The EU’s Hard Line toward Italy Is Like “Playing with Fire”

If too hard-pressed, the Italian government could play the Glass-Steagall/bank separation card, as financial meltdown threatens.

The International Monetary Fund warns in its latest annual economic outlook that “large challenges loom for the global economy to prevent a second Great Depression.” The report was issued as part of the preparations for the IMF’s annual meeting, which was held last week in Bali.

“I find it very remarkable that the IMF is pronouncing the famous ‘D’ word”, said Helga Zepp-LaRouche in an interview with Harley Schlanger on Oct. 12. The D word, as in Depression, was never to be mentioned, because of the so-called “psychology of the markets,” where merely saying the word could actually bring on the Depression. Perhaps the FMI is trying to prepare the population for the financial meltdown that is now inevitable, Zepp-LaRouche mused.

One very volatile aspect of that is the intransigeance of the EU Commission and the European Central Bank toward the Italian government and its new budget proposal. Apparently, Zepp-LaRouche pointed out, they think they can blackmail the government into capitulation by unleashing financial speculation against the country. That is implied in the “infamous” letter sent to the Italian government by EU Commissioners Pierre Moscovici and Valdis Dombrovskis on Oct. 5, indicating that Italy’s intention to deviate from the austerity path is unacceptable. That letter triggered a run on Italian bonds the following Monday, pushing the spread with the German Bund to over 300. A spread of 400 sustained over time is considered to be deadly for Italian banks, which own a significant amount of government bonds.

But the attempt to put Italy up against the wall like in 2011, Helga Zepp-LaRouche believes, is playing with fire, because a banking crisis could trigger a systemic collapse. And contrary to 2008, when the whole world was more or less unprepared for the crash, “those people who are now trying to cause the Italian government to capitulate (…) should not forget that both Italian government coalition parties, the Lega and the Five Star Movement, have Glass-Steagall not only in their party programs, but also in the coalition treaty.” So, “if somebody from the outside pushes them into a crash, I would not exclude the possibility, or I would actually say it’s quite probable that they would implement Glass-Steagall as a self-defense.”