Italy: This Time is Different

Seasoned observers of Italian politics will tell you that there is a fairly consistent pattern to political crisis. The pattern starts with infighting among the governing coalition; it accelerates suddenly when one of the coalition partners ‘pulls the plug’ on the government; and then things slow down again as the various stakeholders realize how much is at stake for them personally if they let things fall apart. Parliamentary seats are prestigious, the salaries are high, and the pensions are generous provided the members just stay in post long enough to qualify. More important, real crisis comprises a lot of work with very uncertain pay-offs to be gained from an often-fickle electorate. Meanwhile, bad things can happen to the country’s economy, particularly vis-à-vis the banks and bond markets. In such a context, it is only reasonable to expect that cooler heads will prevail. Given the possible threat that an Italian meltdown would pose for the future of the euro (and hence also the European Union), we should all hope these observers are right. Nevertheless, there are four good reasons to believe that this time is different.

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The Political Economy of Housing Finance: Compelling New Analysis by Gregory W. Fuller

At some point in the early months of 2007, the words ‘sub-prime mortgages’ began to filter into the popular press. By the end of that August, they were ubiquitous. This small section of the high-risk, high-yield housing finance market in the United States sparked a global financial and economic crisis that would scar a generation. The stories that emerged to explain how this happened were the stuff of fiction or perhaps something even stranger. Banks booked mortgages to people with no demonstrable assets or income, at introductory rates that quickly reset to terms that only the most resilient of households could afford. By the time the borrowers defaulted, however, the banks had sold the mortgages to other investors using complicated securitization instruments that effectively hid the risks involved. The institutions left holding the bag were not only unaware of the dangers the faced but completely unprepared for the consequences. In his powerful new book on The Political Economy of Housing Financialization, Gregory W. Fuller explains why that happened, how the dynamics differed across countries, and what we might do to anticipate similar crises in the future.

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Sovereign Debt Restructuring and Debt Mutualisation in the Euro Area

The euro area lacks a framework for sovereign debt restructuring and it lacks a common risk-free asset. Both issues are important in looking ahead to the prospect of any future crisis. Of the two, however, the creation of some kind of sovereign debt restructuring mechanism appears to attract the most political attention. This briefing note outlines the issues that would need to be addressed to bring greater stability to the euro area.

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Trouble at the Fed (and Elsewhere)

As U.S. President Donald Trump starts asking about whether he can fire the Chairman of the Federal Reserve, it is time to start asking how strong the protections are for politically independent central banks.  The answers are alarming: Trump is not the only one challenging central bank independence; he is also not the most successful.  Indeed, the challeges are widespread and they have been growing for some time.  That is reason enough to pick up Paul Tucker’s book Unelected Power — which was recently named by Foreign Affairs as one of the top books published in 2018.  If you want a taster, my review of Tucker’s book from Survival is below.  The punchline is that while people are right to be concerned that Trump would violate the independence of the Fed, that does not mean either the Fed or any central bank should be left entirely to its own devices.

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Soft Law, Hard Ideas, and Borrowed Credibility

International political economy used to be about wealth and power.  Now the sources of influence and control are more subtle.  Governments choose to follow rules that are not enforced, they sign onto policies recommended to them by foreign nationals (or even ‘citizens of nowhere’), and they invite powerful non-state actors to assume control over crucial economic sectors, finance in particular.  Three recent books explain why this is so.

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Catching Up with Italian Politics

The fast pace of change in Italian politics has left many observers outside the country struggling to catch up.  This collection offers a quick overview in bullet points with links to recent articles I have written in case you have interest in learning more.  I am going to list the material in reverse chronological order.  Most people want to know what is happening and then figure out why.  If you are one of those people who works the other way around, I advise you to follow the links from the bottom up.

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