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Saturday, September 8, 2012

Ghosts of Mussolini and Franco awaken: Nationalist backlash in Italy and Spain to test Mario Draghi bond plan

Nationalist backlash in Italy and Spain to test Mario Draghi bond plan

The European Central Bank's ground-breaking plan for mass purchases of Spanish and Italian bonds is fraught with political risk and may soon be overwhelmed by nationalist anger in the crisis states, leading economists and statesmen warned at a gathering of the European policy elites in Italy.

The European Central Bank President Draghi speaks during the monthly news conference in Frankfurt.
Photo: Reuters
"The ECB move is helpful but is not a game-changer. The eurozone is still in crisis," said Nouriel Roubini, head of Roubini Global Economics.
"Unless Europe stops the recession and offers people in the peripheral countries some light at the end of the tunnel - not in five years but within 12 months - the political backlash will be overwhleming, with strikes, riots and weak governments collapsing."
Professor Roubini said the German Bundesbank and will insist that "severe" conditions are imposed on Spain once the country requests a rescue from the eurozone EFSF/ESM bail-out funds and signs a memorandum ceding budgetary sovereignty.
"Plenty of accidents can still occur. There is austerity fatigue in the periphery and bail-out fatigue in the core. Eveybody is restless," he said at the Ambrosetti forum at Lake Como.
It is unclear whether Madrid will accept conditions harsh enough to satisfy hardliners in the German parliament, which must sign off on any new rescue programme.
Spain's deputy premier Soraya Saenz de Santamaria said Madrid would not be rushed. "These decisions can't be taken overnight."

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