Monday, December 05, 2011

The Full Monti

The Melting Euro

The Terrible Twins of the Eurozone — French president Nicolas Sarkozy and German Chancellor Angela Merkel — agreed today on a new, tighter regime of fiscal control in the European Union. And not just in the Eurozone, but the entire EU. The new rules will be submitted to the full membership in Brussels on Thursday, and we’ll see how countries like Denmark and Britain feel about ceding what little independence they have left to the unelected mandarins of the Eurostate.

The whole issue may become moot if the euro meltdown occurs before the new rules can be implemented. The crisis in Greece and Italy is so urgent that the European Commission and the ECB have had to act without waiting for a new policy to be agreed upon. Brussels has already asserted direct fiscal control in Athens and Rome by forcing the departure of two prime ministers and replacing them with two EU apparatchiks who can be counted upon to implement the exact programs demanded by those who appointed them.

Italy’s new prime minister, Mario Monti, has unveiled his plan to save Italy, which he calls… well, “Save Italy”. It is the first tranche of austerity measures designed to calm down the markets and reduce borrowing costs for the Italian government.

Details of the plan may be found in this report from ANSA:

Monti to Present ‘Save Italy’ Decree in Parliament

Measures aim to raise 30 billion euros


(ANSA) — Rome, December 5 — Premier Mario Monti on Monday will present to parliament his emergency government’s package of budget measures that aim to raise 30 billion euros and start to hurl the country out of its debt crisis.

The package is contained in what Monti described as a ‘Save Italy’ decree after the cabinet approved it on Sunday.

The plan depends heavily on raising taxes and lowering benefits for Italy’s elderly people — who make up an ever-increasing share of the Italian population:

It includes pension reform, the reintroduction of a property tax dropped by the previous administration, new taxes on luxury items such as yachts, sports cars and private aeroplanes, and a 2% increase in value added tax in the second half of 2012, taking it up to 23% in the top band.

The bill, which comes into effect immediately but requires parliamentary approval within two months, also features growth-boosting measures, such as tax breaks for companies who hire young people and for those investing capital in Italian firms.

It did not include an expected income tax hike.

The most significant cuts in spending will be directed at old-age pensioners:
Next year pensions above 936 euros a month will not be raised in line with inflation.

Furthermore, the retirement age was raised from 60 to 62 for women and from 65 to 66 for men.

The minimum number of years of pension contributions needed to retire before the retirement age will increase from 40 to 42 years for men and 41 years for women.

“It’s a very big blow to pensioners’ incomes,” said Susanna Camusso, the head of Italy’s biggest and most left-wing trade union CGIL.

“The raising of the retirement age is an unsustainable extension for many people whose pension prospects have been disrupted and face many more years of work”.

Cracking down on pensioners offers definite short-term relief for the state budget, but it can only be temporary. The number of old people will continue to increase, and the number of tax-paying workers will continue to decrease, guaranteeing that the same problems will re-emerge in a few years. The government can only reduce expenditures on the elderly so much and still maintain the pretense that it is a generous, caring European welfare state.

And measures almost identical to these caused major riots, arson, general strikes, and mob violence in Greece a couple of months ago. Why are the Italians likely to react any differently?

The EU is happy, however:
Italy’s business associations and many of its political parties, however, said the package was tough but necessary to restore investor confidence and respect commitments to balance the national budget by 2013 The European Union, which fears that the euro could collapse if Italy does not get a grip on its public finances, praised the measures.

European Financial Commissioner Olli Rehn said the package was “timely and ambitious”. Former European commissioner Monti took over the helm of government as the head of a team of non-political technocrat ministers after Silvio Berlusconi resigned as premier last month, with Italy’s debt crisis threatening to spiral out of control.

And Prime Minister Monti has made a magnanimous gesture:

Monti said on Sunday that, given the gravity of the situation and the sacrifices his government was asking people to make, he would decline his salary as premier.

That’s a generous move, but if the EU were really serious about cutting expenditures, it would look at reducing the salaries of its own unelected bureaucrats, more than 1,000 of whom earn more than the British prime minister — some of them more than $400,000 per year. Or better yet, they could cut back on the bureaucratic bloat in Brussels and fire some of the dead wood. But that never happens — each year the EU budget is increased, recession or not.

The market has reacted by dropping the yield on Italian government bonds, which was the whole point of the exercise. So euphoria reigns for the moment in Rome and Brussels.

But how long will it last? The systemic problems remain untouched. How long until the market once again bids up the rates on Italian bonds? What will Mr. Monti cut then? Hospitals? Schools?

And when the cuts take effect, will the Communists, the anarchists, and the unions band together, just as they did in Greece? Will the news videos show them torching buildings and fighting with police on the streets of Rome and Milan?


Hat tip: Insubria.

7 comments:

CrisisMaven said...

"What will Mr. Monti cut then?" - Like all other EU governments: Throats. By the way "Save" as in "Save Italy" or in "Save the Euro" means "except" like in "the world currencies may survive ... save the Euro.

Henrik R Clausen said...

The Terrible Twins of the Eurozone — French president Nicolas Sarkozy and German Chancellor Angela Merkel

Seeing them together so often, I propose a new name for the duo:

Merkozy

mace said...

They're just re-arranging the deckchairs.

Anyone see the video where the Italian minister was weeping crocodile tears as she announced the pension cuts? Penalizing pensioners seems like a clever move,riots are for the young and middle-aged.

costin said...

Mario Monti, Daniel Hannan translation: "What we're witnessing today is the great success of the euro, and the most concrete demonstration of that success is Greece, which is being obliged to take on the culture of stablity with which it's transforming itself."

listen here to Monti!

babs said...

I would agree with you Baron that if the bureaucrates do not want a 50% pay cut that they should find something else to do, LOL!
You talk of the "elderly" in this article as someone over the age of 60. Here in the states 60 is the new 40...
We plan to keep working until we are at least 70. This clearly isn't the case in Greece, Italy, Spain or Portugal.
Why Germany or the US for that matter should bail out these countries is beyond me.

RonaldB said...

Perhaps Umberto D will enjoy a well-deserved revival.

Henrik R Clausen said...

Worth knowing - and mentioning repeatedly - is that Mario Monti is a leading Bilderberger.