One hour before I head to the airport ….. yet again. I feel that I have single handedly kept Michael O’Leary in check shirts this week. But as I leave, sitting here on the side of the Via Nazionale, there’s a bit more urgency to Rome than when I arrived two days ago.
Carabinieri buzz about in their squad cars, a police helicopter circles the city centre. Riot police are hidden around the side of many government buildings. The political pace has picked up. I just spotted three bus loads of a military brass band being given an escort through town. Whether they are rehearsing a final hurrah for Silvio or preparing to herald the arrival of Mario is not clear.
You’d have to imagine it’s something Silvio has arranged for himself because no unelected government coming to power with the single unfortunate mandate of inflicting pain on its people would afford itself that level of pomp and circumstance. But then again … this is Italy.
The pace of things is definitely picking up here. The Senate has just voted in favour of an austerity package. When it’s passed in the chamber tomorrow (which seems to be a given) Berlusconi will resign. President Napolitano could then go through the pretence of calling all the party leaders and asking them if they thought they could form a government but in reality the call has already been made and Mario Monti has already begun putting a programme together. He’ll have is feet under the desk in Berlusconi’s office by Wednesday morning at the latest.
So it’s all go … but only on the political front. The cancer in the economy is metastasising. Put simply increasingly nobody wants to lend to Italy at competitive rates because they don’t believe it can service its debt any long, and if nobody will lend to it at a price it can afford Italy won’t be able to service its debt any longer. Somewhere Joseph Heller chuckles.
Up until today I had only heard people talking about Italy having a liquidity problem. Short term cash flow issues, if you will, that would be solved by an orderly departure of Silvio Berlusconi from the stage. But now some are muttering about possible solvency issues. It’s not clear to me if they mean now or in the future if cash flow isn’t sorted out.
Can that really matter? Private lenders won’t give it money at a rate it can afford long term. Lenders of last resort don’t have access to the kind of cash it would take to plug the gap. And the government would have to generate a 5% surplus just to meet the interest bill on the €1.9trillion debt. That’s being stuck between a rock and a hard place with the added dilemma of the waters rising around you.
Dr Doom, Nouriel Roubini, who is to the global economy what Morgan Kelly has been to the Irish one had a scary op ed piece in the Financial Times this morning. He didn’t see a way out for Italy short of the ECB becoming an “unlimited lender of last resort”. And who would do that if there is even a sniff of insolvency in the air.
His argument was a lot more nuanced than my summary but essentially if the third biggest economy in the Eurozone goes south so too does the eurozone. Reaction in Italy is interesting. I gave his piece to a Journalist, an Economist and a Politician today. The first two said he was spot on. The politician completely disagreed using the well worn “fundamentals are sound” argument. But then he’d have to say that as he’s probably going to be a minister in the new government.
His name is Enrico Letta and I’ll post a link to my Drivetime interview with him when it’s been podcast by my colleagues back at base.