Carlo Cottarelli was asked to try to form an Italian government by President Sergio Mattarella. There is no chance that Cottarelli will obtain the confidence of Parliament (parties including a majority of deputies have brought up the possibility of impeaching Mattarella for nominating Cottarelli).
Mattarella is using his extraordinary powers to fight populist nationalists who disrespected the Euro. Cottarelli is an odd choice for an anti-anti-globalist — he is currently a top official at the IMF. Nominating him is a declaration of absolute opposition to the current majority in Parliament.
My view is that the rise of populist nationalists in Europe is a terrible thing (not quite as bad yet as their taking power in the USA but getting there). I also think the blame mainly belongs to DG-EcFin and the Eurocrats who do not pretend to respect Democracy, who don’t see 11 % unemployment as relevant to macroeconomic policy making, and who are technically incompented technicians.
Being vain, I googled [waldmann stability and growth pact] to find out to what extent I could tell them I told them so. I found this worthwhile still relevant blog post by Roberto Tamborini. It denounces the application of the stability and growth pact and is well worth reading. But I was most struck by the references (which include the name Waldmann because Waldmann googled himself)
Cottarelli C. (2015), “Potential Growth Rates and the Working of SGP Fiscal
Rules”, Vox-EU, 2 March.
Fioramanti M., Waldamnn R. (2016), “The Stability and Growth Pact:
Econometrics and Its Consequences for Human Beings”, Vox-EU, 19 November.
It turns out that I agree entirely, completely, 100% with Carlo Cottarelli. He has been arguing against Brussels’s approach to austerity. He is much more able than I am to write for non-economists. He makes a very simple practical proposal which I entirely embrace — he says that structural unemployment not NAWRU should be used to calculate output gaps. This is actually very important. I am quite confident there is no counterargument based on econometrics or economic theory. It would have prevented the imposition of pro-cyclical fiscal policy. If they had listened to him, he might have been saved from the very unpleasant next few months.
But voters don’t know this, won’t learn, and wouldn’t care. The stability and growth pact NAWRU nuts have discredited Europe, the Euro, international organizations, economics, and time series econometrics. Italians won’t settle for demanding that output gaps be calculated with structural unemployment, after someone promised to demand that the European Central Bank fork over 250,000,000,000 Euros.
Good thing that insane devotion to austerity and a strong currency has never provoked really dangerous extremism in Europe.
In light of all that, why don’t you support abandoning the euro since that appears to be the only way to escape EU austerity demands?
Abandoning the Euro is easier said than done. It can’t be done quickly ,because lire or Italos or whatever have to be printed. The transition to the Euro wasn’t totally easy and it was prepared for years. On the other hand, Italy certainly can’t abandon the Euro slowly — as soon as leaving the Euro becomes a serious possibility Italians (and your humble servant who is resident in Italy) will run to banks to take out Euros before they become something which will depreciate. The transition from a trusted to a not at all trusted currency requires a banking holiday.
I think the Greeks would have been wise to abandon the Euro and default on their foreign debts, but that was when their banks were all closed already.
My proposal for Cottarelli is to go to Brussels and tell them they can deal with him or with Salvini DiMaio and Grillo & that if they want to deal with him, they better radically modify their austerity demands.
I see that the market is reflecting a lot of concern over this and China.
I disagree with your comment that “the rise of populist nationalists in Europe is a terrible thing (not quite as bad yet as their taking power in the USA but getting there).” You don’t explain why, but I assume it has something to do with some notion of one country helping another is “good”.
Here’s what economic integration has done in Europe. Italy, Greece and Spain have taken advantage of the low rates availed them as part of being in the EU with hard working Germany to issue a lot of debt. Despite the global bailout of the early 2010’s, we still have debt to GDP ratios in these countries from 100% to 180%, all past the point of sustainability. The 90% cut off referred to by Reinhart and Rogoff may not be gospel, but it’s not a bad rule of thumb.
Germany doesn’t need to have Spain trashing the Euro for them. Germany should go back to the DM, and force wages down in Germany so that they can continue to sell globally. I know, trade union agreements make this difficult, but you cannot sensibly run a currency if you let unions get too strong. You go back to the union and say look, we’re going to fire half of you unless you rip up the contract and negotiate new terms considering our new, very strong DM.
The other thing is you have to keep a tight lid on immigration. Make the corporations ASK for the immigration, with promises as to employment. you can’t just dump a lot of immigrants who can’t speak the language into the national workforce.
This has nothing to do with “hating immigrants”. It has to do with making sure working age immigrants are quickly put to work productively. If they can’t be, they can just as easily lounge around in the country they came from as the one they are in now. You can’t have a generous welfare system and open borders, that’s just common sense.