Italy’s former premier Romano Prodi said the EU risks instant contagion to Spain, Italy, and France if Greece leaves. “The whole house of cards will come down”, he said
Angelo Drusiani from Banca Albertini said the only way to avert catstrophe is to convert the European Central Bank into a lender of last resort. Otherwise Italy faces “massive devaluation, three to five years of hyperinflation, and unbearable unemployment.”
The ECB’s emergency lending may have made matters worse, encouraging banks to buy their own states’ debt. It has led to an incestous inter-linkange of fragile banking systems and fragile sovereign states, each propping the other up. Many of the banks used ECB money to buy state bonds until they need to roll over their own debt. They are now nursing stiff losses.
Moody’s downgraded 26 Italian lenders on Monday night saying the slump itself is the killer, joining a chorus of voices warning that too much austerity may be self-defeating.
In other words, if you want something, sooner or later you’ve got to pay for it, but nobody wants to pay for what was wanted and consumed, so the buck-passing has begun.
It’s as if every person participating in the global economy over the past few decades has been sitting at an elaborate meal, and the check is now at the table. We’re all still sitting together, but gazing, dumbfounded, at the tab. The price of the meal astonishes us, and this astonishment is accompanied by a realization: we’ve never really worked out, exactly, who will pay for what.
Insert a Medusa fright-mask here (or Edvard Munch’s The Scream).
Who will pick up the check? Who will be scapegoated? And who, do you suppose, will be the first to excuse themselves to the restroom, fleeing out the window?