Counterparties: Italy’s protest vote

February 25, 2013

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to

The votes in the Italian election are in — and it’s not likely that Italy will be able to form a government.

The FT writes that Italy is facing a second election, after voters delivered a “resounding rebuff to austerity policies.” Fabrizio Goria, who’s been tweeting up a storm throughout the election, put it this way: “So, Italians said FU to Merkel, isn’t it?” Joe Weisenthal thinks Monti’s demise is emblematic of Italy’s turn against “elite Europe”.

This has been an election which featured an ex-prime minister who’s about to face trial for allegedly having sex with an underage night-club dancer and who was sentenced to four years in prison for tax evasion; a comedian running on an “antisystem” message; and Mario Monti, the country’s current prime minister, whose campaign a rival compared to a coma, and whose alliance is set to finish in fourth place.

Polls showed Silvio Berlusconi’s center-right party leading in the Senate vote over Pier Luigi Bersani’s center-left coalition. (Bersani’s party was ahead in the house). Comedian-turned-politico Beppe Grillo, beloved by Italy’s 40-somethings, was expected to win 64 seats in the Senate — the largest vote haul of any individual party. The Bersani and Berlusconi coalitions, by contrast, will both get only 116 or so seats each — nowhere near the 158 seats needed for a majority. Because a government needs to have a majority in both houses to pass laws, the split Senate vote could make the country ungovernable and lead to another election.

If you’re confused already, Reuters has a quick explainer on how the Italian election works. In short, it’s just as dysfunctional as we saw in Greece last summer.

Markets, not surprisingly, hate the whole “ungovernable” thing. Nicholas Spiro of Spiro Sovereign Strategy warned the FT of the consequences of a Berlusconi win: “financial markets are facing the worst of both worlds in Italy: a full-blown political crisis in the eurozone’s third-largest economy and a severe setback for the liberal economic agenda championed by Mr. Monti.”

Late last year, Monti said that his economic agenda may have saved the Eurozone. But his $43 billion austerity project, which included budget cuts, higher taxes, and raising the retirement age, certainly seems to have cost his party the election. Paul Krugman, probably austerity’s most prominent critic, agrees that Monti had placated the debt markets. But unless austerity is rolled back, he writes, Italy’s populist turn will be just a ”foretaste of the dangerous radicalization to come” in Europe. — Ryan McCarthy

On to today’s links:

What the sequester will do: Furloughs, layoffs & benefit cuts for nearly two million long-term unemployed – NYT

America may now have a housing shortage – Sober Look

Crisis Retro
Saying CDOs “could be structured by cows and we would rate it” apparently won’t get you fired at S&P – WSJ

“You always see a lot of M&A activity when the market is overvalued” – James Stewart

Massively subsidized banks are tired of the handouts minimally subsidized credit unions are getting – American Bankers Association

EU Mess
The eurozone never followed its own rules in the past and will break them in the future – Quartz

Healthcare, shame and why “our problem is not a matter of shitty policy arrangements” – Steve Waldman

Fat, sterile, and depressed: the effects of increasing light pollution – Mother Jones

For Sale
The Japanese government is selling part of its stake in the world’s third largest tobacco company – Dealbook

Inside a NYC brokerage firm that ex-employees describe as a Red Bull-fueled boiler room – Bloomberg
Banks are dumping their crisis-era CDO books, and hedge funds are buying – IFRE
The top 50 companies that hedge funds are shorting – Business Insider

British court bans the use of Bayesian probability – Understanding Uncertainty

Facebook is a bad Tupperware party – Douglas Rushkoff

“People who don’t inhale news simply don’t notice bylines” – Kevin Drum

Totally Unsurprising
Dave Eggers thinks we need more handmade things – FT


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see

You do your readers and Beppo Grillo a disservice by describing him as running an “anti-system” platform – it’s really an anti-abuse platform. While he has worked as a satirist, he qualified first as an accountant and correctly forecast the bankruptcy of Italian Multinational Parmalat.

Grillo’s approximately 19% of the vote comes after years of being banned from spreading his clean up politics message on Italian TV because first of all Berlusconi was fighting for immunity against prosecution for tax fraud and owned most of the TV stations and didn’t like being told he was bent, while those TV stations that weren’t controlled by Berlusconi were controlled by the left who Grillo had also attacked for their endemic bribery and corruption.

As for Monti, he has been at every turn stymied by Berlusconi from behind the scenes, and many of the reforms have not made it through the legislative process. If we in the Anglo-Saxon world are looking for a partner in Italy, Beppe Grillo is probably the cleanest of the lot and is likely to want to clean up Italian politics. He once made a joke that the most crime ridden part of Naples, a district that holds the record for the highest crime rate in Europe, was surpassed at the time by the criminality in the Italian Parliament.

One of Grillo’s policies which surely nobody honest could disagree with is simply that nobody should be eligible to represent Italians in Parliament if they have a criminal record, but both the left and the right are against this, calling him a dangerous anti-establishment troublemaker. It will be interesting to see what happens now he may have earned the role of King maker…

Posted by FifthDecade | Report as abusive

“This has been an election which featured an ex-prime minister who’s about to face trial for allegedly having sex with an underage night-club dancer.”

Not sure that’s entirely right. She was over age but underage to be professional at it. If it was a free shag then there’s no crime. If it was a cash arrangement then, well,……

Posted by TimWorstall | Report as abusive

He’s also just lost his case against tax fraud, which is under appeal. IIRC the appeal hearings haven’t been heard yet so if Berlusconi gets Prime Ministerial immunity from prosecution before he goes to jail, he’ll have accomplished his main goal in this election. He cares not one jot about Italy, only so much as it provides him with what he wants.

Posted by FifthDecade | Report as abusive

” One of Grillo’s policies which surely nobody honest could disagree with is simply that nobody should be eligible to represent Italians in Parliament if they have a criminal record. ”

That policy would put the decision of who can and cannot run in the hands of the judiciary, which is an eminently corruptible institution, just like any other. It would become very easy to neutralize troublemakers on trumped up charges tried in the courts of pliant judges. Not only this policy is not a guarantee of anything but it would create a strong positive incentive for corrupt cliques to work their way in the judiciary.

Very, very bad idea.

Posted by Frwip | Report as abusive

@Frwip Hmm, I guess the UK isn’t so democratic then since you can’t be an MP there if you have a criminal record. But hey, let’s not worry about crime, corruption, tax fraud; just let Italy borrow more money from the Germans, dole it out to Berlusconi’s and Craxi’s pals, and line your own nest at the expense of the country, the Euro, the EU and the world economy.

You, sir, are part of the problem.

Posted by FifthDecade | Report as abusive

The difference is that it’s much easier to be confident that the UK judiciary is independent and honest.

In Italy, like Greece and to some degree Spain and Portugal, the fiscal situation is merely the symptom of far deeper issues. Labor and product markets are over regulated – too hard to start businesses, too many protected guilds and cartels, and too tough to fire workers. There’s the all too familiar mix of tax evasion and corruption that often goes hand in hand with too much regulation. The fact that Krugman rarely (if ever) mentions the structural problems of Greece and Italy astounds me. Fiscal policy is secondary in both those countries to fixing underlying structural problems. As it stands today, even in a hypothetical world where those nations’ public debt vanished with no repercussions, those countries would end up where they are today in 1 to 2 generations.

Posted by realist50 | Report as abusive

@realist50 I agree with much of what you say, particularly the lack of structural reforms. Go back ten years or so and everyone was screaming at teh Germans to undertake structural reforms – and they did. Now they are benefitting from having gone through the changeover, but the countries which you mention have avoided structural reforms and simply blame the Euro.

It’s interesting to note that in Italy, Beppe Grillo’s party has just turned down €100 million in post-election campaign “expenses” which they would legally be entitled to. The other parties have once more dropped their snouts into the trough and sucked up as much of the money as they can. You can see how quickly establishment Italy burns money.

The largesse in the Italian system is pernicious and kills off enterprise and sucks money out of the economy. Did you know that Italy spends more on chauffeur driven cars for officials than it does on the arts? Or that Italian politicians are paid FOUR TIMES what their Spanish counterparts are paid? Organised crime accounts for 10% of GDP, and that doesn’t include tax avoidance or the cost of nepotism.

As for it being hard to sack people, that isn’t entirely accurate. There are two kinds of jobs, most people have what are described as “temporary” jobs and can be sacked at any time; far fewer have “permanent” jobs which really are.

Italy also has a very big North-South divide, with working women in the North being about as common as they are in the UK at 67%, but at levels two to three times higher than exist in the south which brings the rate down to the lowest in Europe. Educationally only 19% of young people go to University. That’s such a lot of waste – some estimate just getting more women into work would grow the economy by 10% of GDP.

The country is a mess, yet has so much potential, it’s a tragedy.

Posted by FifthDecade | Report as abusive


Nope. Sorry. It’s up to the voters. The people is the sole and supreme sovereign as they say (well, except may be in the UK, but I’m on the other side of the big pond). If they want to elect crooks, they’ll get crooks.

Now, what you harp about is not eligibility but the grant of immunity that comes with the office. It’s an obsolete leftover from monarchical notions about the exercise of power (see ‘Sovereign Immunity’) and yes, it should go.

Posted by Frwip | Report as abusive

“Hmm, I guess the UK isn’t so democratic then since you can’t be an MP there if you have a criminal record.”

Not actually true.

A sitting MP who is sentenced to more than a year (actually, the language is “detained” so this might include on remand as well) loses their seat.

But a criminal record either from before election, a spent conviction, or even a conviction to a sentence of less than one year while sitting, does not bar one from being an MP.

It might make election as one difficult, but that’s up to the voters, not the law.

And it must, obviously, be this way. Thinking of the number of former protestors who have made it into the House it would simply boggle the mind that none of them have a conviction for trespass or public order offences.

Posted by TimWorstall | Report as abusive

Well, there’s the small matter of the €100 million post electoral “expenses reimbursement” Beppe Grillo’s party are eligible for but have refused to take – and then the 15 MPs in Sicily who instead of taking the standard salary of €10,700 a month are taking only €2,500 a month, thereby saving over €7 million between them over the course of a five year legislature.

With a debt of more than 120% of GDP why aren’t the politicians from the other parties making similar sacrifices? They get paid twice as much as French and British legislators, and four times as much as Spanish ones – why? OK, if you compare them to US Congress and Senate salaries of over $170,000 they are smaller – but why do the US salaries need to be so high as well? It’s not like such salaries keep them away from the hands of the lobbyists and special interest groups…

Posted by FifthDecade | Report as abusive