Italy, we do not learn

Italy’s risk premium has skyrocketed. The reason? The high indebtedness and the lack of commitment on the part of the new government to meet the deficit targets set with the European Union. A new government of an inexperienced party in a heavily indebted country that has obtained the place thanks to discontent with the political class and promises of change.

In general, the problem we have as a species is that it is difficult for us to learn from someone else’s head. We have had close examples, and it is not that Italy does not need reforms (it cries out for them), but uncontrolled spending is not exactly the solution.

We do not learn from hyperinflation

In Europe we are aware that paper money was invented in china, or at least many of us learned it by reading small books about Marco Polo. But although in China the money issued by Kublai Khan was fiat money, apparently the monetary policy was not exaggerated and not excessively manufactured. In contrast, in the eleventh century the Song dynasty had caused hyperinflationalong with counterfeiters, eliminating the jiaozi system invented around the year 1,000 by Sichuan merchants.

Well, this has not been enough to know that hyperinflation can be caused by printing too much money. Despite having the close examples of the Weimar Republic or more recently Zimbabwe. We have important politicians stating that issuing more money than the account is not guilty of hyperinflationfrom Venezuela despite the fact that they have repeatedly contradicted him either Francis of the Tower or from this blog, keep insisting this year even though the situation has worsened in the Caribbean country.

We don’t learn from Greece

Returning to the country of Marco Polo, the new government made up of members of the Northern League and the Five Star Movement (which despite its name is not a brand of beer), is made up of parties that do not believe in the Euro and those who would like to return to the previous situation and have control over monetary policy. But it also seems that they are interested in doing so by forcing the public deficit.

Italy it is a country whose public sector is highly indebted. This exceeds 130% of its GDP, when we remember the turns we gave it in Spain when we talked about the fact that in Spain (also highly indebted) we reached 100%. It is also a country that has spent many years in getting its economy to grow strongly. That is doing that for decades that “Il Sorpasso” is being from Spain to Italy and not from Italy to the United Kingdom, despite Spain’s smaller industrial base. This makes Spaniards emigrate less to Italy than or Italians to Spain or that it is said that “Spain is not Italy”.

The issue is that we have already had a government that is willing to fight against that straw man that is “the Troika” in Europe, with Greece. In the end, after threats and Eurogroup meetings, Greece had no choice but to give in and accept harsher conditions. Of course, there was a corralito in the Greek banks and it seems that the Mediterranean country was about to be removed from the euro.

The path seems to be the same. This week the risk premium between Italy and Germany (that is, the extra yield that the Italian public debt must give so that investors take it the same as the German one) has exceeded 300 points. At the beginning of the year it was about 150 points. The Spanish despite the change of government to another more inclined to make left-wing policies and less respect the agreed public deficit limits, it seems that it is considered who follows the rulesor at least it does more than Italy with a risk premium of 100 points.

It is possible that it makes sense for Italy to leave the euro, is the feeling of many Italians and even foreigners. But it is also true that no matter how prepared they are, an exit from the euro is likely to be very traumatic for individuals and businesses. Especially if the government’s plan is to do it by spending indiscriminately and then we’ll see.

The good? Well, from a corner of the Mediterranean, things may be different. If the Italian crisis were not transmitted to Spain, there is talk that Spain could increase its influence in the EU thanks to the Italian decline. and to Brexit A river uprooted, gain of fishermen?

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