-Analysis-
BERLIN — While Brussels is palavering over a plastic tax that will never materialize, dark clouds are gathering over Europe. Right now, in plain view, the European Union is sliding straight into the next (and potentially deeper) euro crisis.
The chaos in Italy — which holds the world’s third-largest public debt, totaling 2.3 trillion euros — continues to escalate: Yields on ten-year bonds have risen to their highest level in three-and-a-half years, and credit rating agency Moody’s said it was considering downgrading the country, bringing its rating closer to the so-called “junk” level.
The appointment of financial expert Carlo Cottarelli, and the formation of a technocrat government, won’t change anything about the “malattia italiana” (the Italian illness). No, there is no reason anybody should be breathing any sighs of relief about Cottarelli, who is effectively a general without troops. The Italian Parliament won’t follow his legislative proposals or recovery plans, and new elections are expected to take place in the autumn at the latest. There is little doubt that the right-wing populists of Matteo Salvini’s League party, in particular, will emerge stronger.
Italy could drag the euro into the abyss.
We shouldn’t fool ourselves: Italy has the potential to drag the euro into the abyss. The cynical twist is that the populist anti-EU parties in Italy, and all the spending and debt-fueling policies they are now proposing, can ultimately count on the rest of Europe to save their country from bankruptcy.
Italy simply cannot go bankrupt: The fourth largest European economy is far too important for the eurozone. The years of necessary rescue measures that such an outcome would require could be very expensive for the German taxpayers. Exaggerations, you say? Hardly.
But we’re not there yet. Cottarelli, “Signor Scissors,” will now rule for a few months and his caretaker government will have little room for maneuver and will not be able to take any far-reaching decisions in Brussels.
This does not bode well for the European Union. The reforms of the eurozone, the negotiations on a new EU budget and decisions on the future asylum system will thus be further delayed. Ironically, perhaps, even ratifying Brexit may now become even more complicated than before.
