I really want to understand the European elections.
Yeah.
Populists have obviously, the movement AfD in Germany, Lega, Five Star in Italy, even
Vox, now, in Spain.
Yeah.
These are all populist parties that have gone from, as you've explained, I saw you speak
at an event, a banking event where you said Lega and Salvini were 1%, 2%, 3% of the vote
10 years ago.
Yeah.
And where are they now?
Explain that and that impact on the parliamentary I mean, they're up in the 30s now.
In the 30s?
Yeah.
It's remarkable.
And this is Italy, Lega.
You know, when you think about Italian governments, what do they have?
I think 51 governments in the first 50 years after World War II.
I mean, you know, chaos is the norm in Italian politics.
Governments come in and governments go.
This government, this merger that has happened between Five Star, who are on the left, the
Lega, who are on the right.
Their approval ratings are up in the 60s.
Together?
Yep, together.
And it's working.
So this would be like in America, a Bernie Sanders party and a Trump party together.
In many ways, it would be.
Yeah, in many ways it would be.
And that's just fascinating, to an American, to think.
But it's working.
They're clearly on a collision course with Brussels.
Because one group wants to spend, one group wants to cut taxes.
So how is that-- Yeah, that's difficult.
--sustainable financially?
Well, coalition forces compromise, obviously.
But they presented a budget, their annual budget with a deficit running at about 2.4%.
And, all right I know some of the future projections were a little bit optimistic for growth.
But it wasn't, by any means, an outrageous budget, particularly given the French.
After yeah, the expectations were I think, 4% or 5%.
That's right.
And they came in with 2.4.
I thought it was relatively responsible.
And yet, the European Commission, you know, and I repeat the point.
Men and women who we can't vote for, men and women who we can't remove, people who have
power without accountability rejected the Italian budget and made them cut it.
And I think these European elections particularly in Italy, are effectively going to be a virility
test of Italian political parties against that amount power being in Brussels.
So you have Brussels, the EU parliament, and net, net, net, a larger percentage of populists
will be in that government.
Look, you know, I mean, when I was first elected to the European Parliament in 1999, I mean,
I was the only secessionist in the place.
I mean, literally, I was one out of 600 and something.
I was the only person really there saying we shouldn't be part of this.
It's going to be very different.
I think there's going to be a big move.
I would guess that we're going to finish up with, I would think 25% of the Parliament,
maybe nearer 30% will be new MEPs with a pretty robustly skeptical attitude towards the way
the European Union works.
It doesn't mean they'll be outright secessionist, but it means they will be euro-critical in
many, many ways.
And kind of what I think we're going to see happening is, I think the discipline that
keeps the eurozone together, you know, and that combination of ECB, at times IMF, and
certainly European Commission, that discipline that tells countries what they must and must
not do, that's going to fragment.
That's going to start breaking down.
So you had Ms. Angela Merkel, incredible leader through, obviously, 2010, '11, through the
last eight, nine, I think a decade, almost.
Yeah.
She was the glue of Europe.
And what you're describing is a more fragmented power base throughout Europe.
Well, she's going.
Yeah, she's gone.
She's going.
Amazing, isn't it?
You know, glittering political career ruined by one mistake.
That one phrase, "let them come."
As many as want to come, come.
And it's ruined her.
The immigration.
It's ruined her career.
So a lot of people here in the States think that if Europe had handled this immigration
issue over, say, a decade and didn't try to jam it down everyone's throat, is that your
argument?
Is it that that's what-- Well, I think that if you bring in huge numbers
of people in a very short space of time, nearly all of whom are young males aged between 20
and 30 and who come from countries where women aren't even second class citizens, don't be
surprised that there are huge, huge cultural uproar going on in German cities and elsewhere.
So it was a huge, huge mistake that she made.
Either way, if you think back to 2008 and on, it was actually Merkel's leadership, in
many ways, that kept the eurozone functioning and kept the whole thing working.
Her political authority, the sheer weight of Germany as an economic power kept the whole
show on the road.
She's on the way out.
Very unlikely that she's going to be replaced by anybody with that level of stature that
she has.
So this is important.
So you think of the relationship between Germany and think of Schauble, the former finance
minister.
Yeah.
You've had this group of people that were very hard on austerity, really forcing the
austerity into the periphery, which, you know, Italy, Spain, Portugal.
Could we see a left shift there where they're actually more supportive of deficit spending
in the south?
Could that somehow be a positive coming out of Germany?
Well.
Because that's a major-- They might, but it won't be enough.
The Greeks had their little mini rebellion.
They put Mr. Tsipras in power.
They had the rather colorful finance minister Mr. Varoufakis for a bit.
But in the end, when it came to the standoff between the Greek government and the European
institutions, the Greeks blinked.
And the Greeks have now just given up, basically.
Italy is a very different kettle of fish.
I think what you're beginning to see with Salvini is a series of tests of will that
are going on between him and the European institutions, and at some point--
There's no going after the ECB.
They've taken the Trump playbook.
Oh, absolutely.
Well, I rather agree with Trump on that one, actually.
But, yeah, so what I see, I see discipline breaking down within the eurozone.
I think it becomes much harder for the ECB, the Commission, and Germany to limit what
governments borrow and what they spend.
So it would be much harder for the EU to enforce financial discipline.
Much harder.
So you have credit default swaps on Italian sovereign bonds that have gone up dramatically
as of the famous Memorial Day weekend.
Yeah.
God bless Brevan Howard.
They got it right.
They had a good run.
But now, what's interesting is that even as markets have rallied here in the United States,
you still have those credit default swaps, which is actually a bet on default, the cost
of protection.
They're still very, very elevated among Italy and the banks.
So you're talking about $1.8 trillion of near-term debt maturities in Italy.
So these are bonds that are coming due that, at the same time, they're running the deficit
and they're having this confrontation.
So we're talking about near-term paper coming due in the next three or four years, maybe
five.
So near-term debt maturities are extremely high, $1.8 trillion.
Yeah, massive.
How do we get through this?
Where does it break?
Does it break sometime in the next 18 months?
Well, in the end, of course, that's the one thing that they have over Salvini, is the
worry that if they rebelled too much, the whole system could go back.
You know, that is the one thing that perhaps holds the Italians back from being too rebellious.
But ultimately, in the end, this is about public will.
And we've seen it with Brexit.
I mean, we were told in that referendum that if we voted to leave, half a million jobs
would go immediately.
Growth would collapse.
House prices would collapse.
Plagues of black locusts would descend upon our farmlands.
And we still voted Brexit.
And you get to a point where even if you tell the Italian electorate, if you start to pursue
a path of basically looking at alternatives to the Euro, which is what we're talking about,
really, that terrible things will happen to you.
Well, in the end, people who haven't got anything have nothing to lose.
And I think, ultimately, that's where we're going.