It was this result that should have had everyone in Brussels worried. But since they had just gotten finished patting themselves on the back for maneuvering around Salvini’s attempt to force an election the month before, the news quickly moved to the back burner amongst all of the Brexit drama.

But, the result in Umbria was important because it showed Lega’s ability to turn a center-Left stronghold against history. The Democrats (PD) had held sway there for over fifty years. But no longer.

The result showed that even though Salvini was no longer in a governmental office in Rome, his popularity hadn’t waned. It’s clear that polling since then has seen Lega hold its position as the dominant party in Italy, which has Lega commanding 31-33% of the vote.

The real story, however, is the surge of the Brothers of Italy (FdL) who are picking up disaffected Forza Italia voters and held them for months now, continuing to hold a solid 10%.

In short, Italian polls haven’t moved much in months despite Salvini and Lega being ousted from the ruling coalition when coalition partner Five Star Movement (M5S) made a backroom deal with PD which has only accelerated M5S’s slide in the polls. Remember, M5S was formed to stop PD from holding onto power and challenging them on EU membership and continued adoption of the euro as Italy’s currency.

Making that deal with the establishment like that has alienated a lot of M5S’s base and it’s support is now threatening to collapse below the all-important 16% level, which once breached to the downside opens the door for someone else to gain dramatically.

And that is the backdrop against which the PD/Five Star Movement (M5S) government is dealing with.

Lega alone polls close to or better than PD/M5S together nationally. And it is the upcoming state election in Emilia-Romagna on January 26^th that is their next headache. As the Financial Times pointed out in a recent article, Salvini and Lega have made serious inroads in what is a traditionally heavily left-leaning area.

Giorgio Bennetti, a 35-year-old sweets seller with a stall in Ferrara’s centre, believes that many voters are willing to switch to the right to express a general political dissatisfaction. Local issues, such as the collapse of the Ferrara savings bank — 130,000 investors lost their savings — have also given voters reason to want to punish the PD, which was in charge both locally and nationally when the rescue happened in 2015.
“This is a protest vote; people don’t believe that the left is working for them any more,” Mr Bennetti says. “My grandmother used to say that people have no problem changing their shirts from red to black if they need to.”

But similar to what Donald Trump did in 2016 and Boris Johnson just pulled off in the U.K. these nominally right-wing candidates became the champions of domestic working middle class. In Italian political terms, the former Communists in Emilia-Romagna now firmly trust Salvini to protect their futures and the jobs rather than the traditional left parties.

Current polling there has Lega with 31% of the vote, a massive 12-point rise over the last election while PD has lost even more down 20 points.

Italy (Emilia-Romagna regional election), SWG poll:

LEGA-ID: 31% (+12)
PD-S&D: 25% (-20)
BP-S&D|RE|G/EFA: 13% (new)
FdI-ECR: 8% (+4)
M5s-NI: 6% (-7)
FI-EPP: 4% (-4)
…

+/- vs. 2014 election

Fieldwork: 7-9 January 2020
Sample size: 1,000

Election: 26 January 2020 pic.twitter.com/H3kgkfMYmk

— Europe Elects (@EuropeElects) 10 января 2020 г.

Since parties can campaign in coalitions in Italy the current center-left versus center-right numbers in Emilia-Romagna are within a couple of points. But Salvini’s guys are rising fast and it’s very possible that the polls haven’t quite caught up to the shift in sentiment leading into the election.

This happened in 2018 where Lega was polling behind Forza Italia by a couple of points and would up coming out of the election four points up and the dominant player in the center-right coalition. That paved the way for the scenario that led to the short-lived Euroskeptic coalition between Lega and M5S.

So, the probability of a center-right government coming into being in Emilia-Romagna is growing by the day. And that puts the national coalition at serious risk.

 “This coalition is already so fragile that the only thing gluing it together is their fear of Salvini,” says Erik Jones, professor of European studies and international political economy at the Johns Hopkins School of Advanced International Studies in Bologna. “If they lose it is hard to see how they make it through the spring.”

This fear is well-founded and no matter how hard they try and hold it together political forces within Italy will ultimately tear it apart. Losing Emilia-Romagna would create serious panic in the ranks of both ruling parties.

But the political establishment in Rome is dead set on keeping Salvini out of power for as long as possible. And that goes double for the traditional EU leadership in Brussels. But one thing working in Salvini’s favor here is that it has been German Chancellor Angela Merkel pulling the strings in Rome to keep the Italians in sync with German fiscal and monetary demands.

But Merkel is on the way out and there is a concerted challenge to German rule coming from French President (for now) Emmanuel Macron. Macron wants fiscal integration and the euro-zone is suffering from Merkel’s insistence on punitive austerity.

I expect the next leadership challenge in Italy will not be fought nearly as hard as in the past by the EU. Salvini either wants a stronger seat at the decision-making table for EU fiscal policy for Italy or be let out of the monetary union. In that sense Salvini is a future ally for Macron against Merkel and her successor.

I can see Macron and new ECB President Christine Lagarde not fighting Salvini’s rise to power to help them remake the EU’s fiscal structure, prevailing upon the Italian old guard like President Sergio Mattarella to allow the government to collapse and not fight new elections, which Salvini will win in a walk, likely with just the Brothers of Italy as his coalition partner depending on how the vote lays out.

At that point things get really hairy for Merkel as a Salvini as Prime Minister will be in the position to dictate terms to Germany having Lagarde and Macron on his side, tacitly.

Because, remember folks, when you owe the bank a thousand dollars it’s your problem. When you owe the bank a few hundred billion dollars it’s the bank’s problem, in this case, specifically German banks.

That’s where Salvini’s leverage lies and he knows it. But with the changing of the guard in Brussels and Strassbourg, he would finally be in a position to use it.

“German industry is in the deepest slump since the global financial crisis, and threatens to push Europe’s powerhouse economy into full-blown recession. The darkening outlook is forcing the European Central Bank to contemplate ever more perilous measures.

“The influential Ifo Institute in Munich said its business climate indicator for manufacturing went into “free fall” in July, as the delayed damage from global trade conflict takes its toll and confidence wilts. It goes far beyond the woes of the car industry. More than 80pc of Germany’s factories are in outright contraction.”

Why? What is going on here? It seems that, though other European member-states used to be Germany’s largest market, Germany’s first and third largest export destinations are now the US and China, respectively. Together, they account for more than 15% of all outbound German trade activity. More than 18% of Germany’s export goods ended up somewhere in Asia. Therefore, Germany’s industrial struggles in 2019 point the finger in the direction of its external focus, which means the US, China, and Asia – i.e. its largest marginal trade partners. And the principal assailants in today’s trade and tech wars.

Clemens Fuest, the Ifo president, says: “All the problems are coming together: It’s China, it’s increasing protectionism across the board, it’s disruption to global supply chains”.

But if Germany’s manufacturing woes were not sufficient in and of themselves, then combined with the threat of trade war with Trump, the prospect indeed is bleak for Europe: And the likelihood is that any of that ECB stimulus – promised for this autumn, as Mario Draghi warns that the European picture is getting “worse and worse” – will be very likely to meet with an angry response from Trump – castigated as blatant currency manipulation by the EU and its ECB. EU Relations with Washington seem set to sour (in more ways than one).

But there is more: Speaking in the German parliament, Alice Weidel, the AfD leader, tore into Chancellor Merkel for her, and Brussel’s, botched handling of Brexit (for which “she, Merkel bears some responsibility”). Weidel pointed out that “the UK is the second biggest economy in Europe – as big as the 19 smallest EU members combined”. “From an economic perspective, the EU is shrinking from 27 member-states to 9. In the face of such an enormous event, the EU reaction verges on a pathological denial of reality … [they should recall] that German prosperity and jobs are at stake here. It is clearly in Germany’s interest that trade and investment continue unhindered. But, out of blind loyalty, you [Merkel], follow France, which wants to deny Britain access to the Single Market. Yes, you [Merkel] are considering not allowing Britain access to the European Economic Area, because France does not want it. [Sarcasm] that would be too much: Too much free trade; too much fresh air in the markets … France with its failed industrial policy serves as [the new] blueprint [for the EU]”. (See video here).

Weidel’s last point is key: She is implying that Macron is positioning himself to eclipse Merkel as the EU leader on the waning of the Chancellor’s influence and credibility. Macron intends to impose instead, the “failed” French industrial model, to Germany’s disadvantage, Weidel suggests.

She is not alone in this suspicion. Trump too, dislikes any prospective Macron take-over of the EU leadership that will (almost certainly) be more hostile to any trade agreement with the US (especially on agriculture), and which would open French industry to US competition. Hence Trump’s riposte (on French wine) in retaliation to France’s new taxes on US tech firms – contributing little, or nothing, to the French Treasury. Trump is enlisting too in the battle for the future shape of Europe. It is going to be a battle royal.

A major threat to the EU now emanates from the least anticipated direction – from the US. At no point did European leaders consider their project as a challenge to US power. Rather, they saw progress in their careers as contingent on receiving the US approval. Consequently, they deliberately chose not to found the Euro in anything other than within the dollar sphere. They never considered the possibility that the United States might change attitude. And now – suddenly – the EU finds itself exposed to all manner of sanctions through the Euro’s close vulnerability to dollar hegemony; from a possible trade and tech war between Europe’s two key trading partners; and even a falling-out as a result of a changing US defence calculus. Steering a course between the US and China will challenge deeply Europe’s imbedded cultural predisposition.

Weidel also warns the German Parliament that that the biggest consequence for Germany from Brexit is not just its exports, but rather, without the UK as a EU member, Germany will lose its ability to assemble a blocking majority (35%) in Council: And, absent this ability to block, Germany may not be able “to stop the crisis-ridden, Club-Med States and France, from reaching into community funds”.

This goes to the crux of the European crisis: an accord rooted in Germany’s traumatic experience of the inter-war hyper-inflation; in the Great Depression of the 30s; and to the social erosion to which it led. To exorcise these ghosts, Germany deliberately painted the EU into an automatic system of austerity ‘discipline’– enforced through a German surveilled, Central Bank (the ECB). The whole was ‘locked-fast’ in automaticity (i.e. in Europe’s ‘automatic stabilising mechanisms’). This was conceded by other European states (the core accord), since it seemed the only way (it was said), that Germany would agree to put its revered ‘Ark’ of the then stable Deutsche Mark, into the common ‘pot’ of the ECM system.

Professor Paul Krugman explains:

“How [then] did Europe manage to follow a common monetary policy … with an European Central Bank, explicitly … set up to give each country an equal voice, and yet satisfy the German demand for assured monetary rectitude? The answer was to put the new system on autopilot, pre-programming it to do what the Germans would have done if they were still in charge.

First, the new central bank – the ECB – would be made an autonomous institution, as free as possible from political influence. Second, it would be given a clear, very narrow mandate: price stability, period – no responsibility at all for squishy things like employment or growth. Third, the first head of the ECB, appointed for an eight-year term, would be someone guaranteed to be more German than the Germans: W. Duisenberg, who headed the Dutch central bank during a period when his job consisted almost entirely of shadowing whatever the Bundesbank did”.

Krugman is too polite to say it explicitly, but it never was a common policy. It was German control, hidden in stabilising mechanisms, designed by Frankfurt. The loss of this mechanism is what is frightening man of the German élite.

And Macron has just exploded that original Franco-German compact through putting a French woman (Lagarde) in charge of the ECB; a self-declared Federalist (“I want a United States of Europe”) as EU Commission President, and a Brexit hawk as President of the EU Council. Macron’s triumph over Merkel is intended to de-throne Germany. And a punishment Brexit – both to weaken Germany, and to sap Germany’s voting power at the Council – as well as the satisfaction of seeing a chastised Britain being chased from out of the EU.

So Macron is ushering in his notion of a closer centralised European governance – but who is to pay for it now? Without Germany’s former level of contributions and Britain’s input as a major contributor nation, the EU can neither reform itself (since many reforms would require Treaty re-writes), nor afford itself.

And wide political discontent to the Macron formula is already baked in for the future, as Frank Lee notes:

“Those Eastern European states which emerged from the break-up of the Soviet Union had been led to believe that a bright new world of West European living standards, enhanced pay levels, high rates of social mobility and consumption were on offer.

Unfortunately, they were sold an illusion: the result of the transition so far seems to have been the creation of a low-wage hinterland, a border economy on the fringes of the highly developed European core; a Euro version of NAFTA and the maquiladora, i.e., low tech, low wage, low skills production units on the Mexican side of the US’s southern borders”.

And we are not talking ‘just Latvia’: For many in the East of Germany (the AfD’s electoral heartland), German unification in 1990 was not a merger of equals, but instead an “Anschluss” (annexation) with West Germany taking over East Germany. Reasons for East German disenchantment can be seen everywhere: The eastern population has shrunk by about 2 million, unemployment has soared, young people are moving away in droves, and what was one of the Eastern Bloc’s leading industrial nations is now largely devoid of industry.

And here lies the kernel of the crisis. There has been a call from all sides to try something different: such as relaxing the fiscal rules that are destroying public services; or, more daringly, to touch the ‘holy grail’: of reform of the financial and banking system.

But here is the rub: All such initiatives are prohibited in the locked-down treaty system. Everyone might think to revise those treaties. But that is not going to happen. The treaties are untouchable, precisely because Germany believes that to loosen its hold over the monetary system will be to open Pandora’s Box to the ghosts of inflation and social instability rising, to haunt us anew. Weidel was very clear on this danger.

The reality is that the European ‘lock-down’ derives from a system that has willfully removed power from parliaments and governments, and enshrined the automaticity of that system into treaties that can only be revised by extraordinary procedures. No one in Brussels sees any prospect of ‘that’ happening – hence the Brussels ‘record’ is stuck: repeating the mantra of ‘There Is No Alternative’ (TINA) to more, and closer, Euro-integration. And that is precisely what the European ‘sovereigntists’ are determined to oppose, by all means possible.

Only the onset of the coming recession in Europe and the associated sovereign debt crisis may prove sufficient to shake Brussels from its smug torpor, and to focus minds on how to manage the coming crisis. As Evans-Pritchard concludes, the ECB cannot save the eurozone another time. The baton passes to the politicians – if they are able?

Welcome to the new phase of Westphalian struggle: European ‘Empire’ – to be, or not to be.

We now know that there will be a changing of the guard at the European Central Bank (ECB) in October. The current head of the International Monetary Fund (IMF), Christine Lagarde, will succeed current ECB President Mario Draghi at that time.

A known quantity among the political and investor class of Europe, Lagarde seems like a safe choice: she is a lawyer by training, not an economist. Hence, she is unlikely to usher in any dramatic changes, in contrast to current European Central Bank president Mario Draghi, who significantly expanded the ECB’s remit in the aftermath of his pledge to do “whatever it takes” to save the single currency union (Draghi did this by underwriting the solvency of the Eurozone member states through substantially expanded sovereign bond-buying operations). Instead, Lagarde will likely stick to her brief, as any good lawyer does. There’s no doubt that her years of operating as head of the IMF will also reinforce her inclination not to disrupt the prevailing austerity-based ECB ideology.

Unfortunately, the Eurozone needs something more now, especially given the increasingly frail state of the European economies. The Eurozone still doesn’t have a treasury of its own, and there’s no comprehensively insured banking union. Those limitations are likely to become far more glaring in any larger kind of recession, especially if accompanied by a banking crisis. That is why the mooted candidacy of Jens Weidmann may have been the riskier bet for the top job at the ECB, but ultimately a choice with more political upside. An old-line German central banker might have been able to lay the groundwork for the requisite paradigmatic shift more successfully than a French lawyer, especially now that Germany itself is in the eye of the mounting economic storm.

It’s summertime, but the living is certainly not easy in the Eurozone. The Mediterranean economies—notably Greece and Italy—have never really achieved sustainable growth over the last decade, and to the extent that either country ran deficits, or received bailout assistance, it was largely used to pay off debts to a range of bank creditors, rather than generate higher employment. However, the Eurozone’s weakness is now rapidly spreading to the North, notably in Germany, where the Ifo Institute’s manufacturing business climate index is “in freefall,” reports the Financial Times. The Ifo indicator—a good coincident gauge of overall economic health in the Eurozone’s main manufacturing hub—registered its worst reading in nine years, precipitously declining to minus 4.3 in July vs. a gain of plus 1.3 in June. Furthermore, Germany’s Purchasing Managers Index (PMI) has plunged to the mid-40s over the last few months. Fifty is the demarcation separating expansion from contraction, suggesting an imminent recession.

On top of that, Germany’s leading bank, Deutsche Bank (DB), is steadily being revealed to be the greatest repository of corporate corruption since BCCI. Whether it be money laundering for Russian oligarchs (or, allegedly, the Trump family); involvement in interest rate scams such as LIBOR manipulation; violations of U.S. economic sanctions on Iran, Syria, Libya and Sudan (among others); or the sale of toxic securities in the run-up to the 2008 financial crisis, DB has played a leading role, and is now paying the price. Berlin has repeatedly sought to find a buyer for the bank, but both Commerzbank and UniCredit have had a closer look under the hood and ran for the hills accordingly. The share price performance suggests that Deutsche Bank is an imminent candidate for a bailout, if not outright nationalization.

This comes during a historically unprecedented situation in global bond markets, particularly in the Eurozone where negative yields are now pervasive—in other words, investors are now willing to paycertain governments to safeguard their money, whether this be Germany, Denmark, Switzerland, or the Netherlands. This is a foolhardy risk to incur, given that all Eurozone governments are currency users, not issuers (only the ECB creates euros), and therefore carry the same kind of theoretical solvency risk as, say, an American state or municipality.

As the economist Frances Coppola notes, “Every Danish government bond currently circulating in the market is trading at a negative yield. And the inverted curve tells us that markets are pricing in further interest rate cuts, most likely to hold the ERM II peg when the ECB cuts rates and re-starts QE.” Which means yields can become even more negative. Such is the desperation for perceived “safe assets” that Austria, Belgium and Ireland have all sold 100-year securities (the yield on Austria’s 2117 bond has dropped nearly 100 basis points since it was launched two years ago with what was then considered a derisory 2.1 percent coupon, and recall that Ireland’s banking crisis placed the country close to national insolvency 11 years ago). It’s virtually impossible to make sensible economic forecasts a few months out, let alone a century, so this does suggest a certain kind of collective madness (or desperation) now taking over the bond markets.

All of which tells us that something is indeed rotten in the state of Denmark (and elsewhere), as Lagarde takes over as president of the ECB. The constellation of soft economic data in Europe has investors clamoring for the ECB to act, but negative yields suggest that there is little more that interest rate manipulation can do to generate an economic upturn. Indeed, economists Markus Brunnermeier and Yann Koby have persuasively argued that negative yields represent the juncture “at which accommodative monetary policy ‘reverses’ its effect and becomes contractionary for output.” In other words, monetary policy has reached the point where further attempts to cut rates might actually hinder economic growth, rather than promote it.

As Rob Burnett, a fund manager at Lightman Investment Management, has suggested, “What is required is demand-based stimulus and spending must be directed into the real economy”—in other words, fiscal expansion, which unfortunately is not the purview of the ECB. Furthermore, the central bank’s “quantitative easing” purchases of sovereign bonds have hitherto been conditionally predicated on the national finance ministries’ continuing to practice fiscal austerity, which in turn produces the exact opposite economic outcome that Burnett has proposed. The unfinished architecture of the Eurozone makes this problem particularly awkward, given that there is no “United States of Europe” treasury equivalent—a gaping institutional lacuna in the Maastricht Treaty—which in itself creates unstable dynamics that constrain national policy fiscal space. Politically, the ECB represents the awkward focal point in regard to increasing global market integration on the one hand with growing demands for reclaiming national political sovereignty on the other. Such challenges become more acute in the context of a global economy that, outside of the United States, is teetering toward recession (or worse).

It’s also a terrible environment for banking in particular, especially as any attempts to reduce deposit rates below zero (in effect charging depositors for the privilege of having banks store their money) would almost certainly trigger bank runs. Nor are the banks inclined to generate profits via lending activity when there is a steadily decreasing supply of creditworthy borrowers on the other side.

The other problem also relates to the Eurozone’s faulty half-finished architecture: free intra-Eurozone capital flows are promoted within the Eurozone (via the Trans-European Automated Real-time Gross Settlement Express Transfer system, aka the “TARGET2 system”), despite the absence of a unified supranational banking system or common, Eurozone-wide deposit insurance (such as the American FDIC). This creates ample scope for bank runs from one country to another (as the economist Peter Garber predicted back in 1998), and which were occurring in earnest back in 2012, as investor George Soros observed, and specifically tied to TARGET2.

Across the Eurozone, bank assets generally exceed GDP. They also do in non-Eurozone countries, such as Norway, Switzerland, and the UK. But the difference in the non-Eurozone countries is that they are all sovereign currency issuing countries, which means that all have unlimited capacity to provide deposit insurance in the event of a bank run. Paradoxically, it is precisely because of this unlimited currency issuing power that such bank runs seldom go very far in these countries. The public intuitively understands that the insurance can be made good.

This is why the United Kingdom and Switzerland were able to handle their respective banking crises in 2008 without threatening national insolvency. Retaining sterling as the national currency, the UK had unlimited fiscal capacity to offer credible deposit insurance instantaneously during its crisis. To cite one example, in 2007 a regional bank, Northern Rock, applied to the Bank of England (BOE) for emergency support to help it through a liquidity crisis triggered by the subprime mortgage slump in the U.S. and temporarily incurred substantial deposit runs as a result. The BOE’s prompt actions (made easier by the fact that they did not need to secure the collective approval of 27 other countries, as occurs in the single currency union) put a halt to the withdrawals. Likewise, Switzerland was able to recapitalize its own major banks relatively quickly after the 2008 crisis began in earnest and avoided the prolonged banking crises that characterized the Eurozone countries.

Ireland is a good example of the latter. An economy structurally similar to the UK, Ireland experienced a banking crisis with far more longstanding deleterious effects (including an unemployment rate almost double that of the UK at its peak). The crisis was far more serious than in non-Eurozone countries because the markets intuitively understood that the country did not have the fiscal capacity to adequately safeguard the banks’ deposit base (despite pledges to do so on the part of Dublin’s policymakers).

Within the Eurozone, the Emerald Isle’s problems were by no means unique. As is now well appreciated, all Eurozone member states operate under the same constraints with no national currency. In regard to coping with a potential banking crisis, however, the currency issuer, the ECB, does not have the regulatory or political authority to close a bank, regardless of what country the bank claims as its home (in the same way that, say, the American FDIC can operate to shut down a bank, no matter which state, and credibly restart it quickly, by virtue of the backstop of the U.S. Treasury). So far the member states within the single currency union have managed to dodge this particular bullet, but given the mounting strains now intensifying in the Eurozone, a credible banking union of some sort must ultimately be on the table. Wolfgang Münchau, columnist for the Financial Times, outlined the four key “centralised components” required to make such a union workable and durable: “a resolution and recapitalisation fund; a fund for joint deposit insurance; a central regulator; and a central supervising power.”

Even a central banker as powerful as Mario Draghi has yet been unable to persuade the major Eurozone powers, especially Germany, to accede to such a proposal, which Berlin still regards as a covert means of putting German taxpayers on the hook for billions of euros’ worth of other countries’ banking liabilities. In light of the current travails of Deutsche Bank (and the longstanding financial difficulties of Germany’s regional lenders, the so-called “Landesbanken”), however, attitudes might change in Berlin.

In any case, this represents one of the more formidable challenges Christine Lagarde is likely to face in her new job going forward. Given the existing institutional limitations of a monetary union without a supranational treasury backstop, no Eurozone FDIC can be credibly established absent institutional ties to the ECB. National banking interests cannot interfere with the deposit insurance fund because this would immediately destroy the credibility of the banking union. But absent broad multinational consensus, no such supranational FDIC can come into being.

The glue holding the Eurozone’s institutionally fragile structure together has always been the European Central Bank. As the sole issuer of the euro, the ECB is operationally free to provide as many euros as needed to keep the funding system in place. It cannot go broke. But politically, it is an orphan. The problem is that calls for international cooperation to improve its supranational governance structures to address these cross-country dynamics reinforces the impression of eroding national control, which in turn heightens populist backlash across the continent. Mario Draghi’s monetary gymnastics helped preserve the Eurozone, but the battle is not yet won.

One wonders whether someone with Christine Lagarde’s comparatively limited economic and financial expertise has the ability to confront these challenges with the same aplomb her predecessor. We shall find out soon enough.

counterpunch.org

Italy’s Matteo Salvini is riding high right now. Having weathered a couple of cheap legal moves to derail his assault on the European Parliament this May, Salvini is working to galvanize Euroskepticism across the continent into a viable political force.

He’s got his work cut out for himself.

But, he has at least two major allies. Marine Le Pen of the National Rally in France and Viktor Orban, the leader of Hungary. Salvini and Le Pen met last week to announce they would be campaigning together for the European elections as well as a major summit in Milan soon.

This is only the beginning, however.

I’ve been saying for over a year now that Salvini needs to be the person who lays the foundation for a wholesale revolt against the European Union and Italy’s participation in the euro.

His Lega party have skyrocketed in the polls, reversing the dynamic between it and coalition partner Five Star Movement. It’s a coalition that is of the kind which frightens the political establishment in Europe because it isn’t formed on the traditional left-right false divide.

It is a populist one united on the common cause of overthrowing the corrupt, corporatist system which most western governments are fronts for.

And since coming to power last year there have been multiple attempts to drive wedges between these supposedly strange bedfellows. All of them have failed. And part of the reason for that has been the surging popularity of Lega and Salvini.

Having survived to this point and scared the EU a few times with Trump-like ‘big asks’ on the budget and immigration reform, Salvini and his partner in populism Luigi Di Maio are looking towards the EP elections as a first major test of their government.

And being able to bring together groups from all over Europe to agree on a common platform to challenge the French/German axis of power would put them in a good position in the second half of 2019 to push things farther, especially as it pertains to Italy’s insane fiscal situation.

I realized early on that Salvini was two things. He was both a radical who was also methodical. He’s not flaming out in a blaze of glory here. He’s building his case against the EU slowly, allowing history to come to him.

He’s stayed far away from the Brexit debacle, even though he knows he has the power to stop the betrayal of the vote and force the divorce. But rather than do that it’s better to let the process play itself out and reveal the ugly truth of it all while he takes notes and reloads for the next attack on the EU.

If Euroskeptics outperform the current polling which has them at around 30-32% of the seats and Salvini can rally them under one banner to become the biggest party in the EP, then that would send the right kind of message back home to Italy.

There is something big brewing between Salvini and Di Maio. First, they sign up with China’s Belt and Road Initiative, whose second major summit is later this month. This angered both Trump and Angela Merkel.

All in a day’s work.

But the bigger news, in my mind, is the Italian parliament is pushing to repatriate the nation’s gold reserves from the Bank of Italy. Two laws are under consideration:

One law would instruct the central bank’s owners, most of them private banks, to sell their shares to the Italian Treasury at prices from the 1930s.

The other law would declare the Italian people to be the owners of the Bank of Italy’s reserve of 2451.8 metric tons of gold, worth around $102 billion at current prices.

The Bank of Italy is mostly owed by Italian commercial banks who are now both insolvent and at risk of EU banking rules. This puts them at risk of seeing depositors bailed-in and the banks forcibly restructured overnight by the European Central Bank.

Don’t believe me? Go back and look at what happened to Banco Popular of Spain in 2017. It was sold off to Santander for $1 after the ECB declared it non-viable. It wiped out the shareholders over a weekend and life went on as if nothing had happened.

But it did happen and that did nothing to reassure investors that there is even a hope in hell of getting your investment back out of a European bank if that’s how the ECB can act. In some ways, why do you think it’s going to be so difficult for Deutsche Bank to raise the necessary capital ($6 to $10 billion) to merge with equally-insolvent Commerzbank?

If you had a choice between Deutsche and J.P. Morgan Chase at this point what would you do? US banking system may be corrupt but it isn’t stupid enough to toss aside the one thing that ensures safe-haven foreign capital flows, that investors come first.

I may not like Chase, but I’m putting my money on it over Deutsche any day of the week and especially not on a Sunday evening while Mario Draghi is on the scene.

If those Italian banks are dealt with similarly by the ECB as Banco Popular we could easily see their ownership transferred to their creditors and, by extension, the ownership of the Bank of Italy right along with it.

Talk about undermining national sovereignty!

And what’s the only thing of value on the Bank of Italy’s balance sheet? The gold.

Salvini and Di Maio’s government urging the Bank of Italy to sell the gold back to the government at 1930’s prices is a way to ensure that Italy’s gold reserves stay unencumbered and available to back any new version of the lira if things get to that point.

Like Brexit negotiations the nuclear option, clean divorce, must be a credible threat, i.e. a No-Deal Brexit and unilateral withdrawal from the euro.

This threat by the Italians has been simmering for a while and every time it comes up the talking points from the regime press are the same. It threatens the independence of the central bank. The gold could be sold to pay for populist spending programs. Blah blah blah.

No, the real threat is with the Italian gold owned by the Italian people the Italian government could start all over again with a new currency.

And that is what this is all about.

So, first, Salvini goes into the European Parliament with a solid voting bloc to disrupt proceedings and further undermine Angela Merkel’s powerbase. Second, he and Di Maio take that success back to Rome and use that to engage real EU reform of the financial system.

And if they don’t get what they want, if Merkel holds fast to her policy of Germany strip-mining of Europe via austerity, then they go on the offensive with 2410 tonnes of gold in their back pocket. This will be an easy sell as the European economy implodes further.

It’s not like Germany is in a position to drive a strong bargain with its economy rapidly plunging towards recession.

Any small shock at this point will cause a massive run on European assets. We’ve just seen a enormous move into safe-haven assets in the past month.

The European bond markets are ripe for a sharp reversal on any catalyst.

To pull all off their ‘revolution’ in the EP, however, Salvini and Le Pen will likely have to play nice with Poland on Russia, not pushing for sanctions relief just yet. To unite Euroskeptics over the next seven weeks will be difficult. But, Salvini has shown flexibility to this point with his own coalition.

What makes you think he’s not capable of bringing Poland on side?

No, I think Merkel is more cat than cockroach. And it is 2018 that has shown me the light on this.

Earlier this year, Merkel somehow was able to avoid a second election by finally getting the Social Democrats (SPD) to sign a mutual suicide pact in the form of a new Grand Coalition. This ensured a cartel-style government reigns in Germany to do the bidding of further European Union integration which fewer and fewer people want.

The results of this have been catastrophic for the former dominant parties of Germany. SPD continues to slide into minor party status, with recent polling now putting them behind five-year old Alternative for Germany (AfD) nationally, 16% vs. 18.5% in a recent poll by Die Welt.

But, it’s not just the SPD that continues to hemorrhage support. Merkel’s own Christian Democratic Union (CDU) is now below 25% nationally, since its coalition with the Christian Social Union (CSU) now has the support from less than 30% of Germans nationally.

CSU is usually good for around 8-9% of that total, but their support in Bavaria is down below 40%, dropping to 35% as of last month’s poll numbers. So, on the eve of Bavarian state elections in just over a week, all of the mainstay parties are seeing their bases eroding.

Honestly, the only thing keeping Merkel in power at this point is that there is so little consensus among German voters that even a new election wouldn’t solve the problem. Add to that the desert of the real which is the CDU’s potential replacement for her, and we have the current stifling status quo.

The longer I cover this story the more I hear from German voters, some hostile, some very, very helpful. But what has come to me recently has been the poll numbers for opposition parties like AfD are under-stated because of real fear of political retribution.

Germany’s anti-hate speech laws are being used to arrest people for being politically incorrect. From last year’s GDPR to the latest rules on sharing memes, the clamp down on speech critical of the political status quo in Europe is happening quickly.

And the question that I have is how is this affecting the polls? When I see an interview like this one I have to wonder how many ‘closet AfD voters’ there are in Germany like there were ‘closet Trump voters’ in the U.S. in 2016?

Because if there are a significant number then we will likely see quite an upside surprise for AfD in Bavaria’s elections on the 14th. And that could be the catalyst to nudge AfD into the twenties nationally and begin openly challenging Merkel’s own CDU in the polls.

Part of the dynamic in ‘crossing the 16% chasm’ in for any new movement, be it a technology or political party, is the shift in branding from just an honest protest against the current market leader to something the community is comfortable wearing as a personal label, in this case a “former CDU voter” and now a proud “AfD voter.”

This plays in to the unfolding political crisis that isn’t on the horizon anymore for Germany. It is here. There are no less than five parties with double-digit support.

Merkel is losing support within her own party. She is being challenged on the world stage by everyone. She has survived multiple attacks on her Chancellorship, expending political lives like the proverbial cat.

But, she is able to get away with this because none of the major political players in Germany want Merkel overthrown anymore than they are willing to form a coalition government with AfD in the event of another vote if Merkel is finally removed from power.

So, the status quo will likely remain until there is another galvanizing event which enflames German passions like what sparked the multi-week protests in Chemnitz last month.

And that, as I said in an article on my blog earlier this week, could have catastrophic effects on the state of broader European politics and the slowly-unfolding sovereign debt crisis.

Italy is in open-revolt, its bond market is collapsing quickly while its leaders spar with EU finance ministers over austerity and budgets.

A weakened, if not terminally wounded, Merkel will not be in a position to assist in maintaining the status quo. How can Merkel present a united front to Italy along with the other members of the Troika – the IMF and the European Central Bank – if a wave of nationalism is gripping Germany?

And this wave of nationalism goes beyond opposition to Merkel’s immigration policy. Germans don’t want to pay to bail out Italy or anyone else either. This is why Merkel has always played for time on Southern Europe’s debt problems.

It’s political suicide back home, but the only real solution for the Euro-zone is either consolidation of all debt issuance under one house, nominally the ECB or allow countries who cannot compete against Germany and the rest of the northern European banking centers, to leave the euro.

The latter is anathema to the globalist mindset, especially Merkel’s, so she along with everyone else are tying themselves into ever-tighter Gordian knots and eventually the euro-zone will break.

All we are waiting on now is the catalyst. And at that point, Mutti Merkel runs out of lives.

That office also offered a rough estimate of the financial toll on the countries of the EU – as much as 50 billion euros per year. That is equal to approximately 0.4% of the EU’s total gross domestic product.

That is a significant figure, considering that in 2015, according to Eurostat, total economic growth in the EU amounted to 2% of GDP, but only 1.7% in the eurozone nations. Even more revealing are the comparative figures for the last decade, which are able to include in their calculations not only the period of the financial and economic crisis, but also the EU’s “fatter” years.

According to Eurostat’s data, the economy of the entire European Union has grown by an average of 1% per year since 2004. But in the eurozone that growth was only 0.8%. The war of sanctions against Russia is eating up about half of the EU’s average annual economic growth.

However, this is averaged data from across the entire EU. An even clearer picture is obtained if this is extrapolated to individual countries, taking into account not only their direct but also their indirect losses. Thus, according to the analysts at the General Invest holding company, in 2014 alone – the first year of the sanctions – the toll suffered just by companies in Italy amounted to approximately 20-22 billion euros. This includes the losses incurred not only by companies that trade directly with Russia, but also by those that maintain an indirect presence on the Russian market through other European Union member states.

The Italian newspaper La Stampa has sounded the alarm: the sanctions war with Russia has touched off a “perfect storm” that has wrought havoc on Italy’s manufacturing sector. Italian exports to Russia effectively imploded last year, plunging 34% – from 10.7 billion euros in 2013 to 7.1 billion in 2015. La Stampa writes, “Machine-building, which accounted for 34% of all our exports to Russia, lost 648 million euros in 2015, while the apparel industry lost 539 million (a drop of 31%), motor vehicles – 399 (down 60%), footwear – 369, and furniture – 230”.

Long ago, Italian experts were among the first to warn of the dire effects of the sanctions war with Russia. In the next few months Italy could prove to be the “bomb” that will blow up the fragile financial (and hence political) stability in the European Union.

Federico Santi, an analyst with the Eurasia Group, a political-risk consultancy, claims that as we enter the second half of the year, the situation in Italy and its consequences for the rest of Europe may prove to be the biggest macro-political risk. The Italian banking system is weighed down under the massive ballast of non-performing loans and the aggressive policies of Germany and Deutsche Bank, which are using the crisis in the eurozone to strengthen their own positions. Government officials in Italy have reported 200 billion euros worth of “bad” loans (about 10% of their total), and independent experts would bump that up by another 160 billion euros (which is an unprecedented figure for the national banking system and comparable only to the numbers found in Greece).

In 2015 Italy’s third-largest bank – Monte dei Paschi di Siena – held 46.9 billion euros of overdue loans. Matteo Renzi’s cabinet has already launched into a fierce polemic against Berlin and Brussels, accusing them of the inability and unwillingness to effectively address the eurozone’s financial problems and demanding that national governments be given the right to take their own measures to combat the crisis, with an eye toward their particular socioeconomic situations, which would include recapitalizing debt.

But Nicholas Spiro, a consultant with Lauressa Advisory, believes that the stakes are too high in Italy for politicians not to adopt a plan to recapitalize Italian banks. At the same time, Brussels and Berlin are hesitant to take their own emergency measures to rescue the Italian banking system at European taxpayers’ expense, given the upcoming elections in Germany and France.

The results of the stress tests on EU banking institutions that were conducted by the European Central Bank and released in late July show that the Siamese triplets known as Italy, France, and Germany could soon bring down the entire financial system of the European Union. Just in the last few months Deutsche Bank shares have dropped 25%, those of the French bank Société Générale – 23%, and the Italian bank UniCredit – almost 30%. And the 47 billion euros of “bad” loans found on the balance sheet of Banca Monte dei Paschi di Siena account for more than 40% of the bank’s total credit portfolio.

Financial problems, coupled with the decline in manufacturing, make for a truly explosive mix, not only for Italy but throughout the European Union. However, Brussels is apparently still focused not on that, but on continuing the sanctions war against Russia.

The ECB – the most important of the EU’s seven institutions

The ECB, with its headquarters in Frankfurt, is the central bank of the eurozone, which has 19 members. The primary objective of the ECB is to maintain price stability within the eurozone (keeping the year-on-year rate of change in the consumer price index at around 2 percent). Moreover, the ECB is entrusted with such functions as issuing euros (in both cash and non-cash form); defining and implementing the monetary policy of the eurozone; managing the foreign reserves of the European System of Central Banks; and setting key interest rates. 

The Treaty on the Functioning of the European Union emphasises that the European Central Bank is independent of the other European Union institutions. The highest decision-making body of the ECB is the Governing Council, which is made up of the governors of the central banks of the euro area countries. The number of votes in the council is determined by the economic weight of the country. Most of the issues are not settled by the Governing Council, however, but by the Executive Board, which is made up of six people. One of the members of the Executive Board is the ECB president (Mario Draghi). 

Following the 2007-2009 financial crisis, the construction of a unified EU banking system was begun and the ECB was entrusted with the responsibility of being the regulator of ‘systematically important’ European banks (around 130 banking giants). In practice, the ECB took this function away from national central banks. Finally, the European Stability Mechanism (ESM) was created in 2012, a kind of collective EU money pot to provide emergency financial assistance to drowning countries (primarily Greece). Again, the ECB took it upon itself to keep an eye on this European fund. In fact, for several years after the financial crisis, the ECB managed to take control of the financial and banking system not just of the eurozone, but of the entire European Union. Incidentally, this is one of the reasons why the UK voted the way it did in the EU referendum: the threat of London losing control over its own financial and banking system had become too apparent. 

In continental Europe, even those in favour of preserving the EU often call for the ECB to be put in its place. References to the fact that the highest governing body of the ECB is the Governing Council, which is composed of the governors of the eurozone’s central banks, are unconvincing. Firstly, the national central banks themselves have a high degree of autonomy and are weakly controlled by governments and parliaments. Secondly, the ECB extends its influence beyond the eurozone.

The ECB and Goldman Sachs

The current president of the ECB, Mario Draghi, became the head of this institution on 1 November 2011, succeeding Jean-Claude Trichet. Draghi immediately made it clear that he had no intention of coordinating his actions with anyone. As early as December 2011, he decided to provide a three-year loan to save European banks without consulting with either the European Commission or the other EU institutions. The total amount was just short of €500 billion with token interest rates.

Mario Draghi even irritates the numerous supporters of European integration and is called the ‘Trojan horse’ of Goldman Sachs. From 2002 to 2005, Draghi was vice chairman and managing director of Goldman Sachs International, one of the four largest banks in America and one of those associated with all the financial malpractice that took place in the stock markets last century. 

In Europe, it is remembered as the Wall Street bank that gave loans to Greece in the 2000s, getting the country hooked on debt. A special credit technique was used that hid Greece’s growing debt and Brussels slept through the debt bomb being placed underneath ‘United Europe’. The Greek debt secret came to the surface at exactly the same time as Mario Draghi became ECB president. Since then, Europe has been in a permanent debt crisis and officials in Brussels, in the eurozone member states and in the EU are forced to agree with every ‘initiative’ put forward by the ECB, which is blackmailing Europe with the threat of financial collapse. 

Europeans are primarily critical of the ECB because of its quantitative easing (QE) programme. Behind this term hides the banal operation of creating money with a printing press, the very operation that was decried in every economics textbook of the 20th century. The pioneer behind the quantitative easing scam was the US Federal Reserve System. The scam consisted of exchanging brand new dollars for junk bonds that the Federal Reserve began to buy up on the market. The measure was allegedly designed to revive the US economy following the crisis. There was no revival, however, and the global economy began to be filled with cheap and even free money (interest rates in the money markets began falling to zero). This easy money did not go into the real economy, but into financial markets, where new bubbles began to inflate. The threats posed by the QE programme forced the US authorities to put an end to the dangerous experiment in 2014.

The same year, Europe decided to begin its own quantitative easing experiment. The decision was taken by the European Central Bank and ECB President Mario Draghi personally. The repercussions of the quantitative easing programme proved to be even more disastrous for the European economy than the US economy. The fact is that the ECB decided to increase the effect of the programme by introducing negative interest rates. As early as 2014, the ECB declared that it was imposing a negative interest rate on its deposit facility, and then in 2016 that it was cutting its interest rate to zero. Commercial banks emerged in Europe that did not just have negative interest rates on their deposit operations, but on their active operations as well (mortgages in Denmark and Belgium). There are currently bonds totalling several trillion euros on the European market for government debt securities with floating interest rates!

European companies and banks regarded this situation on the market as their time to shine. They rushed to issue their corporate bonds at less than 0.5 percent and even less than 0.1 percent. Interest rates like these make corporate bonds more attractive than ‘negative’ government bonds. But where are corporate issuers sending the money raised? The money is going to exactly the same financial markets. The markets are heating up and the bubbles are inflating.

In its defence, the ECB says that it is ‘saving’ Europe. The rescue operation boils down to the ECB buying up the debt securities of a number of European countries (Greece, Spain, Portugal and Italy). Mario Draghi is fuelling demand for the securities of bankrupt states. These securities usually have very long repayment periods (ten years or more). At present, they are being traded at prices significantly higher than face value, but even a layman can see that these inflated quotations could fall below face value at any moment. The collapse of the market is inevitable, it is just a question of when.

Some European experts believe that the ECB president is acting in the interests of Washington and the US Federal Reserve System by undermining the competitiveness of the European economy and weakening the euro once and for all. Others have suggested that Draghi is acting specifically in the interests of Goldman Sachs. Even amid the sharks on Wall Street, this bank stands out. Firstly, it lends itself to making money from crises, bankruptcies and failures like no other. Secondly, it has gotten used to worming its way into the government and receiving budgetary and other support. It is exactly this that allowed the bank to withstand the 2007-2009 crisis.

A duel between the ECB and Deutsche Bank

At the start of the summer, the discontent among politicians, businessmen and sections of the banking community with the European Central Bank rose sharply. This was due to the actions of the largest private financial institution in continental Europe – Deutsche Bank. At the end of June, it published a report assessing the consequences of the ECB’s policy. These consequences are devastating, since the almost free money is artificially prolonging the life of bankrupt companies, exacerbating the crisis of overproduction, and impeding the restoration of market equilibrium. The sovereign debts of EU member states are also continuing to grow due to the buying up of bonds by the European Central Bank. The Deutsche Bank document concludes that the ECB is preventing the implementation of structural reforms in the eurozone and preparing the conditions for a new, even greater crisis. Deutsche Bank has called on the ECB to stop its policy of quantitative easing and free money. 

Directly or indirectly, Deutsche Bank’s position has been supported by other European banks, primarily German ones. One of Germany’s largest banks – Commerzbank – has called for the ECB to abolish its negative interest rates on deposit accounts, warning that otherwise, it would no longer use the ECB’s depository services, but would store its excess liquidity (hundreds of millions and even billions of euros) in vaults in cash. Even Germany’s Federal Minister of Finance, Wolfgang Schäuble, has criticised the ECB’s policy. In May, the Constitutional Court of Germany reported that it received a complaint regarding the European Central Bank’s monetary policy. The names of the complainants were not disclosed, but they are allegedly a group of German businessmen and experts in the field of economics and finance.

The governor of the Bank of France and member of the bank’s Board of Directors, François Villeroy de Galhau, has unexpectedly spoken out in support of the ECB’s policy, but the governors of central banks in many other European countries are keeping quiet, and that is understandable. As professionals, they are clearly aware of the devastating long-term effects of the ECB’s easing policy, but their countries receive ‘gifts’ from the ECB by way of competitively priced Treasury security purchases.

Mario Draghi paused longer than other European officials following the UK referendum on 23 June. He eventually spoke, calling the results of the referendum «extremely regrettable». In the first two working days after the referendum (Friday 24 June and Monday 27 June), global stock markets lost $3 trillion. The only comparable slump before this was recorded at the beginning of the 2007-2009 global financial crisis. At a finance conference held in the Portuguese city of Sintra at the end of June, the ECB president called for closer cooperation between the leading central banks. 

No-one is in any doubt that Brexit will lead to serious reforms within the EU. Preliminary outlines for such reforms are contained in a document entitled «A Strong Europe in a World of Uncertainties». The document has been signed by the foreign ministers of Germany and France – Frank-Walter Steinmeier and Jean-Marc Ayrault. The radical reforms they propose are aimed at further depriving member states of their sovereign rights. The document provides for the creation of an EU body in the form of a ‘European superstate’ in which the EU member states will finally lose their national sovereignty once and for all, but with regard to the ECB’s role and position within this new European architecture, the document says nothing.

If ever the grubby «revolving door» relationship between the EU bureaucratic elite and big business needed an illustration, it is the news of Jose Manuel Barroso taking up a post with the US investment giant Goldman Sachs.

Barroso was President of the European Commission from 2004 to 2014 – the top administrative position in the EU. He was in that job during the global financial crisis of 2008 when Goldman Sachs and other Wall Street banks are accused of precipitating the worldwide crash through unethical lending practices using subprime housing mortgages. Goldman Sachs was later fined $5 billion by the US Department of Justice for its «misconduct» in falsely selling off insecure debts that led to the stacking up a disastrous financial house of cards.

The repercussions from the financial crisis were felt no less in Europe where entire countries became mired in bankruptcy and subsequently public austerity policies to offset bank bailouts. Austerity that still dominates public policy – eight years after the initial crash.

Goldman Sachs reportedly had a direct hand in saddling Greece with ballooning national debt by knowingly concealing the country’s shaky finances. The Greek debt crisis has threatened to tear down the entire EU, which has only been averted by brutal public spending cuts and immiseration borne by Greek workers, families and pensioners. The Greek debt time-bomb was primed during the years up to 2010 when Jose Manuel Barroso was head of the EU’s de facto central government – the unelected European Commission based in Brussels.

Barroso, who was previously Portuguese prime minister, is taking up his non-executive chairman advisory role at Goldman Sachs with a brazenness that has infuriated EU governments.

He stepped down from the EC Presidency in 2014 when he was succeeded by Jean-Claude Juncker. Barroso claims that the two-year period removes any allegations of a «conflict of interest». But many observers disparage his claims as betraying a contempt for public office and public decency.

The French government in particular has slammed Barroso’s move into the private sector as «scandalous» and has called on the former EC president to resile from his new Wall Street perch.

France’s EU affairs minister Harlem Desir told his fellow parliamentarians: «It’s a mistake on the part of Mr Barroso and the worst disservice that a former Commission president could do to the European project at a moment in history when it needs to be supported and strengthened».

French finance minister Michel Sapin was scathing of what he inferred was Barroso’s self-aggrandizement. «If you have loved Europe, you shouldn’t do this to it, especially not now… But this doesn’t surprise me from Mr Barroso», added Sapin.

This week, French President Francois Hollande is to hold further meetings with German Chancellor Angela Merkel and Italian premier Matteo Renzi. It is the second summit between these leaders since the shock British referendum result on June 24, which called for Britain to quit the bloc after 43 years of membership.

The governments of France, Germany and Italy are at pains to maintain EU stability in the wake of the Brexit. There is palpable concern that the British decision to leave the bloc is unleashing similar anti-EU sentiments across Europe. Almost every member state has seen a dramatic electoral rise in political parties that are opposed to the EU project.

France’s National Front led by Marine Le Pen is probably the most significant of these anti-EU parties. From relative obscurity, Le Pen’s party has become a serious contender to win government power in next year’s presidential elections. The success of the anti-EU campaign in Britain has emboldened the political platform of France’s National Front, and those of like-minded parties in Germany, Italy and elsewhere.

What we are witnessing is a popular revolt across Europe against an unaccountable EU bureaucracy that is seen to be unresponsive to the needs of the bloc’s 500 million citizens. Cronyism and pandering to the profit interests of big business and financial elites, while the vast majority endure relentless economic austerity and neoliberal nostrums, seem to have become the «normal» functioning of the EU and its mainstay national governments.

The economic and financial rack of the EU on its citizens is also seen to be part of the Atlanticist agenda of increasing NATO militarism as demanded by Washington. Even though this agenda of antagonizing Russia has only compounded hardships on EU citizens from trade sanctions and counter-sanctions, as well as causing deep concern that a military conflict is looming from this slavish adherence to US-led policy.

Jose Manuel Barroso’s appointment by Goldman Sachs smacks of a tawdry sweetheart deal. As a former unelected senior EU official he was seen to have used his position as a public servant to advance the commercial interests of Goldman Sachs and other Wall Street banks in Europe, which, in turn, led to catastrophic economic and social impacts.

In advising his new employer on investment decisions following the Brexit, Barroso will avail of his EU contacts and insider knowledge that he gained while supposedly acting as a public servant – and no doubt be reimbursed with a lucrative salary for his services.

Barroso is thus the ultimate embodiment of EU bureaucratic cronyism in league with big business. Such elitist conduct – impervious to democratic accountability – is a major driving force for why the British electorate hit back with the stunning vote to reject the EU.

In the ferment of the Brexit result, Barroso’s flagrant grasping of opportunity at a Wall Street bank – a bank that has inflicted so much social pain on Europe – is a further lightning rod for public anger against the EU. And that is what alarms EU-supporting governments like the French, Germans and Italians.

The Portuguese politician is by no means the first to have slipped through the revolving door between EU senior public servants and big business. And it is probably not his move per se that is the reason for the outcry from EU governments. After all, the head of the European Central Bank Mario Draghi was previously a Goldman Sachs executive, as was former Italian premier Mario Monti. Current French economy minister Emmanuel Macron is a former private banker with Rothschild. Former British premier Tony Blair is believed to have been paid millions as a «consultant» for JP Morgan Chase since he left public office.

The list of big business-government cronyism in the EU goes on and on. (The same goes for the US.) «Conflict of interest» is a misnomer. The concern is actually a de facto policy of «confluence of interest» at the highest levels of purportedly democratic government.

Barroso’s offense in the eyes of EU governments is not so much that he is taking the well-established, if less-known, revolving door. Rather, it is the indelicate timing of the brazen move. It speaks of everything that citizens perceive as rotten about the EU, giving them further reason to revolt against incumbent governments.

And that is why, one suspects, EU politicians are really upset by Barroso grabbing a sweetheart deal at Goldman Sachs. It’s not really about ethics. Instead, it’s more about damage control to salvage the sinking EU ship in the aftermath of the Brexit torpedo.

The pyramid of financial power

It is clear today that a new structure is being built in the world alongside the state machine that has existed for centuries and represents national sovereignty, and this structure is designed to gradually replace nation states. It is called a world government and the supports of the structure are central banks. The structure is in the form of a pyramid. At the top is the US Federal Reserve System, which issues dollars that acquired the status of a global currency 72 years ago at the Bretton Woods Conference.

The next layer of the pyramid is made up of central banks that issue reserve currencies. These are first and foremost the European Central Bank (ECB), the Bank of England, and the Bank of Japan. The layer below consists of central banks in the eurozone, which kind of act as ECB shareholders (chief among these is the Bundesbank and the Bank of France). It also includes the central banks of Canada, Australia, New Zealand and some Scandinavian countries. At the base of the pyramid are the vast majority of the other central banks in the world, which are such in name only. In practice, they are ‘currency boards’ that issue national currencies by purchasing US dollars or other reserve currencies. These ‘national’ currencies are really just repainted Federal Reserve dollars. This entire network of central banks is presided over by the US Federal Reserve System and the Bank for International Settlements (BIS) in Basel. The BIS is a kind of private club for central banks that was established back in 1930 and played a not insignificant role in the build up to and unleashing of the Second World War. 

Central banks may have the status of public sector organisations, private or mixed (public-private). The form of ownership has absolutely no effect on their ‘independence’. The US Federal Reserve System, for example, is a closed corporation. The Bank of England and the Bank of France used to be privately owned, but were later nationalised. The central banks of Japan and Italy are organisations with mixed ownership. Every year, the central banks expand their range of functions and powers. Many of them are becoming ‘financial mega-regulators’ that are usurping control over the economy. 

Some of the events taking place in the world can only be understood in light of the fact that central banks have immunity that protects them from any attempts by the state to encroach upon their ‘special’ status.

Slovenia puts the ECB in its place

On 7 July, global news agencies circulated two stories. The first came from the BBC and the second from Reuters. The headline of the BBC news item was «Argentina: Former leader Cristina Fernandez has assets frozen», while Reuters published its article under the headline: «ECB threatens legal action against Slovenia after police raid». At first glance, there does not seem to be any connection between the two stories, but a connection does nevertheless exist.

In 2013, one of the leading private banks in Slovenia found itself on the verge of bankruptcy. There was a possibility that the bank’s collapse would bring down the country’s entire banking system. The government of Slovenia, which is a member of both the European Union and the Eurozone, did not receive adequate financial support from Brussels and was forced to bail out its own banks, giving them more than €3 billion from the state budget. The distribution of public money took place on the basis of recommendations and suggestions prepared by the Central Bank of Slovenia. And now three years later, compelling evidence has emerged that casts doubt on whether the Central Bank provided the government with an objective picture of the financial position of individual banks in the country’s credit system. There is a suspicion that some of the information the Central Bank of Slovenia gave to the government was corrupt. Slovenian police have searched the offices of the Central Bank and seized a number of documents that compromise the governor and senior officials of the Bank of Slovenia.

And all of a sudden, the actions of the Slovenian police have sparked a violent reaction from the European Central Bank. ECB President Mario Draghi said that he deplored the seizure of property and information, referring to it as a violation of the ECB’s legal privileges and immunities and calling on European Commission President Jean-Claude Juncker to look into the situation. Mario Draghi has also sent a letter to the Slovenian State Prosecutor General that says: «Seized equipment contains ECB information and such information is protected under directly applicable primary EU law». The European Central Bank also threatened Slovenia with legal action (although the case will obviously be filed with the supranational European Court of Justice rather than the national court of Slovenia). It turns out that any attempts by national authorities to monitor and control their central banks are considered to be an encroachment upon the ‘independence’ of the European Central Bank. The incident in Slovenia has made it clear to the authorities of all Eurozone countries that their ‘national’ central banks are actually nothing more than subsidiaries of the supranational ECB.

The money bosses take revenge on a woman

Now let us look at events in Argentina. A court in Buenos Aires has decided to freeze the assets of former Argentine President Cristina Fernández de Kirchner, who has been accused of artificially propping up the exchange rate of the Argentine peso in the final months of her presidency. Following orders from Kirchner, the central bank allegedly sold US dollars on the futures market at «an artificially low price to the detriment of the country’s financial system». The tailor-made nature of the affair is beyond doubt. For many years, this tenacious woman has withstood the onslaught from the US and the money bosses in order to protect Argentina’s sovereignty.

Firstly, she resisted the attempts of ‘financial vultures’ to undermine the debt restructuring agreements that Argentina reached with its main creditors in the early 2000s. The ‘financial vultures’ (several speculative investment funds) that had not signed restructuring agreements began to take action through the courts of New York, achieving full repayment of Argentine debt securities that they had been able to buy on the market for next to nothing. This created a precedent allowing global sovereign debt restructuring agreements to be undermined. It also created a precedent for the blatant pressuring of foreign states using the decisions of courts belonging to other jurisdictions (courts that do not even formally have the status of an international court). Here Cristina Fernández de Kirchner found herself on the frontline of the battle against legal imperialism.

Secondly, Cristina Kirchner created a precedent a few years ago that was not to the money bosses’ liking. As head of state, she decided to place the Central Bank of Argentina under her control. In 2010, she needed the central bank’s currency reserves to pay the country’s external debt. The amount needed was $6.6 billion, which was about a seventh of the central bank’s international reserves and half of the total amount of external sovereign debt. Covering government debts by obtaining foreign loans would make the country even more dependent on global moneylenders, but by using the central bank’s reserves, Argentina would be able to completely rid itself of its foreign debt burden in a relatively short space of time. It is not difficult to guess how the money bosses reacted to this brave woman’s endeavour. The then president of the Central Bank of Argentina, Martin Redrado, refused to obey Kirchner’s orders and she signed a decree for his dismissal. In response, Redrado appealed to the court in Buenos Aires and just a few days later (what efficiency!), the Argentine justice system annulled the president’s decree. The judge who presided over the case justified his decision by saying that «the president does not have the authority to dismiss the head of the Central Bank».

Surprisingly, as well as deciding to reinstate Redrado as central bank president, the court also demanded that the Argentine President’s decision to use the central bank’s international reserves to pay the country’s debt be revoked. 

Central Bank President Martin Redrado was finally dismissed, but the decision prohibing the use of the central bank’s international reserves was upheld. It is interesting that in January 2010, accounts held by Argentina’s Central Bank in US banks were frozen by a court in New York. The decision was made based on the requirements of the holders of Argentina’s external debt. Officially, the decision of the New York court was not linked to Kirchner’s decision, but experts familiar with the rules of the game in the global financial system believe it was a warning to the Argentine president. It is only in light of this story that one can understand why former Argentine President Cristina Fernández de Kirchner is now being persecuted. The money bosses are trying to completely destroy all traces of the ‘Argentine precedent’ that allows for a central bank to be removed from under the control of the global financial International.