Italian farce shows the madness of the fanatical EU integrationists

A quick fire special edition of my weekly newsletter this morning because of the unfolding situation in Italy.

First, how bad is the market turmoil? Middling to mild meltdown by the standards of previous eurozone emergencies. Veterans of Greece will counter that these events are not yet in the same category. Nonsense, say those of a more aggressive and eurosceptic disposition. This is not Greece it is Italy, a much bigger deal and this could last all summer with new elections possible and anger rising as the temperature soars. Remember, almost everyone interpreting it (me included) does so through the prism of their view about the euro project and the behaviour of the EU.

The heart of the emergency is in Italian bonds. Yields rose sharply yesterday (above 2.6% for the two year bonds yesterday). James Mackintosh of the Wall Street Journal described it as “astonishing.” In short, this means that investors are running away from Italian government debt. Interestingly, bond market investors seem this time to be lumping in France with the stronger, northern European economies such as Germany. That’s the Macron impact for you.

Stock markets and European banking stocks in particular were also hit.

This morning there’s a rally underway, on the basis of reports that the populist anti-establishment winners of the elections – the Five Star Movement and the League – are back having another go at forming a government to avoid elections. That’s how jumpy people are. They are making decisions based on rumours about Italian politics.

Yet, a week ago the consensus view seemed to be that this Italian business would come to nothing. A week is a long time in the markets. Once again, investors are complacent and unconcerned, until they are not.

In one sense we have been here before with the euro. Sandwich boards have been worn out by those predicting that the end is nigh for the euro and the European Union. Among British eurosceptics who predict either of these outcomes there has long been an element of wishful thinking at work during any crisis. If the EU project ever blows up it will be vindication for those of us who warned about the perils of excessive political integration. Then we can all get back to a common market, runs the argument.

Yet the integrationist EU is still there, and the euro with it, despite everything, bound together by the reality that for all there is unhappiness voters in no major country other than Britain want to leave the bloc, yet.

Equally, while policymakers seem worried by what is happening in Italy they think they can handle it. Italy is the third most important economy in the eurozone and the ECB will use its firepower to prop up Italian membership of the euro. There will be turmoil this summer, as there was turmoil in much smaller Greece, but Italy will be “brought to heel” to borrow Lord Kerr’s description of what he thinks will happen to the UK, his own country, in the Brexit negotiations.

But the European Union is already handling this Italian crisis so stupidly that one must wonder whether this time they are heading for the full smash.

On this of all weeks, when sensitivity is required, Günther Oettinger, the European Commissioner responsible for the EU budget made an intervention so arrogant and revealing (of Brussels attitudes) that he attempted within minutes to clarify his remarks. It was too late.

The markets would teach the Italians not to vote for populist parties, he had suggested. Brussels issued statements rapidly saying that the EU respects the Italian electorate.

There are shades of the Wizard of Oz there. Ignore that small man behind the curtain! It is only the EU Commissioner He is merely a gaffe-prone and derided buffoon. That’s the defence? Why put him charge of the EU budget and allow him to go on television during a crisis? Well, these are the people who thought it a good idea to give Juncker the top post and his dreadful sidekick Selmayr the top official in the EU.

The latest incident – mocking and threatening the Italian voters – underscores the wearying reality that the mentality of the Eurocrats cannot be shifted. They will not be diverted from their project. They are fanatics. They will barely pause when their invention, the euro, reduces one of Europe’s leading economies (Italy) to a situation where GDP per capita is lower now than it was at the introduction of the single currency  nearly twenty years ago. They can only see this in one way. On, on, on, to yet more integration. This sounds like a terrible organisation worth… Britain leaving?

Good heavens. There’s a thought.