Heiner gave an interview to The Real News Network two days ago about the Italian crisis. The world oldest bank Monte dei Paschi di Siena (MPS) has just been rescued through a combination of new capital injections and a selling off of bad debts, but nobody addresses the deeper Italian problem: Italy has been in a recession for six years by now.
Heiner Flassbeck explains that saving the bank is not a solution: it does not address the fundamental underlying problems. Italy’s economy has always been characterised by higher inflation than Germany or France. The strategy to regain competitiveness was simple: the Italians depreciated their currency if needed. Now, however, there is of course no national currency anymore, so this road is blocked. Given the absurd rules of EU economic governance, the only way to get out of the crisis is also blocked. Due to German wage moderation, all other economies are suffering: there is deflation, unemployment and no investment to speak about. If the countries accumulate a budget deficit, the EU forces them to implement austerity. Austerity makes solving the crisis impossible. Macroeconomically speaking, this makes no sense whatsoever: if there is no demand (because of falling or stagnating wages) and there is hardly any or no investment – even if interest rates are zero – the only possible logical conclusion is that the state has to step in and invest in order to reboot the economy, but this is forbidden in Europe for nonsensical and ideological reasons. The final result is that several countries in the south are in recession and many more countries are near recession. An increasing part of the electorate is turning away from Europe towards nationalist and (extreme) right wing parties. This makes the problem even more unsolvable.
The interview can be watched here.
Heiner Flassbeck recently wrote two articles on the Italian situation:
The Italian patient. A macroeconomic analysis. Part 1 can be read here.
The Italian patient. A macroeconomic analysis. Part 2 can be read here.