A Time Bomb

ROME/BERLIN (Own report) – Following Italian Prime Minster Matteo Renzi’s defeat in Sunday’s referendum, Berlin is urging Rome to quickly form a “capable government” and resume its adjustment to the German model of austerity. “The economic problems have to be tackled at the roots,” said Jens Weidmann, head of Germany’s central bank, yesterday. German financial experts are floating the idea of a cabinet of technocrats, modeled on the Mario Monti government. Monti ruled for a year and a half beginning in November 2011, without having been democratically elected and initiated an austerity program considered extremely harsh. Time is pressing: the bank crisis, caused, to a large extent, by bankruptcies due to German austerity dictates, which has been festering in Italy for a long time, is threatening to escalate. The Monte dei Paschi di Siena tradition bank’s recapitalization planned this week is acutely endangered. It cannot be ruled out that its bank crisis could soon spread to other Italian credit institutions and to German banks.

Defeat for Berlin

The defeat of Italy’s Prime Minster Matteo Renzi in Sunday’s referendum is also a direct defeat for Berlin. The German government has taken various steps to help Renzi succeed – including taking over 500 refugees per month, to including Renzi into the EU’s alleged leadership trio, alongside Chancellor Angela Merkel und French President François Hollande (german-foreign-policy.reported [1]). These steps were aimed at preventing Italy’s current government crisis and possibly maintaining Renzi in power, because he was prepared to implement Italy’s transformation along the lines of Germany’s austerity (“reforms”) model. Shortly before the referendum, German Finance Minister Wolfgang Schäuble openly expressed support for Renzi: “I wish him every success.”[2] However, in vain.

Under Time Pressure

Risk of Infection

At the same time, warnings that a crisis escalation can hardly be controlled, are being heard. German politicians continue to push for a bail-in – to call on private shareholders and creditors – if worst comes to worse. “Politically” this would be “difficult,” but it would be “right,” declared Alexander Graf Lambsdorff (FDP), Vice-President of the European Parliament yesterday.[6] There is a growing risk of infection for other Italian banks. UniCredit, which owns Germany’s HypoVereinsbank, is regularly mentioned. On its books, UniCredit has non-performing loans worth €77 billion. If Monte dei Paschi di Siena and UniCredit stagger, the entire Italian economy could stagger. Due to the ties between Italian and German banks, Germany could also be affected – with unpredictable consequences.

“Technocrats, Take Over!”

“Greece, Get Out!”

Whereas the rescue of Monte dei Paschi di Siena and the upcoming government formation is predominating the debate in Rome, German experts and politicians are already taking a closer look at Italy’s long-term perspectives. According to Bert Van Roosebeke, an expert at the Center for European Policy in Freiburg, a rescue policy – like that for Greece – is practically unimaginable, because of Italy’s size and no government is in sight, which could procure a majority for the austerity policy being so stubbornly demanded by Berlin. “This is a time bomb,” says Van Roosebeke.[10] Serious doubts about the survival of the EU’s common currency are again being raised. Alexander Graf Lambsdorff (FDP), Vice-President of the European Parliament, wants Italy to remain within the Euro, and is instead counting on Greece leaving. “Greece should restore its competiveness outside the Eurozone, but within the EU,” Lambsdorff demands, “Italy should remain a member.”[11] In 2014, German companies had investments – direct or indirect – worth €31.3 billion in Italy, however, in Greece, only, €3.4 billion. Germany’s exports to Italy are valued at around €58 billion, to Greece, only €4,7 billion.

Italy’s Withdrawal

Full article: A Time Bomb (German Foreign Policy)

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