Good Friday Morning! I hope you had a great Memorial Day weekend and are enjoying a short work week. I hope your week was better than J.R. Smith’s night for the Cleveland Cavaliers, who cost LeBron and team a shot at winning game one against the Warriors.
This week I’m covering the ripple effects from Italian politics in the American markets, and how Germany and the EU fit into that big story. I’ve also got analysis on a real spy story out of Ukraine, the firing of Roseanne Barr, and the Irish abortion referendum. Links follow.
New this week at the Conservative Institute
The NFL claimed their rule changes were a compromise. I go through why that’s not true and how these types of plans are creating a more segregated culture.
For Memorial Day, I tell the story of the time I flew onboard an Honor Flight with veterans from three different wars. I end with some reflections based on that event.
The Italian Economic Storm
Throughout the week, US markets have been reacting to news out of Italy, mainly whether or not new elections will happen (they had elections already earlier this year). At the worst of the market sell-off earlier in the week, Dow dropped almost 500 points.
Italian politics follow the parliamentary system, where coalition government occurs. It’s not like the United States where there are two dominant parties. In a parliamentary system, multiple parties are available, and they form coalitions assemble a working government. After the Italian elections, which saw the rise of far-right populist parties, a governing coalition has struggled to develop. CNBC gives the backstory here:
Italy moved to the foreground as the latest source of angst for markets, after a weekend of drama in which President Sergio Mattarella on Sunday blocked the formation of a government that would have been decidedly against the euro.
The anti-establishment 5-Star Movement, Italy’s biggest party, and the far-right League party picked euro critic Paolo Savona as their economy minister. The two parties, both critical of Europe’s single currency, had won more than half the votes in March’s parliamentary elections. Mattarella vetoed the choice and instead asked Carlo Cottarelli, a former IMF official,toform a temporary government, but both parties object to him, and a new vote is now expected in late July.
To get a better sense of the internal politics, this piece also helps:
This week the country’s two largest parties, the left-wing 5-Star Movement and the right-wing League, tried to appoint an anti-European Union politician as finance minister, but it was vetoed by the country’s president, who then appointed a new euro-friendly prime minister.
Those moves caused the parties to abandon coalition talks — the country’s parties have been trying to form a government since the March 4 election — and call for a snap election, which could take place as early as July.
The fear, with both Italy and Spain, is that anti-EU parties will control both countries and pull them out of the European Union. If that happened, it would crater the Euro monetary system. The wild swings in markets from these political stories are the markets attempting to price in what would happen if even more, populist parties take control in Italy and Spain.
It’s a ripple effect that Germany and the EU are trying to contain. It’s a familiar story for the EU, as this mirrors the financial crisis in Greece a few years back when they were threatening similar action with the EU. These various crisis points are causing regulators and investors to take a hard look at the finances at the EU banking system, and as Ben Hunt pointed out in Epsilon Theory several years ago, the picture isn’t pretty (I highly recommend reading the entire piece):
I think that the best way to understand the recent spate of write-downs and default notifications from European banks (Erste Bank on July 4th, Espirito Santo on July 10th) is in the context of this regulatory unification of big EU banks. For the first time in decades these banks are being examined for real. No more patsy national regulators with their revolving doors and inherited culpability, but a highly professional independent banking bureaucracy looking carefully at every bottle and tin in the pantry because they’re scared to death of swallowing some poisonous balance sheet.
The problem for the ECB, of course, is that Espirito Santo and Erste are not isolated incidents, any more than Laiki and Fortis and Anglo Irish and WestLB and BMPS and … should I go on? … were isolated incidents. The problem is that no amount of public scrubbing and show trials can change the fact that the entire European banking system has been an enthusiastic accomplice to domestic political interests for the past 30+ years, stuffing their collective balance sheets to the gills with loans in direct or indirect service to domestic political demands. What? You mean that 6 billion euros lent to politically-connected business interests in Angola (a Portuguese colony until 1975) were maybe not such a good idea for Espirito Santo? I’m shocked! But precisely because the politically-inspired rot is so widespread, taking a bank like Espirito Santo into the street and shooting it in the head no more solves Europe’s systemic banking crisis than executing Bear Stearns in March 2008 solved the US systemic banking crisis. As Dorothy Parker once wrote, “beauty is only skin deep, but ugly goes clear to the bone.” That’s the European financial system: politically ugly, clear to the bone.
Politically speaking, it’s another strike against a European Union trying to maintain the narrative that they’re in control. I’d emphasize narrative here because the EU covers a multitude of races, countries, and factions. Any semblance of control sits squarely between the relationship between France and Germany, the rest of the continent isn’t a big fan of Merkel-run Germany.
The EU’s weaknesses have also given Donald Trump a new opening on the trade war front. The latest tariffs target the EU, Canada, and Mexico. I’d suspect, in the end, that the Canadian and Mexican tariffs will get solved in NAFTA negotiations. The EU tariffs, while they target the EU, are more specifically aimed at Germany.
Germany has long run an unbalanced trade regime to support domestic manufacturing jobs. As The Economist wrote last year, Germany’s accounts on trade have caused many of the problems in the EU:
There is much to envy in Germany’s model. Harmony between firms and workers has been one of the main reasons for the economy’s outperformance. Firms could invest free from the worry that unions would hold them to ransom. The state played its part by sponsoring a system of vocational training that is rightly admired. In America the prospects for men without college degrees have worsened along with a decline in manufacturing jobs—a cause of the economic nationalism espoused by Mr Trump. Germany has not entirely escaped this, but it has held on to more of the sorts of blue-collar jobs that America grieves for. This is one reason why the populist AfD party remains on the fringes of German politics.
But the adverse side-effects of the model are increasingly evident. It has left the German economy and global trade perilously unbalanced. Pay restraint means less domestic spending and fewer imports. Consumer spending has dropped to just 54% of GDP, compared with 69% in America and 65% in Britain. Exporters do not invest their windfall profits at home. And Germany is not alone; Sweden, Switzerland, Denmark and the Netherlands have been piling up big surpluses, too.
For a large economy at full employment to run a current-account surplus in excess of 8% of GDP puts unreasonable strain on the global trading system. To offset such surpluses and sustain enough aggregate demand to keep people in work, the rest of the world must borrow and spend with equal abandon. In some countries, notably Italy, Greece and Spain, persistent deficits eventually led to crises. Their subsequent shift towards surplus came at a heavy cost. The enduring savings glut in northern Europe has made the adjustment needlessly painful. In the high-inflation 1970s and 1980s Germany’s penchant for high saving was a stabilising force. Now it is a drag on global growth and a target for protectionists such as Mr Trump.
I fundamentally believe President Trump is wrong on tariffs, free trade is an absolute good for the American economy. But I do see how countries like China and Germany create the protectionist politicians in other countries that want a fairer playing field. And if you’re going to try and steal German manufacturing jobs, hitting them with tariffs is one way of getting there.
Will it work? I don’t know. I’m not even convinced these tariffs will survive the year. This administration changes its mind with regular frequency. But the more elections places like Italy have, the more chances populist parties have at taking over.
Ukraine outs Russian Agents
It’s a story straight out of a spy movie. Ukrainian intelligence and security forces knew of a plot to kill a journalist, they decided to fake the journalist’s death and flushed out the real assassination plotters and arrest them. And it worked. From the BBC:
Russian dissident journalist Arkady Babchenko has revealed how Ukrainian authorities faked his death on Tuesday as part of a sting operation to foil an alleged Russian assassination plot. Pig’s blood and a make-up artist were used to pull off the stunt, he said at a press conference in Kiev on Thursday.
Ukraine has been sharply criticised for the hoax, with critics saying it gives Russia – which it blamed for the fake murder – the moral high ground.
Russia called it an act of provocation.
Ukrainian police have arrested one man, who works for a Ukrainian-German arms producing company. It is alleged he was hired by Russian security forces to find hitmen to assassinate Mr Babchenko. Mr Babchenko said the arrested man had paid out for the assassination once the news of the “killing” had been made public. However, a hired hitman had earlier gone to the Ukrainian security forces, alerting them to the assassination plot, Ukrainian officials said.
It’s a cool story, and the detractors are wet blankets.
I don’t buy the moral high ground for Russia in the slightest. This is the same country that poisoned a man and his daughter in the UK. Russia also brutally poisoned Alexander Litvinenko, a former defector of the Soviet Union. There’s a long history of anti-Kremlin journalists mysteriously turning up dead.
Russia had every intention of murdering this journalist as well. Ukranian intelligence just happened to beat them to the punch to prove the plot. The critics are way off base on this one.
Roseanne cancellation was predictable
My Friday column goes in-depth on the Roseanne fiasco for Disney and ABC. The point I want to make here is that this was so utterly predictable on every front. Roseanne Barr has long been considered crazy, both literally and metaphorically. The odds of her saying something crazy on Twitter before the reboot contract was signed was 100%.
Take a look at the brutal documentation National Review did on Barr before the show aired:
Barr has never met a conspiracy theory she didn’t love. She’s a 9-11 truther who believes that “Bush did it,” and she has called the Boston Marathon bombing one of many “false flag terror attacks” perpetrated by the Obama administration to “remove” the Second Amendment. For good measure, she also believes that the old man Bush killed JFK.
You can find YouTube videos of her rambling about “MK ULTRA Mind Control” on RT, and she seems particularly fond of the notion that the American ruling class is running some manner of pedophile sex cult. Her views on Jews and Israel fluctuate wildly — in the past, she has called Israel a “Nazi state” and alleged that Zionism was created by the Third Reich (or something — I challenge you to succinctly summarize the opinions expressed here), though more recently she’s taken to accusing Hillary Clinton of plotting Israel’s destruction and labeling aide Huma Abedin a “Nazi whore.”
Roseanne has long self-identified as a socialist and in 2012 attempted to secure the Green-party nomination for president. She lost and had to settle for being the candidate of the extreme-left “Peace and Freedom Party” instead. As a running mate, she selected Cindy Sheehan (remember her?), who initially gushed with excitement about “the chance to infuse the message of socialism with the heart and soul that is missing from political discourse” but ultimately quit the ticket, claiming that Barr was getting too “right-wing.” In 2016, Barr refused to support Bernie Sanders’s own socialist crusade, blasting him as a sellout who was “kind of running on war” and willing to meet Pope Francis.
Disney and ABC knew all of the above, looked at Barr, and then signed her to a contract. Her racist tweets aren’t the least bit shocking.
All of this was publically available knowledge before the show and after it began. It’s one of the reasons I wrote a piece calling her a fake conservative or a Hollywood creation that presented what elite progressives thought a Trump voter was.
Ireland legalizes abortion
One of the saddest stories of the week was undoubtedly the decision of Ireland to repeal the 8th amendment to their constitution, which banned abortion:
The Eighth Amendment, which was added to the constitution following a referendum in 1983, banned abortion in Ireland unless there was a “real and substantial risk” to the mother’s life.
Repeal of the amendment has completed a circle of sweeping social reforms in the European Union nation that fly in the face of the traditional teachings of the Catholic Church, from contraception to divorce, and most recently same-sex marriage. Roscommon, in the rural interior, the only county to say no to same-sex marriage, also voted yes in the abortion referendum. Thousands of Irish working abroad returned to Ireland to cast their vote.
It’s just another data point for countries who look into the EU and wonder what will happen if they join. In this case, Ireland has steadily stripped all of its historical roots of Catholicism and embraced EU positions on everything else. The EU steadily hollows out a country and replaces everything with a “global perspective.”
When you see stories like this, of people removing their national identities and replacing it with more EU-friendly policies, it shouldn’t come as any shock when populist groups rise up as reactionary movements. It’ll happen in Ireland, just as it’s happened across the rest of Europe.
Links of the week
School Shootings Spread Like a Virus. The Media Can Help Stop Them. – Chris Deaton, The Weekly Standard
‘Lost’ migrant children? Statistics show the government is keeping more of them far longer. – Nick Miroff, The Washington Post
This HBO footage of Ben Rhodes on election night is as bad as people said it was – Beckett Adams, The Washington Examiner
Of Boys and Toys – Leonard Sax, The Institute for Family Studies
The U.N. Makes a Joke of Itself Again – The Weekly Standard
The Trump drumbeat, pro and con, is unnerving – Jay Cost, The Pittsburgh Post Gazette
An Unconvincing Case That Slavery Taints the Second Amendment – Charles C. W. Cooke, National Review
Why was Theranos so believable? Medicine needs to look in the mirror – Michael J. Joyner, StatNews
New FBI Data on Active Shooters Shows the Importance of Armed Citizens – David French, National Review
The Curious Case of Bryan Colangelo and the Secret Twitter Account: A collection of Twitter accounts that has criticized Joel Embiid and Markelle Fultz, disclosed sensitive information, and outlined team strategy shares eye-opening similarities. What does that have to do with the Philadelphia 76ers’ decision-maker? – Ben Detrick, The Ringer
Satire piece of the week
Now that the whole story about two innocent black men being arrested in one of its stores is a distant memory, Starbucks has made the baffling decision to waste a huge amount of everyone’s time and attention today by closing down for anti-bias training even though the #Resistance has moved on and we’re mad about other things now. What a pointless move by Starbucks to address a now-boring issue we already got all mad about last month instead of protesting an outrage that we actually care about.
It would have been an awesome gesture if Starbucks were closing down today so it could address something we’re mad about right now, like the racist Twitter rant Roseanne Barr went on this morning, but instead the Seattle-based coffee franchise is holding a now-useless racial-discrimination training because of an outrage that we barely even remember and stopped tweeting about weeks ago and that basically has nothing to do with the stuff we’re currently furious about, like President Trump.
Thanks for reading!