There’s A New Systemic Threat To The World Economy
This time, it’s not Donald Trump.
Wall Street’s obsession with the White House’s raging trade wars has been briefly interrupted by a new apparent, if still comfortingly faint, systemic risk to the global economy: The prospect of an utlra-nationalist right-wing government in Italy that might just make a push to abandon the euro zone.
The fear has arisen after the country’s prime minister, anti-immigrant xenophobe Matteo Salvini (sometimes referred to as Italy’s own Trump) called for snap elections in the parliamentary democracy, as early as October.
Roberto Perli, a former Fed economist from Italy who founded his own research firm Cornerstone Macro, couldn’t help but speak about it in somewhat personal terms in a research note co-authored with his colleagues Melissa Turner and Andrea Vera.
“The country I was born and raised is back in the news, and not in a good way,” he opens by saying. “It is now very likely that new elections will happen around late October or early November, and in any case well before the end of the year.”
Perli is re-evaluating the potential risks to the euro zone’s integrity from Salvini’s government because of his rising popularity.
“In the past I have said that (Salvini’s) Northern League was not an existential threat for Europe because there was no appetite for leaving the euro among its traditional supporters (mostly small business entrepreneurs, who care about taxes, availability of credit, and a general pro-business environment),” he wrote.
“But as the Northern League’s potential electorate has expanded a lot and came to include other constituencies, the weight and power of the traditional, pro-euro base has been diluted. There is a serious possibility that, if it gains sole control of the Italian government, the Northern League may prove more disruptive than previously thought.”
Italy is the euro zone’s third largest economy, so political developments there have large implications for the trading bloc and its common currency.
Put another way: “The odds that the Northern League will run (and eventually govern if it wins) on an anti-Europe platform are growing. This adds another source of uncertainty and worries to global markets (in addition to weak global growth, trade tensions, lack of clarity about Brexit, geopolitical tensions, and others).”
The ideological links between Salvini and Trump are as frightening as they are uncanny, a reminder that the political swerve toward the radical nativist right is, ironically, a global phenomenon.
Just as Trump’s mistreatment of migrants at the border is leading to chaos, trauma and death, Salvini has been adamant about denying life-saving aid to desperate migrants stranded in dinghies off the coast of Italy.itya