€urosclerosis: the Tower of Pisa leans further still

From The Telegraph:


Italy’s banks shaken as economic slump deepens


As Greece erupts, Italy is moving into the eye of the storm. Its economy is contracting at speeds not seen since the depths of the slump in 2009 as draconian austerity bites, greatly increasing the risk of social revolt and a banking crisis.
By Ambrose Evans-Pritchard, International business editor | 9:10PM BST 15 May 2012

With the world’s third largest debt after the US and Japan at €1.9 trillion (£1.18 trillion), it is big enough to bring the global financial system to its knees. It is also in the front line of contagion as the Greek crisis metastasizes.

Yields on 10-year Italian debt jumped 16 points to 5.86pc on Tuesday after Italy’s data agency said the country is sliding even into deeper recession, with GDP shrinking 0.8pc in the first quarter.

Output is now 6pc below its peak in 2008. Italy has been trapped in perma-slump for a decade, the only major state to suffer a fall in real per capita income since 2000.

Rising anger has led to a spate of violent attacks by terrorist groups over recent weeks, all too like the traumatic ‘years of lead’ in the late 1970s. The government is mulling use of troops to protect targets after anarchists shot the head of Ansaldo Nucleare last week and hurled petrol bombs at tax offices.

The unelected government of Mario Monti is carrying out net fiscal tightening of 3.5pc of GDP this year even though Italy’s budget is near primary surplus. This is three times the International Monetary Fund’s “therapeutic” pace. All key measures of Italy’s money supply have been contracting at 1930s rates over the last six months.

Our liberal from Lewes would say, “See? This is what austerity does to you!” And that’s true enough, but Italy has no choice! In frightening confirmation of Margaret Thatcher’s maxim, they have run out of other people’s money.

Economists are worried about what will happen to the world’s financial system if Italy defaults on it’s €1.9 debt; what would happen if the United States defaults on our $15,676,996,273,860.82 debt?

This is why we at THE FIRST STREET JOURNAL are so concerned about our rising debt and absolutely oppose further government deficits to “stimulate” the economy: we’ve been stimulating the economy for half a century now, and what has it gotten us but further in debt?

The austerity solution is not a very pleasant one, to be sure, and a lot of people will be hurt. The only advantage it has is that it’s better than any other solution.