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Italians rally around Berlusconi after the Merkozy smirk

This video of German Chancellor Angela Merkel and French President Nicolas Sarkozy has stirred a sense of nationalistic pride in Italy. Everyone seems to be talking about it.

The Guardian notes:

The smirk shared by Angela Merkel and Nicolas Sarkozy when quizzed about Silvio Berlusconi at their Brussels press conference on Sundaymade headlines in Italy on Monday and prompted even some of the Italian prime minister’s fiercest enemies to close ranks behind him.

Leading daily Corriere della Sera, which has criticised Berlusconi for delaying the economic stimulus package demanded by Europe, called the behaviour of Merkel and Sarkozy "excessive" in a front page editorial, adding: "For an Italian it was not great, and it matters little if you are pro- or anti-Berlusconi."

The French and German leaders – now dubbed ‘Merkozy’ – exchanged glances and smiled when asked if they were confident Berlusconi would come up with reforms, prompting a gale of laughter from journalists.

"No one is authorised to ridicule Italy, even after Berlusconi’s obvious and embarrassing delays in tackling the crisis," said Pier Ferdinando Casini, the head of the opposition UDC party, adding: "I didn’t like Sarkozy’s sarcastic smile."

More predictably, Il Giornale, the newspaper owned by the Berlusconi family, did not split hairs, likening Sarkozy’s smile to the headbutt delivered to Italian footballer Marco Matterazzi by France’s Zinedine Zidane in the 2006 World Cup final.

La Repubblica summed up the general discomfort at seeing Italy put on par with Greece at the Brussels summit being held to thrash out a solution for the European debt crisis, calling any parallels with Italy’s neighbour "ungenerous".

Berlusconi appeared to blame Sarkozy’s behaviour on his unhappiness over Italy’s overrepresentation on the board at the European Central Bank, now that Italian Mario Draghi has been appointed chairman and Italian board member Lorenzo Bini Smaghi is refusing to step down to make way for a French appointee. "Sarkozy has started to get annoyed," said Berlusconi. "At a certain point I said to Sarkozy, ‘But what am I supposed to do? Kill him?’"

Italian newspapers have suggested that Merkel’s decision to share the joke with Sarkozy might have been payback after reports that Berlusconi made a vulgar joke about her looks.

Why is everyone making such a big deal out of this video? I see it as two people looking at each other wondering who is going to be brave enough to take that one on. French President Sarkozy takes it on and does a professional job.

See for yourself.

Let’s be honest, though; despite Italy’s primary surplus, they do have a mountain of debt. That’s why Italian yields are flirting with the 6% level. That’s why ex Bank of Italy head Mario Draghi fears an Italian debt spiral. That’s why Italy is being downgraded by all of the ratings agencies. Italy is in the hot seat for a reason.

Angela Merkel was right when she said:

Markets demand higher interest rates on Italian bonds because the level of such debt is “seen very critically,” she said.

“We want to and we must defend the euro — and we will — but not to the extent that we forget what the source of the crisis is,” Merkel said in a speech in the western German city of Wiesbaden before heading to Brussels to tackle the crisis.

The European Sovereign Debt Crisis is a solvency crisis. It is a serious question whether Italy is solvent longer-term, yes. That’s why Italy is under attack. The right way to deal with this is to stop the panic and address the issues that could lead to longer-term insolvency: high debt and interest costs plus slow growth. And yes, these are the same issues for Greece. Unless Italy gets serious about its debt problem, they are headed in the same direction.

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

5 Comments

  1. wikipolis says:

    Ed, you’re too smart and well read to ignore the fact that if you consider all debt (private, public and corporate) Italy is the least indebted. Merkozy had better watch out. We have always been masters in beggar thy neighbor devaluations. That said my fellow italians should not take too seriously Sarkozy (the only man with higher heels than Berlusconi) or Merkel. We are happy to pay 6% for the new debt that we are incurring in. It’s like the price you pay to remain in cash right before the stock market falls. Doing the cuts that the ECB asks will do nothing to appease the markets or, for that matter, to support growth and would further depress the economy thus pushing the country in a very dangerous social environment. Very soon those who are preaching at us will fall way lower than where we stand now. Remember the primary surplus? That’s what matter when the s&*t hit the fan. Italy is in surplus, all the professors that preach at us aren’t. Ah, and by the way. ENI has just found 6 years reserves of natural gas offshore Mozambique. Italy has a 30% stake in ENI but with little money, if necessary, we could regain the 50% and subsidize energy in case we decide to go back to Lira (which is supposed to deter us since it would make energy imports painfully expansive). So, French and Germans have better watch their back, when it comes to S.o.b double crosser nobody beats Italy, after all we trademarked Machiavellism.

    • David Lazarus says:

      The real problem is bad loans made by core nations banks. They need to be bailed out. The $108 billion re-capitalisation package is insufficient to cover all eventualities and end this crisis. It might be fine for a year or so but if the economies tank then losses will increase. Italy with its very high savings rate will not suffer from the paradox of thrift that will definitely hit the UK and Ireland.

  2. Dave Holden says:

    I agree with your interpretation of the smirk but after how Berlusconi reported referred to Merkel in the recently tapped phone conversion I can forgive her a little smirk.

  3. Coldcall says:

    Leaving aside whether there was an intentional smirk or not, it was very poor form considering so much of this crisis is based on confidence.

    Merkozy have no problem lying through their teeth and putting on a brave face regarding most things including Greece so it’s rather odd the mask slipped over Italy.

    Another problem with their behaviour is that they are now openly dictating policy to eurozone members without any pretense. The clear loss of national sovereignty can no longer be denied.

    The EU has become a sort of semi-benign dictatorship, and Merkozy’s behaviour is stunning to say the least.

    The US may have many problems but at least they retain their sovereignty.