The EURO rescue effort and the Italian election result

Dialogue with the Alter Ego on a turbulence in financial markets, drafted and published on Feb. 27, 2013

Question by Alter Ego of Noah denkt™ (AE): Sunday’s elections in Italy which ended in a hung parliament have raised serious questions about the viability of the current EURO rescue effort. After all, it can’t be denied that a vast majority of Italian voters choose to distance themselves from a Monti-like austerity approach and opted for those who promised to be less rigorous here. How does Noah denkt™ evaluate the market situation now?

Answer by Noah denkt™ (Nd): Well, we were expecting that sooner or later something would come up that would challenge the solidity of the Euro rescue effort. We didn’t foresee however that it would be Italy that would cause the subject stir.

AE: Yes, we are aware of the fact that you have repeatedly expressed your concern about the unresolved debt crisis in Greece.

Nd: And we continue to be worried about that. In fact, it seems to us, as if a forced exit of Greece out of the EURO-zone could provide the inflection point that would finally allow the austerity weary countries in the South, to rally behind the EU’s rescue effort.

AE: How so?

Nd: Well, if Italians, Spaniards and Portuguese had the opportunity to see for themselves how dramatic the implications actually are that a EURO exit brings about, at least in the short run, they would probably realize that it is better to wholeheartedly cooperate with the EU rather than to constantly question it. After all, it isn’t the austerity itself that is delaying the recovery, it is much rather the fact that people don’t see any hope in this belt tightening, which is causing our economy to stagnate.

AE: In other words, you want to shock the Southern Europeans into supporting their local austerity and fiscal reform projects?

Nd: You could put it like that. But you could equally say that we want to help them to understand how important is that they accept the reality they are in.

AE: And there is nothing immoral about that?

Nd: Well, in our mind it is immoral to pretend that Greece could actually get out of its dire straights by staying inside the EURO. This is such a denial of reality that any leveling with the truth here can only have a healing effect on all parties concerned.

AE: Okay, let’s just make it clear for the record, that this Alter Ego finds your healing theory to be pretty far-fetched. But be this as it may, let’s get back to the situation in Italy. What do you think will happen here?

Nd: We trust that the Italian political class will find a way out of the current predicament that doesn’t put the overall Euro rescue in jeopardy.

AE: What makes you so hopeful here?

Nd: Well, first of all, we have tremendous faith in the ability of Italian politicians to find a way out of a situation that others would find impossible to resolve. And secondly, it seems to us as if there is simply no reasonable alternative to the current EURO rescue effort. And we are pretty sure that reason will eventually impose itself.

AE: What does “eventually” mean in this context?

Nd: Pretty soon.

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