Why Italy is Important: The Neoliberal Center No Longer Believes Its Own Prescriptions

Isn't the irony rich that markets are responding so negatively to the diktats of their champions? The M5S-League government was aborted in deference to the wisdom of the markets, and the markets have deemed this an unwise decision. As Yves Smith says this morning in "NIRP’s Revenge: Italian Bonds Plunge, Worst Day in Decades":

Yves here. While Mr. Market got in quite a tizzy today over 5 Star and Lega’s abandonment of their effort to form a coalition government after the President Sergio Mattarella nixed their choice of economy minister, Paolo Savona. This has produced a first-class political crisis. The technocrats, in trying to appease Mr. Market, has done the reverse.

The Times editorial board spins this obvious blunder -- this is the preferred argument du jour for neoliberals -- as a necessary move to allow Italian voters to come to their senses:

However spooked the markets were, they had been equally wary of the coalition and its grandiose spending plans, and given the mutual hostility of the coalition partners, their government might not have survived for long. Mr. Mattarella’s stand, at least, gives Italian voters a second chance to weigh their options after glimpsing what their earlier choices might mean. That’s something some Brexit voters in Britain, or Trump voters in the United States, might have welcomed.

Such an argument doesn't appeal to Italians though, as Steven Erlanger notes in his lengthy write-up, "Italy Pushes Euro to Fore, the Last Place Europe Wants It":

On Tuesday, the European Commissioner for the budget, Günther H. Oettinger, a German, told the broadcaster Deutsche Welle that the markets and a “darkened outlook” would teach the Italians to vote for the right thing. 

They may yet do so, but it’s impolitic to say so, especially for a Brussels-based German.

One of the first to point out the offense was Mr. Di Maio himself, who in his own message on Twitter called the remark “absurd.”

“These people treat Italy like a summer colony where they come to vacation,” Mr. Di Maio wrote. “But in a few months a government of change will be born and Europe will finally respect us.”

Di Maio is right; hence, the market reaction.

This marks an important turning. The neoliberal center no longer believes in its own prescriptions.