Yanis Varoufakis gets around, and much like the dreaded contagion of the financial crash, he’s rarely as advertised. When he appeared on the Russell Brand podcast (the day before the British General Election) he was a little downbeat; not at all positive about Corbyn’s chances.
Whereas, when he spoke at the DiEM 25 meeting in Dublin, he was the embodiment of positivity in Doc Martens. So much so that Vincent Browne told him to stop being so idealistic!
I guess the lesson is this: know your audience.
It is with this simple wisdom in mind that I read about last weekend’s Italian bank bailout. You see Italy has just pumped €5 billion into two banks that are not considered systemic to the Italian economy. The final bill (if any of these things can have a bill that doesn’t include the societal damage) is estimated to be in the region of €17 billion.
This burden, and it will be a heavy austere burden, will fall on the citizens of Italy and not the bondholders of Italian banks.
But the good news is that “Markets have rallied as a result”. The socialisation of private debt in order to protect market confidence, how very Irish of those Italians, hey?
A couple of weeks ago the Spanish had there own bailout bonanza. Santander, the private bank, raised €7 billion in a rights issue to bailout the Banco Popular. Santander then burned Banco Popular’s bondholders to the tune of €3.3 billion and completed the purchase for the symbolic amount of €1. No taxpayers money was involved in this Bailout/Bail-in.
So why did Italy opt to burn the citizenry and Spain the bondholders? The answer lies with Yanis Varoufakis and knowing your audience.
The Italians are less than 10 months away from a General Election, that’s just enough time for voters to not feel too much pain from the bailout and what would have been too little time for large investors and bondholders of the banks to forget their pain.
The two Italian Banks in question, Banca Popolare and Veneto Banca, have depositors and senior creditors who the Italian government do not want to upset.
So rather than use the EU’s bank-failure law, (the Bank Recovery and Resolution Directive) they took “a very pragmatic decision… that shouldn’t affect investor confidence”. Gotta keep those investors confident, right?
So we have an a la carte menu in Europe now. I’d like one slice of a bailout, a large portion of a bail-in and can I get a good bank/bad bank diet coke to drink? Certainly, Sir. Could I interest you in some pragmatic pie for dessert?
Meanwhile, in Ireland we successfully sold just over a quarter of AIB, raising around €3 billion. Money, as the the best little country in the world to do as it is told, we are going to use (waste?) in paying down our debt. We are eating the Irish-Italian menu of toxicity. The one whose audience is for the bondholders, private investors and the European Commission, and not the citizens of the state.
When Spain breached the EU deficit rules the EU Commission sent them a fine of €2 billion. Spain promptly told the EU to go take a long walk on a short pier. The EU backed down and sent a symbolic fine of €0, citing “past fiscal efforts and the risk of a backlash” as their reasons for capitulation. The EU Commission knew its audience, it backed down.
Here in Ireland, we run in fear of the EU Commission and its possible fines. Irish Water, paying down debt and our budgetary gymnastics around the Fiscal Deficit are all examples of our Government working for the EU audience, rather than us.
In fact, the only time we stood up to the EU Commission was in the interests of Apple’s taxation acrobatics.
We have a new leader who doesn’t speak power to truth, he’d rather discuss pop culture. He has a grand vision, with himself at the head of it. His backbone in facing down Fianna Fáail and brazening out the Máire Whelan stroke goes missing when he’s representing you and I.
When he’s playing to his favoured audience he becomes Hugh Grant, or some other narcissist . What hope do we have of avoiding the property bubble floating along Sir John Rogerson’s Quay?
Yanis Varoufakis has a vision for a European Constitution that puts the citizens ahead of the markets. Yanis, I’d imagine, sees what has happened in Italy as the opposite of his vision; a missed opportunity to show how Europe can act as a protector of people and not markets. DiEM 25 has many great solutions, but so did Italy last Friday.
The EU had an opportunity to help Italy, the Italian government had a choice between market confidence or their people’s well-being. Both parties chose to opt for the Irish Stew. Me, I’d love some Spanish tapas. Luckily for me, they serve them in the Gravedigger’s.
Tony Groves is a full-time financial consultant and part-time commentator. With over 18 years experience in the financial industry and a keen interest in politics, history and “being ornery”, he has published one book and writes regularly at Trickstersworld