Around the world: Brexit, social impact, Europe, Italy, Asia

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BREXIT/Italy to the collapse: It's all in the Asian '97-98 crisis?

Francesco Sisi

June 30, 2016

The largely dreaded Brexit has arrived, and the consequences are apparently so immense and unpredictable that they were neither seen nor anticipated. Neither the EU nor the Britons had prepared a plan B, that is, what they would’ve effectively done if the referendum had chosen to leave the Union.

Such is clear from the first frantic reactions of the European Commission President Jean-Claude Junker, who, in substance, said to the British: “and now get the hell off of the EU ASAP” and from the British themselves, who, in the few hours following the results, garnered two million signatures to vote again, while the Scottish formally announced they would stay with the EU and leave the UK instead.

However, many in the world don’t worry as much about the destruction of the Kingdom, which, through many difficulties was united for centuries, but instead, of the break of the more convoluted EU and its currency, the Euro. It could create global financial crises and worsen social and political tensions inside and out of the fleeting confines of the Union.

Many financiers expect this and are betting their money against the European currency; beginning from the speculator/philosopher George Soros. The perspective for Europe could to become much like Asia during its 1997-98 financial crisis. At the time, the fall of the Thai Baht gave rise to a series of vast social upheavals that ended regimes and widespread government practices in the region, from Japan and South Korea to Indonesia and India. Only China resisted that financial storm, but only because its currency wasn’t freely tradable.

Today, the UK’s exit from the EU is much more critical than the fall of the Baht in 1997 and the global clout of the Euro area is much stronger than that of the Asian economies 20 years ago. Then, only the Japanese Yen was a giant; the others were only financial dwarfs. So, something much worse than the 2008 crises (started in the USA) could occur now, while the old 2008 wounds have not yet totally healed.

A prompt remedy is required before the disaster spreads out of control. The immense confusion of these times has many fathers, and history books will certainly produce thousands of volumes on the subject. Here it worth noticing briefly that faulty are not solely those who roughly used the delicate cudgel of democracy, but also of the many bureaucrats who, for years turned a deaf ear to popular cries for reform of the Union. Unelected demagogues and self-righteous mandarins are mirror images: there are those who stir the lowest popular moods and those who inhabit ivory towers and refuse to listen. Missing in between is real democracy and the ability to drive the continent through gigantic and impervious transformations.

The, today, the prospective isn’t rosy: will those who failed in normal times succeed in extraordinary ones? It’s difficult, but it is more than possible: it is essential to the survival of all.

Presently, two measures are necessary to stop the wave of panic that could engulf the markets like a tsunami over the next few weeks: 1) The EU needs to establish a moratorium for the British to freeze the Brexit for about two years in order to give all time to ponder how to come out of this tunnel. 2) The German and the French must bilaterally decide to proceed in a political union, so other countries may follow suit or not. The political union is necessary to block other sprouting individual attempts to break up the Union and to give Europe all the instruments to govern the economy: only the Euro isn't enough.

The second measure is difficult, yes, but it is indispensible to place all countries before their own responsibilities: in or out of the Union. If they decide for there must be a plan to break up the Euro and return to every country's respective currency. The political union will have enormous yet predictable social costs; breaking the Euro will have greater and unpredictable ones.

With this said, the British, German, and French, other than thinking of their own pains, must also consider the largest loose cannon of the Union Italy. Differently from other delinquent countries such as Spain or Greece, Italy's problems are increasingly severe. Its public debt, and now its banking debts are so large that no-one in the world can solve in its own.

Furthermore, after the defeat of Premier Matteo Renzi at the administrative elections of the past week, the country appears rudderless. Renzi, after promising a ‘flamethrower’ against the apparatus of his party (guilty of the defeat), had been catatonic for days. This reaction, more so than the defeat, proves that the premier is overworked and that the government, beyond whatever majority numbers in Parliament, is already in crisis. Brexit has multiplied the impact of the current Italian crisis.

With uncertainty surrounding the intentions and actions of the UK, Germany, and France, Italy must brace for every scenario, and this requires a nationally united government. If Renzi has the courage and ability to lead the country forward; good; but he needs to do so expediently. Otherwise, the task falls back on the shoulders of the man who, for the last decade, has never backed down: ex president Giorgio Napolitano. For the PD, government party, the point is not to unite with the right crushed in the elections but to bring the rising M5S to the government.

Lao Xi on these pages has never spared criticism to the movement, but this is a fundamentally historical moment for Italy and the continent; everyone needs to contribute and no one can afford to spurn anyone else. The constitutional referendum, scheduled for next October, must be frozen and postponed, and extraordinary measures must be agreed upon with Germany and France to secure the Italian debt and swiftly admit Italy into the new European political union.

If a political union fails to materialize, Italy will need a government of national unity more than ever. The consequences without measures in this direction may be dire. The collapse of the British Pound will bring down the Euro with it, interest rates on treasury bonds of various countries will rise, and the gap on rates between Italy and Germany will widen.

A flight of capital could first hit the banks, virtually already bust, and then the state. If Italy collapses it could take the continent down with it. To prevent this scenario, Germany and France must swiftly announce a political union and German Chancellor Angela Merkel must fulfill her destiny and become a new Marie Theresa of Austria.

Thereupon, the hope is for the UK to return to the union and take part in its leadership. Ever since the Hundred Year War, half a millennium ago, Britain has always moved to unify the dominion of its islands and keep the continent divided. If London doesn’t return to Europe and decides to contribute to its leadership, not only will Europe unite against her, but the UK will break apart from within, as seen clearly in these few tumultuous days.

Naturally, there is no certainty when speaking of the future, but one thing is for sure: an epic earthquake has started. Every delayed hour of action brings more deaths to the street; the experience in Asia, twenty years ago, proves it.

In Italy Renzi must move, or please President Napolitano or Mattarella, you do it.

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