How Berlusconi will win the next election and....
Last December (see my previous post) I suggested that Monti should have adopted a tougher negotiation stance in Europe.
I, provocatively, explained why, after a thorough modernisation of the Italian society, the majority of the Italians would be better off with the lira.
Six months later, I still think that Monti should be much tougher in his negotiations: the cost the Italian Republic have to pay to refinance her debt is simply too high and makes the pain the population is going through de facto useless. In addition even the competition among companies is distorted since the cost of capital for almost any German (or Dutch) corporate is much lower than for any Italian blue chip.
Given the inability of the present government to be assertive enough in Europe, and of the German government to be able to overcome their short term selfishness, I think we are heading for very dangerous times.
In few months we will be having elections in Italy and it seems that Mr Berlusconi will run again for the Prime Minister position.
The most logical step for Berlusconi will be to position himself as the strong man (does it ring a bell?). He will most probably run as the leader of a new party and become the only choice for the euro unhappy fast growing minority.
He will most likely support a strong confrontation with the Germans, he will highlight their selfish attitude, the incredible advantage they are enjoying in paying negative yields. He will suggest that Germany should leave the Euro. Berlusconi will explain why without a central bank as a lender of last resort there is no future for the Italian (or Spanish) economy.
And.... Berlusconi will win!
At least 35% of the votes will go to him as antieuro hero, as the only man with the stamina to stand strong in front of the German Prime Minister, he is the man who called nazist capo a german euro mp. He will also try to have a personal vendetta on Mrs Merkel who, in his eyes, humiliated him.
This will be very dangerous: for Europe, for the Euro and for Italy.
Italy might go back to the worst of the Berlusconi times. The opposite of what we need. The opposite of what Germany needs.
Do we want to see this happening?
What is needed now is a proper firewall: unlimited resources to limit the spread for countries with a serious primary deficit reduction program in place.
It's so clear, it's so simple, it's so necessary.