Monday, 25 February 2013

Markets Rise Strongly On Centre-Left Win In Italy

Exit polls indicate that the Centre Left will win around 38% of votes in the Italian elections, putting them in power in both houses of the Italian Parliament.  On the back of that news, meaning that policy will move away from austerity and towards growth, Italian markets soared by around 3.5%, and global markets rose strongly too.  That comes on the back of Moody's giving a similar signal of where Capital seeks to move policy.  Their decision to downgrade Britain's Triple A Rating cited clearly the detrimental effect austerity was having on growth, and the effect a lack of growth was having on Britain's ability to repay its debts.

That illustrates just how wrong Britain's Liberal-Tory Government is in persisting with its illiterate economic policies, not just in the face of what experience is once more illustrating, but in the face of what is even in the interests of the Capitalist Class they seek to serve.  But, it also demonstrates once again how wrong those on the Left are, who operate with a crude economic determinist view whereby  the policies adopted by Governments always have to be read back as mechanically meeting the needs of Capital.

Under some circumstances such as those of the 1920's and 30's, and those of the 1980's and 90's, economic policies that seek to boost profits by squeezing workers, and limiting government spending might meet the needs of Capital.  Yet, in fact, even during the 1980's and 90's, Government Spending actually continued to rise.  What is more specifically the case during those periods, is that Keynesian fiscal stimulus cannot act as a means of providing a sustainable boost to the economy.  But, in other periods, periods of Long Wave Boom, policies of Keynesian fiscal stimulus can fulfil that function, and so it makes no sense for Capital to create, or lengthen periods of recession by failing to use them, because such recessions by their nature mean lower profits, and even destruction of Capital Value.

The global economy, since 1999, has been in a period of Long Wave Boom, likely to last until around 2025-30.  That is manifest in the huge increase in global GDP during that period, similar increases in global fixed capital formation, and a 30% increase in the size of the global working-class.  A large part of that growth has come in the new dynamic centres of the global economy in China, Asia, Latin America, and increasingly Africa.  Even as North America, and Europe suffered from the Financial Crisis of 2008, and its aftermath, these other new centres of economic activity have continued to grow strongly.

The US, which suffered severely from the Financial Meltdown of 2008, has not grown as strongly as these new economies, but by using Keynesian stimulus it has at least managed to continue growing, and as a consequence the profits of US companies have continued to grow too.  That is in stark contrast to the performance of those European economies that have followed an Austerian economic policy.  Greece on the basis of those policies has become a basket case, Spain is experiencing a 1930's style Depression that is getting worse, and Britain's economy under the Liberal-Tories has stagnated, now falling into a Triple Dip Recession.  The only thing these policies are doing is weakening the economies that pursue them, and thereby weakening the position of the Capital based in them relative to Capital in other parts of the global economy.

Those right-wing populist parties that insist on pursuing these disastrous policies are not doing so in the interests of Capital, but in order to meet the interests of their own core membership and voter base.  In general that is not the dominant section of Capital, but those backward sections of Capital, the small businesses, alongside the backward sections of the middle class that have a parochial, nationalistic outlook.

For more than 100 years the interests of the dominant sections of Capital have been represented, not by these right-wing populist parties but by Social Democracy.  That is why they are welcoming the victory of the Centre-Left in Italy.


In the half hour since I wrote this post events have further confirmed its thesis.  New exit polls suggest that the Centre-Left might only have won control of the Lower House, with Berlusconi having a majority in the Senate.  On the back of that, the FTSE MIB not only lost all of the 3.5% gtain it had made during the day, but went into negative territory.  Other markets that had been showing solid gains on the day, also went into negative territory.


davidjc said...

Isn't one of the problems in Italy that the centre-left group is damned by austerity, with Berlusconi pitching himself as the one to change course, albeit via anti-German rhetoric?

For example, the FT says that, "Investors took fright at the prospect of prolonged political instability in Italy following a resounding electoral rebuff to austerity measures".

The characterisation of small-business/nationalist right in lock-step with austerity might hold in some places, the UK and possibly the US for instance, but the picture looks mixed to me.

The one consistency seems to be that parties of whatever colour that argue against austerity do quite well in elections, but then change tack if elected e.g. France, Greece, Spain (twice) and now Italy.

Maybe all of Europe - and the world! - is stuck while the small-minded section of the CDU/CSU holds power, but the SPD isn't really banging many drums against austerity either. All this even when the IMF has admitted its earlier pro-austerity calculations were wrong.

Back to Italy - I thought the reason the international finance brigade didn't like Berlusconi was because he didn't put through austerity, or at least wage-lowering 'reforms', fast enough?

Boffy said...

I think it comes down to what is meant by austerity, but also I think the more important question is growth. All parties, other than perhaps the US Democrats are having to talk in measured terms, because there is a big right-wing populist constituency waiting to pounce on anyone who advocates spending their way out of crisis.

That highlights the problem, because some on the Left have ended up adopting essentially the same false argument as the Tories that opposition to austerity means essentially just spending and borrowing more money. But clearly it doesn't. Likewise, the Tories austerity measures are resulting in the UK deficit and spending rising not falling.

The real issue is about growth i.e. not cutting spending in such a way as to reduce growth, but rather directing spending - including where necessary additional spending - into measures that spur investment and growth. After all the issue everywhere is actually not about removing the deficit, but only reducing it.

In Italy, its also necessary not to be taken in by the propaganda line put out by the media. Capital didn't like Berlusconi because he was incompetent and a clown. But, the reality is that Monti could only become PM with Berlusconi's approval. He fell when Berlusconi removed that support.

In fact, in recent months, Monti himself has been arguing for reducing the austerity approach, and for introducing more growth oriented policies. He was never going to win a sizeable number of seats to follow that approach, and why he was dependent on the Centre-Left winning, which would have meant not abandoning "austerity" and simply spending with gay abandon, but would have meant slowing down the cuts, and directing spending towards growth. That goes along with the reform programme too to modernise and restructure the economy.

When it looked like the Centre Left were going to win, markets soared, when it became apparent they weren't those gains dissipated. When it became apparent Berlusconi would win the Senate they tanked.

That is not because Berlusconi is anti-austerity, its because the result means that the pro-growth agenda will be frustrated along with pretty much anything else. If you look at Berlusconi's proposals it does not amount to a programme of spending, but of tax cuts. Its only anti-austerity in that sense.

Its actually not clear that even those arguing against austerity do well in elections. That was not the case in Greece, Portugal, Spain or Ireland, or in the UK.

Actually, the SPD have argued against austerity, and have also argued in favour of the kind of EU policies such as Eurobonds that are necessary to resolve the debt crisis. But, of course no Social Democratic party is going to argue for massive amounts of spending as the solution because a) such a solution is not credible, and b) it would mean losing the elections because its not credible.

davidjc said...

It's right that "there is a big right-wing populist constituency" in favour of austerity. No doubts on that. There's also a smaller right-wing populist constituency for turning the taps on. As you say, it often favours tax cuts.

It's right that growth is the issue, but I guess what I'm asking about is how far genuinely held pro-austerity - as in austerity will soon lead to growth - ideas are shared by the wider right wing/big capital/ruling class proper and not just as a sop to the local Tea Party types? If so, maybe there's a concrete reason for it, separate from the populist one? e.g. some people say it's to do with the shift to the east or whatever.

In southern Europe, the EU-directed austerity packages aren't, taken as a whole, diverting social spending into, say, infrastructure projects. Like in the UK, infrastructure projects are being cut, or put back into the distant future. Not sure if it's still the case, but in 2011, the EU forced Greece to close its rail links to the rest of Europe. Talk about sending a signal! Similarly, there have been education cuts all over the shop.

I'd say the parties that did well in Greece last time out were anti-austerity. The party that had brought in the most recent round of austerity - after being elected on an anti-austerity ticket - suffered the biggest losses. Even the pro-bail-out parties had to pretend they'd re-negotiate the terms.

In Spain, the PSOE won the time before last on an anti-austerity ticket, then the PP won and while you're right, its campaign wasn't full-on anti-austerity, it wasn't pro- either, giving a series of vague spending promises it broke in record time.

In Ireland, there wasn't much of an anti-austerity choice, but the last government fell to parties that said they'd be less harsh with austerity, that they'd consult more and so on. I'll give you the UK, but unlike the others, the last election here was before austerity had happened.

Thanks for the reply and for all the Capital stuff - tremendous.

Boffy said...

I agree with most of the points you make. I don't think there is really any great support for austerity amongst the ranks of Big Capital, and its representatives within the State. I can't help being amazed that as supposed people who understand business the Tories make the argument they do.

Any sensible business knows that if you need to invest to increase a business's income, its often necessary to borrow, and always necessary to spend to invest! That is true if you need to restructure your business, which is precisely what uncompetitive European economies have to do. I'm sure the representatives of Big Capital understand that, and their political representatives in the ranks of Social Democracy - including people like Heseltine are making that case.

As I've argued before some of the problem can be that within the ranks of the State bureaucracy there can be inertia. It took time in the 70's for them to drop Keynesianism. Now they are taking time to readopt it. But, the critique of austerity coming out of the OECD, IMF, and the Credit Rating Agencies seems to indicate that change is happening.

Part of the problem is that without a European State that can simply make necessary fiscal transfers to cover investment in the periphery, there are only two games to play. One is print more money and give it to the periphery, or pursue austerity. On that basis I've argued there may not have been an alternative for Greece, Spain, Italy, Ireland. That doesn't apply to Britain.

But, to misquote Groucho Marx, these are my theories and if you don't like them I have others! One other hypothesis would be that every new State has used a form of Colonialism. The US used the South as internal colonies, Russia used Siberia. Northern Europe could be using Southern Europe as a means of primitive capital accumulation of a sort. I don't much like this theory.

I agree that nothing is being done in the periphery - or Britain - to restructure. Ireland, as i've argued before, probably doesn't need to. Its problems were different, arising from its housing bubble. But, that just confirms my point that the real problem in Europe is political incompetence. They are wasting a perfectly good crisis! A crisis of their own making.

It was pro-austerity parties that won in Greece, they did in Portugal, and the PP were fairly clear that they would push through cuts in Spain. I don't think the Tea Party/Lafferite Right arguing for big tax cuts represent much. They have been defeated in the US.

Boffy said...

Obama's speech the other day made the point powerfully that there were lots of investment schemes that could be undertaken immediately that would both put people to work, and provide demand for private capital, but which would also be cost-saving, because they would simply pull forward necessary spending on infrastructure.

I was watching a programme a couple of days ago about the use of hydro-thermal energy in Kenya that is going to produce huge amounts of cheap electric. They are also using large amounts of solar power for electricity generation in villages.

The point being that this is one of those periods where within the global economy, large scale restructuring can move from existing inefficient infrastructure to the next generation. In the Uk why bother with HS2, why not now get ultra fast broadband (1 gig) laid in the next 2 years?

The US and Europe are in a good position to do exactly that kind of restructuring.