Why Europe’s Fragile Banking System is Being Pushed to the Brink (w/ Mark Blyth & Adam Tooze)
MARK BLYTH: Switch it to Europe in particular, right? The whole debate over Corona bonds, and basically off balance sheet spending to allow greater macroeconomic impact, it seems to be-- now the ECB is kind of a shit version of the Fed. They'll do some guaranteeing of a floor for prices, and then you're on your own. That's pretty much it. ADAM TOOZE: The consequences of that are in a union, which in some senses, if you take the whole eurozone comparable to the United States, pretty lamentable from a political point of view. It doesn't work that well, right? If your choice is between that version of capitalist governance and the American version, I think odds of which one you pick is pretty evident, right? The sustaining aggregate demand is an important function. And divvying it up across the complex, highly divided zone of the eurozone is something that eurozone economic governance fails at. And the symbol of that is the stagnation of the Italian economy. MARK BLYTH: So let's focus it on Europe. You just mentioned the Italian economy of being deeply problematic, and in a sense, impacted by bad eurozone governments for the past 20 years, by some readings. Are the Italians off? Is this the breaking point, or is it just going to continue as it did through the crisis as it did last time? ADAM TOOZE: My sense is this is the very unhappy version of the Mad Max improvised capitalist governments. It's a very unhappy marriage. It's a very unhappy, dysfunctional machine. I'm not sure that it breaks off. Because even with Greece, I was pretty persuaded that the costs of a Grexit were exorbitant for a country the size of Greece. For an economy with sophistication of Italy with the balance sheets of the Italian financial system denominated in euros, it would need some wizardry of financial engineering to get them out of there without a complete meltdown, which given the weaknesses of the Italian economy right now is the absolutely last thing they need. So I don't think in Italian exit from the euro is even remotely plausible politics. And certainly in the previous situation, the last time that the euro skeptic drowned ultimately, when it actually came to it, they backed away from that, all the powers there be in Italy into being quite heavily to ensure that as it were, whatever government arrived was one that they thought they could work with. I think it's very unlikely that Italy will crash out. But I think what it means is that we continue on in an increasingly unhappy way. MARK BLYTH: But does that mean the politics get worse? So if we're currently looking at 30% unemployment, in all economies, generally, you can imagine the Italians being in even worse shape. This is a catastrophe. If the demands for this [INAUDIBLE] for the block zero come back at that point, and demands for a new round of austerity, which seems likely to actually happen-- and that will be catastrophic, politically, for these are most affected economies, surely. ADAM TOOZE: Yeah. I think [INAUDIBLE] may win the prize, if not the prize, at least the runner up prize for the first announcement of that politics. So the head of the German Bundesbank has already said, OK, fine. Spend now, but you know we're going to have to do consolidation later. And that is a catastrophe, because Italy's debt to GDP ratio will be up in 150s by that point. So really, there isn't any realistic alternative but to part that on the ECBs balance sheet and leave it there, short of some imaginative European federal fiscal fix, which no one seems to have any appetite for. There is a catastrophic politics of austerity that could look down the road. And that would-- I agree. The political fallout from that could be ruinous.