The European financial crisis continues to worsen as fears grow that Italy may become the latest nation in need of a massive bailout. The European Commission admitted today that the entire eurozone could be plunged into a recession in 2012. While Greece, Ireland and Portugal have already received international bailouts, the debt situation in Italy is considered far more dangerous. It is the eighth largest economy in the world — larger than Greece, Ireland and Portugal combined. On the political front, Italy remains in a state of upheaval as Italian Prime Minister Silvio Berlusconi has pledged to step down after parliament approves sweeping austerity measures geared to placate markets. We go to Rome for an update from Antonio Tricarico, coordinator of the Italian organization Campaign for World Bank Reform and a former economic correspondent at the Italian newspaper Il Manifesto. [includes rush transcript]
This is a rush transcript. Copy may not be in its final form.
JUAN GONZALEZ: The European financial crisis continues to worsen as fears grow that Italy may become the latest E.U. nation to need a massive bailout. The E.U. Commission admitted today that the entire eurozone could be plunged into a recession in 2012.
While Greece, Ireland and Portugal have already received international bailouts, the debt situation in Italy is considered far more dangerous, because it is the eighth largest economy in the world, larger than Greece, Ireland and Portugal combined. Italy is also a member of the Group of Eight and one of the original founding states of the European Union. Now the debt crisis in Italy is threatening the future of the eurozone and the euro currency. On Wednesday, Italy’s borrowing costs reached over 7 percent, a level that could close its access to market funding. When their borrowing costs reached that same level, Ireland, Portugal and Greece were forced to seek bailouts.
Franco Pavoncello is a professor at John Cabot University in Rome.
FRANCO PAVONCELLO: With the spread at 500 and the interest rate at 7 percent, certainly it’s getting more serious by the day. There is a combination of economic and political factors that are quite worrisome. The lack of growth, the lack of growth of the GDP, and the growing interest rate that Italy has to pay is certainly a cause of concern, especially if you—if you join it to the fact that this government seems too weak to really push through this kind of maneuver that is necessary. So, right now I think that things are getting worse. We are not there—we are not yet at the—you know, at really—at the moment of no return, in my opinion, but I think it’s getting serious.
AMY GOODMAN: On the political front, Italy remains in a state of upheaval. Italian Prime Minister Silvio Berlusconi has pledged to step down after parliament approves sweeping austerity measures geared to placate markets. It remains unclear who will lead the next Italian government, though former European Commissioner Mario Monti has emerged as a frontrunner.
Proposed austerity measures include increasing the retirement age in Italy, weakening labor laws, and expanding privatization of Italy’s resources. In June, Italian voters passed a historic referendum against water privatization, but European leaders are now pressing Italian politicians to ignore the referendum and sell off Italy’s water resources. Critics of the austerity measures predict unemployment will soar in the coming year.
For more on the Italian economic crisis, we’re going to Rome. Joining us is Antonio Tricarico, coordinator of the Italian organization Campaign for World Bank Reform and a former economic correspondent at the Italian newspaper Il Manifesto. He was recently at the G20 Summit in Cannes.
Antonio Tricarico, welcome to Democracy Now! here in New York. Talk about what’s happening in your country, in Italy.
ANTONIO TRICARICO: Good morning, everyone.
Well, we are at a crucial stage in terms of the political crisis. As you said, Berlusconi is about to step down in the very next days after the change to budget law will be approved, quite likely on Saturday. There is more and more a consensus among political parties that Mario Monti might be the new prime minister, what should be an interim, technical government, what you might call a coalition government for unity, national unity.
But it’s very, very scary what is going to happen. I mean, basically, all the austerity measures coming from the European Commission, also with the support of the IMF, after the decision at the G20 in Cannes, will go through on Saturday. But already there are discussions about additional measures in terms of privatization of public assets and in terms of reform of the labor system in the country. I think this will lead in a national—Italy into a tragedy. This will lead the economy, the whole economy, into recession, which might become a real depression, and this will automatically trigger a banking crisis.
I think there are serious responsibilities, of course, in the country, and the Berlusconi legacy will stay there. But I think it’s worth discussing also about the responsibility at the European level, in terms of the European Central Bank, in terms of the European Commission, and in terms of the German government. Applying to Italy the same measures that have been pushed through in Greece would basically even increase the problem in the long run, and I think Italy is too big to fail for the eurozone. So I think they’re really playing with fire, and the time has come for change in policy to understand how new public policies can basically trigger not just like growth, but redistribution. And in particular, we should review the overall role of the European Central Bank. But it seems that, unfortunately, the crisis is giving even again more political space for financial markets for pushing—and even, I would say, appointing—who will be the successor of Berlusconi.
JUAN GONZALEZ: Well, many of the critics of what’s been going on in Europe are claiming that the other, especially the southern European countries, should have been adopting a long time ago more responsible debt policies, such as Germany has. But you’ve been critical of a E.U. domination—of Germany’s domination of policy in the E.U. Could you explain what the criticism that you’ve had of the Germans and what they’ve imposed on the rest of the E.U.?
ANTONIO TRICARICO: Well, I mean, I can acknowledge that there has been a lot of mismanagement in countries like Italy, Greece. But again, you know, this is an issue about mismanagement in the public administration, and there should be responsibilities, and those responsible should be brought to justice.
But I think it’s fair to say that in the ’90s, with the German reunification, the German government imposed an adjustment to the German economy for making Germany a global powerhouse in terms of global trade and make Germany competing globally, so that the overall internal market of the E.U. has become basically a machinery for supporting this global role of Germany. And there are today statement by Angela Merkel, the German chancellor, is [inaudible] against this line. You know, finally, the German government admitted in public that a collapse of the euro would mean—would be a major blow for the global strategy of Germany.
And this attitude of Germany, which of course is triggered by, you know, a big adjustment and the heavy costs in the ’90s in Germany in terms of the labor system and so on, but has increased also with the establishment of the euro, the introduction of the euro, has increased regional imbalances. All the competitiveness, the productive assets in southern European have decreased. And basically all the trade and investment surplus of Germany has gone into the southern Europe, by reducing further, producing deindustrialization. So there is an overall question about that, that the European economy model is not sustainable, as long as Germany and the central power in Brussels see that competing globally is the only way out. And I think we got to the point where this has to be reviewed.
Now, there is no interest, and unfortunately no solidarity, in German—not just in the government, I would say in the majority of the German people—in redistribute wealth and thinking about different European governments. And I think that’s a real, real problem. What is at stake today is not just like the euro; it’s really the overall E.U. project. And this is something the American people should be concerned about, because whatever will happen in Europe will have a spillover in the U.S. economy.
AMY GOODMAN: I want to play a comment British Prime Minister David Cameron made today about Italy and the eurozone.
PRIME MINISTER DAVID CAMERON: What is happening in Italy is a warning to any country, any government, without a credible plan to deal with excessive debts and excessive deficits, that you need a plan, and you need to stick to that plan, if you want to keep interest rates low so your economy can grow. But there is another issue, too: the future of the euro. Italy is the third largest country in the euro. Its current state is a clear and present danger to the eurozone, and the moment of truth is fast approaching. If the leaders of the eurozone want to save their currency, then they, together with the institutions of the eurozone, must act now. The longer they delay, the greater the danger.
AMY GOODMAN: That’s British Prime Minister David Cameron. Less than a month ago, the French president, Sarkozy, bluntly told Cameron, "You’ve lost a good opportunity to shut up." He added, "We’re sick of you criticizing us and telling us what to do. You say you hate the euro, and now you want to interfere in our meetings." Antonio Tricarico, your response?
ANTONIO TRICARICO: Well, I mean, public debt is an issue. But again, the major problem we have now in Europe is a banking crisis. All the crisis originated from a banking crisis in the U.S. and globally. And again, this public debt crisis might turn again into a banking crisis. So the overall issue is that the euro has been constructed in a way that the model of global banks was basically taken over on a lot of productive assets, and this has somehow limited even the integration, the economic integration, a balanced economic integration, in Europe.
Now, Cameron, of course, is supporting a certain stereotype U.K. view, saying Europe has the resources, the eurozone, and so they should help each other, including Italy, as long as they reduce the overall problem. But the question is that Italy is really too big, is too big to fail and is too big to be bailed out properly, so that the overall question is also that while we need some emergency support in terms of solidarity—that we don’t see at the moment, actually—the real question is how to basically rebalance the overall situation in Europe. I think there is no interest in doing that, because the same type of model of policies, which have produced this failure, are being pushed through by Germany, France and the European Commission.
So, beyond the usual hostility between some of the European countries, I think there is a complete lack of vision about how to get out from the crisis in a different way. There is the question about restarting the economy, relocalizing some sectors of the economy, rethinking distributional labor both regionally and globally, and this is not tackled. So, as long as these fundamental structural causes of the crisis are not addressed, through expansionary policy, through also new public policy, I think it’s very difficult we get out from this mess.
JUAN GONZALEZ: I’d like to ask you about the response here in the United States to the crisis. At last night’s Republican presidential debate, virtually all the candidates were asked about the crisis in Europe, and they basically responded that, well, the Europeans have to handle that themselves, we don’t support any bailouts. And they seemed to try to separate the United States from what was going on in Europe. But isn’t the reality that many financial institutions here in the United States—I think the estimate is that $500 billion in credit default swaps are basically guarantees, insurance, on loans, and debt in the eurozone could drag down many U.S. financial institutions, as well?
ANTONIO TRICARICO: Oh, this is absolutely true. Again, the contagion will happen through the banking system. And the U.S. banks are closely linked with the major European banks, and the major European banks are heavily exposed to the public debt here. So, whatever will happen, we will face a situation where we will have a lot of European banks again under stress, with a lot of problem in terms of assets, in terms of toxic assets, which in any case might be transferred in the global market. And again, the U.S. banks, they lend each other. So I think there is a serious risk for the U.S. economy.
The question about whether the U.S. should intervene—well, this is very tricky, because this goes around, you know, the new geopolitics, including emerging economies, and the question is whether also emerging economies should intervene and so on. It’s true that there are a lot of resources in Europe. One issue is about supporting each other, and maybe through a different way of operating, it’s true that within Europe, at large—European Union, not just the eurozone—these resources might exist. But the other question is also which different policies should be implemented for not going in a worse situation. And I think it’s quite legitimate that the people outside of E.U. and governments outside of E.U. have doubts about pumping money into the European system for a bailout or for help when the same policies are producing more failure. So I would like to recall that here the European Central Bank, contrary to the Fed, is not intervening at all in terms of supporting the economy. We can wonder whether, you know, the Fed action is successful or not. But in any case, there is not even the conception about this public intervention in the economy, and I think this has to be reviewed. So, a lot of doubts are legitimate, but for sure they will be impacting whatever will be happening in Europe, and this has to be taken into account also in the U.S. policy.
AMY GOODMAN: And this push by all the European leaders to privatize, in the referendum that was passed, against especially water privatization?
ANTONIO TRICARICO: Oh, this is really outrageous. I mean, I don’t know any other word other than to say this is outrageous. This is a fundamental blow to democracy. Having an institution which is not democratic, in terms of it’s not directly elected, like the European Commission, asking a government who had to cancel a law, after a public referendum, asking the government what measures will be put in place to bypass the popular decision and the existing new law blocking water privatization, I think this is something which takes away any credibility and legitimacy of the European Commission for imposing these measures.
But this is very telling about, I think, the level of ideology and the major attack, I would say, to real democracy in Europe which is going on at the moment. You can always argue that, in the crisis, that’s where many things happen. The same happened in Italy in '93, when a technical government was put in place, under stress of financial market, and there was a financial crisis. And that's where the first big wave of privatization happened. That’s where key banks, like Goldman Sachs and Barclays, were advising about how to privatize everything. And again, you know, this would be the completion of that project. I think this is really a matter of democracy. If they keep moving this way, I would expect there will be more and more reaction and anti-European sentiment. And it might be very risky, as well, anti-German sentiment in the peripheral Europe. Again, I think they’re playing with fire. They underestimate how deep and real are the implications of this project.
AMY GOODMAN: Antonio Tricarico, we want to thank you very much for being with us, coordinator of the Italian organization Campaign for World Bank Reform, based in Rome, former economic correspondent at the Italian newspaper Il Manifesto, recently at the G20 Summit in Cannes.