Month: March 2013

Italian PM Monti won over 20% of the votes of the other Italy, that is the Italians that live abroad. There are a number of reasons why nearly one in five of the Italians living abroad voted for Monti while he hardly won one out of ten of the ones living in the peninsula. Some say that given that ‘foreign’ Italians weren’t affected by Monti’s fiscal tightening, and didn’t have to pay taxes on their homes, etc., they had no problem in voting for the statesman that Monti is. True, Monti’s cure was great if you didn’t have to swallow it. But there is also another reason.

A former European politician once famously said ‘we all know what are the best policies to implement, the problem is that none of us knows how to get re-elected once we put them in place.’ A campaign conducted back to back after a painful fiscal tightening was never going to be easy, and Berlusconi, one of the best campaigners in the world knew this well. He kept a low profile until he decided to pull the plug on Monti and started to aggressively attack him, as if his party didn’t vote all of his laws. The professor replied that he didn’t understand Berlusconi’s logic. What the professor didn’t understand was that he was falling straight into Berlusconi’s clever trap. Il cavaliere sensed that he didn’t need to ‘make sense’ to recover his fortunes, he simply needed to make rosy promises to a country that is suffering from ten years of stagnation, and repeated tax hikes.

The same strategy was adopted with different comical variations by Beppe Grillo. You can’t disagree when no details are given. Monti made another mistake during the campaign, after promising to rise to politics; he lowered himself in the personal attacks arena, a playing field much more congenial to Berlusconi than to il Professore…

Whether you think that Italians voted for clowns or not, the election outcome was probably near the worst case scenario for markets. The only worse outcome would have been an outright Berlusconi majority in both houses of parliament. As it happens, after an initial strong drop, markets have taken the election results in stride. This may sound strange, if you consider that one Italian out of four voted for Grillo, ¼ for Berlusconi, ¼ for Bersani, and the balance voted Monti or didn’t vote.

One way to explain this mute reaction is that the situation now is very different than the situation in November 2011. At that time, Italy needed to put in place measure to steer the ship, say at least 90 degrees away from the Berlusconi’s route, and that required action. In early 2013, the situation is very different. Monti’s government steered the ship due north towards quiet waters, and until a new captain changes course, Italy is in a sound route. Given that no government from one party will be able to rule, it is likely that it will take some time for a new government to take office and in any case it will be a coalition that will either include Monti or that will be led by a Monti like technocrat. The markets don’t mind such a solution at all, as in 2013, no news is good news!

Five years after the beginning of the Great Recession, the US economy is beginning to show improvements also in the job market. Economists forecast an acceptable rate of GDP growth coupled with a slow reduction in the rate of unemployment this year. Compare this with Europe, which is due to see the third contraction in five years, and where unemployment continues to edge upwards. There are many reasons why the US is doing so much better than the Europeans.

First of all, the US authorities were quick to admit the problems and aggressive in trying to solve it. Also, they have a central government and a central bank that control fiscal and monetary policies and that don’t need to find a consensus among economies that travel at different speeds and sometimes different directions. In addition, the US are on their way to becoming hydrocarbon exporters, thanks to the clever exploitation of shale gas.

Today, US ports and terminals that were equipped to gasify natural gas imported from abroad are reconverting to liquefy natural gas produced in the US for foreign markets where the price of natural gas trades at a multiple of US market prices. Let us hope that US politics will not imitate Europe’s dysfunctionality with the long and boring battle over the debt ceiling and various sequester.