A private Euro bailout–now with Italian flavorPosted: November 2, 2011
No matter how annoying the European debt-crisis soap opera has become–reminding me of the old Saturday Night Live Weekend Update routine about Generalissimo Francisco Franco still being dead–there’s no way to pretend that it isn’t going to cost us here in the land of the free and the home of the brave. Even before the Euro leaders huddled and brought forth their bailout mouse (getting their banks to “voluntarily” take a 50% haircut on Greek debt so as to avoid triggering the credit-default swaps that a formal default would entail, then promising to make the banks whole with taxpayer money), skeptics were predicting its failure. Now the PASOK government in Greece has scheduled a referendum on its austerity end of the bargain, and the likelihood of a rejection by Greek voters has spooked the markets more. New Eurozone manufacturing numbers are dire, suggesting another slowdown, lower tax revenues, increased deficits, rivers turning to blood, cats and dogs living together, and so on.
“So what?” you ask, with a Gallic shrug or perhaps some Teutonic schadenfreude. Well, the IMF, heavily backed with U.S. tax dollars, is in on the deal and will probably be hit up for more money later. What’s more, some of our banks have exposure to European sovereign debt and I’m not confident that equity or loss reserves will turn out to be adequate in all cases, given our past experience here with regulatory diligence (and given the regulators’ professional courtesy toward fellow governments, treating sovereign debt as “safer” than, say, bonds from cash-laden private companies). And finally, a big recession-and-default contagion in Europe is guaranteed to chop into the profits of U.S. and Asian firms, crippling confidence, investment, and hiring.
The central bankers and technocrats and politicians are not going to be able to stop this; they’ll ride out the crisis and take credit if everything works out and duck the blame if it doesn’t.
But fear not. Because I Have a Plan.
We the People of the United States can save the day if we make a few, small sacrifices. In true Rumelt “Good Strategy” fashion, we start with the diagnosis. Not the long-term, deep cultural-roots stuff, but the near-term issue. The problem is that Italy, though not in terrible fiscal shape on an annual basis, is carrying a lot of short-term debt that needs to get refinanced during a time when investors are as nervous as long-tailed cats in a roomful of rocking chairs. The only reason everybody’s all bent out of shape about tiny Greece’s upcoming default is because they see it as precipitating the collapse of Italy or Spain. The Italian-German spread on government bonds has spiked. In the meantime, the Italian economy is slowing down, exacerbating revenue shortfalls and making previous austerity measures look iffy in effectiveness. If we could somehow build a firewall around Italy, the whole thing will probably blow over.
Here’s where the American citizenry comes in. No, we don’t have to go out and buy Italian debt. That would be risky, probably ineffectual, and no fun at all. Our guiding principle will be to provide a focused stimulus to the Italian economy, a huge jolt to their export earnings that will break the negative psychology of the bond markets. Now for the feasible action:
My fellow Americans, this holiday season, buy Italian! Instead of that Brooks Brothers suit, go Armani! Instead of that vacation to Thailand, try Rome! Discover some Italian wines to brag about. Buy the ugly Fiat that J-Lo advertises–you know you want to be one of the crazed stalker-dancers in that commercial. Get a nice milled-aluminum Mazzouli pen. Redecorate with cheerful, modern Italian furniture, and maybe some Italian floor tile. Buy high-quality Italian olive oil.
Do it now. Set up Facebook and Twitter groups. Shame people who don’t join in. Forget taxpayer bailouts–that’s money for nothing. Let’s hit ‘em with a consumer bailout that’ll knock those bond vigilantes right out of their short positions. At least we’ll get some nice stuff in return.