by rz
Tue Jul 7th, 2015 at 03:49:32 PM EST
From Wikipedia (my emphasis):
On 12 November 2011, after a final meeting with his cabinet, Berlusconi met Italian President Giorgio Napolitano at the Palazzo del Quirinale to tend his resignation. As he arrived at the presidential residence, a hostile crowd gathered with banners shouting insults at Berlusconi and throwing coins at the car. After his resignation, the booing and jeering continued as he left in his convoy, with the public shouting words such as "buffoon", "dictator" and "mafioso". Following Berlusconi's resignation, Mario Monti formed a new government that would remain in office until the next scheduled elections in 2013. On 16 November, Monti announced that he had formed a Cabinet and was sworn in as Prime Minister of Italy, also appointing himself as Minister of Economy and Finances.
This was after he failed to pass an austerity budget. All this happened after increasing interest rates on Italian debt had created an unsustainable situation.
However, the increasing interest rates were neither a coincidence nor a direct result of a particular alarming debt situation. The debt crisis happened directly after the ECB started to raise interest rates from 1% to 1.4% betwenn April and July 2011. The market reaction was drastic. The move of the ECB was obviously insane. At that point the Federal REserve had already started its second quantitative easing program.
When the ECB interest rates had reached 1.4% in July 2011, the interest rates for Italian bonds started a slow upwards trajectory. Also in July Draghi and Trichet send their now infamous letter.
The letter is truly something to behold and I recommend that you should read it in full.
Berlusconi did not perform well. In October 2011 it had become clear that the ECB would not back Italian debt if necessary and interest rates started to explode. A self fulfilling prophecy was underway.
Om the 16th of November 2011 Mario Monti was sworn in.
from his Wikipedia page:
On 4 December 2011, Monti's government introduced emergency austerity measures intended to stem the worsening economic conditions in Italy and restore market confidence, especially after rising Italian government bond yields began to threaten Italy's financial stability. The austerity package called for increased taxes, pension reform and measures to fight tax evasion. Monti also announced that he would be giving up his own salary as part of the reforms.
After Mario Monty had implemented austerity, the ECB started a program of direct bond purchases. Interest rates fell rapidly to the level of early 2011. Of course it is not clear exactly who did what and exactly why. But in principle it is more or less clear that an explicit deal was in place that Mario Monti needed to become Prime Minister, and only then the ECB would start buying bonds. I can cite e.g.
Matthews Yglesis who is certainly neither a raging lefty nor a rightwing conspiracy nut.
Nobody likes Silvio Berlusconi except for the Italian electorate, so the world largely shrugged when the European Central Bank and the government of Germany perpetrated a coup d'état last year and removed Italy's prime minister from office as a condition for not destroying the Italian economy.
The rest of this blog post is also quite good.
Under Mario Monti unemplyment rose from 8% percent when he entered office to 11% when he left. Today it is still around 13%. Throughout his whole tenure GDP kept falling. On top of all this the Debt to GDP ratio rose faster than under Berlusconi.
We all disliked and still dislike Berlusconi and for good reason. But looking at the situation in Greece and the actions of the ECB I feel that what happened around 2011 should be clearly remembered.
Update [2015-7-8 4:13:58 by rz]: I changed the title a little.
