.  Shut up and use your eyes.  Groups with guides etc., admitted Wednesdays only, 11a.m.- 4p.m.  Otherwise, just shut the fuck up, please pretty please, if you can, if you don’t mind, if you won’t burst.  We have come a long way to look at these objects too.  We have not done so to listen to your golden words.  Capisce?

He then proceeds to moan about how crowded with tourists the streets of Rome now are.  I must admit that when I last went to Rome, my feelings were with him.  Those Roman roads acted like canals of Chinese and English skins, crowds rushed along by brollies, more brollies than Britain, orange, yellow, pink, bobbing like buoys in the waves.  Around every corner, a merchant would sell you some tacky memento, a plastic Colosseum, a mini Michelangelo’s David – €2,00 only! – priceless really – valueless too.

Yet one sees an irony in his argument; if Italians don’t care of art, why are there more than ever before in the streets?  One can’t at one breath complain of a lack of interest, then in the next grumble that the museums are fuller than ever.  The truth is that what has changed since the 18th century, when the rich would pile into Rome to see works of ancient wonder, is that travel is no longer an elitist venture.  Now the poor can come too.

That is surely a good thing.  Perhaps Hughes is right that art has declined since the Renaissance; perhaps he is right that Berlusconi, with his jiggling blondes on his trashy game shows, has destroyed Italian cultural life.  It may be true that Italians may love their soccer and celebrities, just as we do, just as the Romans loved their gladiators and chariot races, just as Caravaggio enjoyed his drink, sword fights and gambling.  But the interest in art – past rather than present – hasn’t changed.

A bailout of Italy was avoidable. Once.

9 Nov

So. Farewell then, Mr Berlusconi. You were once the joke of the eurozone. You provided much hilarity on BBC One sketch shows (see above) and panel shows (see here and here after 1:10). You survived allegations of bribery, fraud, mafia collusion and under-age sex. But even you could not survive the markets. Ciao.

Now we move from farce to tragedy. A bailout of Italy looks all but inevitable. This is worrying for two reasons: first, there is not enough cash for a bailout. Italy is the 4th largest economy in Europe; it is the 8th largest in the world. The total needed could be more than €0.6 trillion, terrifying when the current EFSF lending capacity is €0.44 trillion. Second, there is a good risk of sovereign default. It is unknown whether this will cause financial meltdown, but it could do.

It is curious, because Italian finances are not the worst in the world. Italy runs a low budget deficit; in fact, it is currently running a primary budget surplus (ie before interest payments).

What then has caused such recent terror? One answer: borrowing costs. Italian borrowing costs have reached 7.5% at the time of writing. Paying off Italian debt under such rates is unsustainable. What caused them to hit such highs? Panic. Self-perpetuating panic, I would argue. Once investors become convinced that default is likely, they demand higher and higher repayment rates. Seeing rates ever rising, seeing Italy splashed all over the front pages: this only increases the panic. So rates rise even further.

News reporters have not helped over the past week. 7%, they have said over and over again, is the rate at which Portugal, Ireland and Greece were bailed out. This is true. But is it worth repeating? Is it worth reporting, 6% is very near the figure when Greece was bailed out? Is it worth saying, at 5%, investors fear rates could rise into Greek-style territories? If we keep repeating this figure – 7%, 7%, 7% – I wonder whether or not we imbue it with some talismanic quality. For Italy is not Greece. It has different levels of debt, different inflation rates, growth levels, deficit levels; so the figure-of-no-return could well differ from 7%. Yet by convincing ourselves that it is 7%, we also convince the markets – the strange world where thinking it makes it so.

I suppose media panic is inevitable. Market panic is not. In fact, market panic could have been stopped long ago: by boldness. The European Central Bank (ECB) could have stepped forward and guaranteed to buy limitless Italian bonds. Buying bonds would act to reduce interest rates. Italian borrowing costs would fall. It would also have the side-effect of convincing markets default is unlikely. Investors would demand lower rates of return. This option looked possible in August, when the ECB vowed to “actively” buy Italian and Spanish debt. On Thursday, however, the new ECB head Mario Draghi called bond purchase plans “temporary” and “limited”.

Why the timidity? First, the ECB is not legally mandated to directly support governments. Second, dissenting voices – particularly German-sounding ones – would grow louder. These opponents fear a looser monetary policy would tempt Mediterranean governments not to sort out their budgets. There is also a deep-seated German fear of inflation, after the hyperinflation of the 1920s.

These concerns aren’t reasonable . There would still be pressure on Southern euro-zone members to sort out public finances. Legal mandates should be tossed into the wind at a time of near-financial collapse. When the prize is to lower Italian borrowing costs, so that Italy can pay back its debts and avoid a bailout, fears even of 5% “hyperinflation” are unfounded. A looser monetary policy would make exchange rates of struggling Europe more competitive. Even if printing money led to inflation, it would be welcome: inflation erodes away debt.

The reason for the inaction of the central bank can be spelled out in one word: Germany. Germany has all the power in Europe and it hates the idea of a looser monetary policy. Germany is an large exporting market bewitched by budgetary discipline. Printing money would make its exports less competitive, reward countries for profligacy and cause run-away inflation: everything Germany hates. Yet this could be the only way to avoid an Italian bailout.

I leave the last word to heroic Tory grandee, Sir Peter Tapsell:

Chancellor Merkel knows very well that it was not inflation but high unemployment which, in my lifetime, brought down the Weimar republic, and [it] will do the same for the European Union.