The EU nightmare came true on June 1, when the first “populist”
government of a large country in the Eurozone was sworn
in. The first attempt of the M5S and Lega to form a coalition
government had failed, when State President Mattarella vetoed
the designated Finance Minister, Prof. Paolo Savona, of a cabinet
led by Prime Minister designate Giuseppe Conte (cf. SAS
22/18). But Matterella’s peremptory decision to name technocrat
Carlo Cottarelli as Prime Minister caused such an uproar,
including that he would get zero votes in Parliament, that he
had to backtrack.

A solution to save face was found by shifting
Savona to a second-rank ministry, that of European Affairs,
but the controversial professor did get to pick his successor,
Giovanni Tria, who may not have campaigned for a “Plan B”,
but is on record as saying the euro is not irreversible.
As economist Prof. Michele Geraci – who is close to both the
M5S and the Lega leaders – commented in a CGTN interview,
Tria is a little bit like Savona, perhaps not so outspoken, but
someone who can fulfill the Lega mandate to defend Italian
interests in Brussels and Frankfurt. Geraci added that “the fact
that he has some interest in China is positive.”

Indeed, Prof. Tria is more than a little interested in China.
Not only does he speak Chinese, but as President of the Tor
Vergata University in Rome, he developed relations with China
in several initiatives and projects aimed at connecting Academy
and Industry, especially in Zhejiang province.
“You don’t always find personalities who have understood
the frequency of the fine-tuning with China, and Tria is one
of such personalities”, a source who knows Tria told EIR. It is
expected that he will now transfer his approach to the broader
government policy.

As for PM Giuseppe Conte, he has no government experience,
so it is expected that an influential role in the government
machine will be played by Lega heavyweight Giancarlo Giorgetti,
the Under-secretary of State to the Prime minister. Like
three other members of the government – Interior Minister
and Lega head Matteo Salvini, Agricultural Minister Gianmarco
Centinaio and Family Minister Lorenzo Fontana — Giorgetti has
signed the petition for reintroducing Glass-Steagall launched by
the LaRouche movement in Italy.

On the other hand, Foreign Minister Enzo Moavero Milanesi is
a figure borrowed from the past pro-EU Monti government, in
a compromise aimed at keeping Brussels, Berlin and Paris quiet.
A question mark remains as to the M5S group of economic
ministers: Luigi Di Maio (Labor and Industry merged together),
Danilo Toninelli (Transport and Infrastructure) and Barbara
Lezzi (Mezzogiorno).

The Cinque Stelle have been dominated
by an anti-industrial mob and have campaigned against large
infrastructure projects such as the Turin-Lyon Trans-European
Network and the Messina Bridge, and for the shutdown of the
ILVA steel plant in Taranto, the largest in Europe. One can hope
that the more reasonable faction will prevail over the mob.

If the new Italian government challenges the failed austerity/
balanced budget policy of the Eurosystem, the European Union
can be expected to again deploy the same tactics it used against
the Berlusconi-Tremonti government in 2011. At that time,
rating agencies downgraded Italian bonds, activating a selloff
which the ECB refused to counter. As a result, the yield rose
to a rate which would be unsustainable in the long run, giving
Italy the choice of a default or the Troika. A form of the latter
was then implemented – a Troika policy without the Troika –
with the Monti government.

That same mechanism has been activated again, with Moody’s
announcing a review of the Italian debt May 25 and then five
days later, a review of 12 Italian banks. This forced the yields
on Italian bonds to rise and fueled an orchestrated discussion
on the threat of an Italian default.

Nonetheless, a €5.5 bn tender of six-month Italian bonds
was fully placed on the market on that day, thanks to a massive
intervention by American banks which bought most of it (4.5
bn), leading some to suggest possible help from the “populist”
US administration.

Beyond that, the best way to insure an Italian default is to
insist that the country stay in the Eurozone. As it now stands,
Italy’s dependence on a foreign currency (the euro) makes it
impossible to use the deterrent of debt monetization which allows
Japan, for instance, to run a much larger debt and deficit
(250% debt on GDP against 130% and 10% deficit against
2.3%) with no threat of default. Because Japan’s debt is entirely
domestic and thus wholly represents credit extended by
its citizens, whereas Italy’s debt is 50% domestic-owned, 25%
foreign-owned and 25% owned by the ECB.

If Italy leaves the euro and re-establishes sovereignty over its
currency and credit, that debt can be managed. If it stays in the
Eurozone, it will become unpayable like in Greece and a default
becomes a credible proposition.

An Italian insolvency would have repercussions on banks in
the EU which hold that 25% of the debt, especially in France
and Belgium. Dexia for instance has €15 bn in Italian bonds,
twice as much as its capital. The media, however, have launched
a scare campaign by implying that in the event of an already
unlikely sovereign default, that would automatically lead to a
default on the loans by private companies as well.

While the total exposure of French banks on the Italian market is 311
bn, of German banks 91 bn and Spanish banks 66 bn, only a
portion of that (145 bn) is exposure to sovereign debt. Recent
years have shown however that commercial credit becomes
non-performing in an EU-induced recession such as in Italy


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