Is this Italexit ( Archived) (11)

talian Prime Minister Matteo Renzi is resigning after Italian voters rejected a constitutional reform proposal Renzi had avidly supported. His resignation could have big implications not only for Italian politics but also for the health of Italy’s banks and ultimately the future of Europe’s common currency.

Renzi’s resignation will lead to a period of uncertainty as Italy tries to form a new government. And that’s significant because some Italian banks are teetering on the edge of insolvency. One of Italy’s leading banks, Monte dei Paschi di Siena, is planning to sell new shares days after the vote to shore up its balance sheet.

But the “no” vote, and Renzi’s resignation, is likely to scare away investors worried that political turmoil could undermine the already shaky balance sheets of Italian banks. And that, in turn, could have big implications for the future of the Italian economy.

Italian Prime Minister Matteo Renzi is resigning after Italian voters rejected a constitutional reform proposal Renzi had avidly supported. His resignation could have big implications not only for Italian politics but also for the health of Italy’s banks and ultimately the future of Europe’s common currency.

Renzi’s resignation will lead to a period of uncertainty as Italy tries to form a new government. And that’s significant because some Italian banks are teetering on the edge of insolvency. One of Italy’s leading banks, Monte dei Paschi di Siena, is planning to sell new shares days after the vote to shore up its balance sheet.

But the “no” vote, and Renzi’s resignation, is likely to scare away investors worried that political turmoil could undermine the already shaky balance sheets of Italian banks. And that, in turn, could have big implications for the future of the Italian economy.

Italy and the EU disagree about who should pay to prop up the banks.

Common sense tells me that Italy needs to leave the EU, drop to living standards found in somewhere like Turkey, and build itself back up again.

Yet my intuition may be mistaken. I'm not totally sure whether smoke and mirrors dog developed economies or whether this salaried worthlessness is an essential feature of advanced and highly-automated economies. Time will tell.

The larger issue here is that Europe’s common currency likely can’t survive the departure of a member as large and influential as Italy.

Britain’s vote to leave the EU earlier this year sent shock waves across the continent, since Britain is one of Europe’s biggest and wealthiest nations. But at least Britain had never joined Europe’s common currency, so Brexit didn’t do anything to undermine public confidence in the euro.

Italy is a member of the eurozone. And if it were to start on the road to leaving the common currency, that could fatally undermine confidence in the entire euro project.

Remember, the basic idea of the euro is that a euro in a German bank is worth the same as a euro in an Irish or Italian bank. That confidence depends on the belief that the common currency regime is permanent. That belief allows people to make long-term, cross-border investments denominated in euros, secure in the belief that an Irish or Italian euro will be worth as much as a German euro five, 10, or 20 years in the future.

But if people start to doubt the euro’s long-term viability, it’s going to introduce a lot of frictions into the European system. People will be reluctant to lend euros to people in peripheral countries like Italy, Portugal, or Ireland for fear that they’ll eventually be paid back in depreciated Italian liras, Portuguese escudos, or Irish pounds.

And that, in turn, will hamper the growth of peripheral economies, hindering economic growth in these countries even further and increasing public dissatisfaction with the euro regime. That could increase pressure for peripheral countries to exit, making discussion of the possibility of a self-fulfilling prophecy.

To be clear, none of this is all that likely to happen. Europe’s leaders have repeatedly vowed to maintain the euro at all costs, and right now investors seem to believe them.

But the eurozone’s awkward institutional structure — it’s something in between a single sovereign entity and a confederation of 19 independent nations — creates uncertainty about its future. Any one of the 19 members can create chaos for the other 18 by threatening to leave the currency block.

The cracks are beginning to show across Europe.

"wages rising in line with productivity" makes it sound so simple. In reality achieving this in any system which is democratic requires genuine decency from people and a culture where you value the people around you, wages stopped rising in line with productivity around the same time that the greatest generation ceased to have influence over society. All things are connected.

I doubt we'd democratically arrive at wages which rise in line with productivity without first being half-starved and then drafted into a war. It is not in our natural, lazy and selfish state for wages to rise with productivity.

Anyway I'm not having a go at employers who don't pay their staff enough, there's often no choice, it's do or die. I wouldn't know where to begin in creating the wholesale cultural shift where we pay people what they're worth instead of what we can squeeze.

Employers of immigrants are often taking this to an extreme, however. It is so often the case that "no, I won't manage my business with devotion and skill. I'll simply undercut the competition by employing foreigners so I can afford the losses of my incompetent leadership"