I have been thinking about the Five Star movement again. First, some developments. Mr. Grillo has said that his movement would not always vote against a government, but would consider its position on a bill-by-bill basis. But he has also said that it would not support a confidence motion in a minority government headed by either Mr. Bersani or Mr. Berlusconi. He expects these two to form a coalition, and for that coalition to collapse within a year; presumably he would then hope to make further electoral gains. It is worth noting that the Five Star Movement is notionally committed to putting large policy decisions to a vote of its members, so these positions could change with changing circumstances.
I had a look at the movement’s “programme” document (in Italian, uploaded to Google Translate). Yesterday I used my knowledge of the policies that have been reported to hypothesise that Mr. Grillo was a left-leaning social democrat with a populist streak and fairly stupid. However, while that view may be broadly right as it relates to his views on the debt situation, there is a lot more to Five Star than an anti-austerity stance. The programme calls for: a range of political reforms; measures to improve the energy-efficiency of buildings (including upgrading power plants and encouraging alternative fuels and distributed generation); “information” measures (including “digital citizenship”, free internet access for all, nationalisation of the telecoms backbone, decriminalisation of libel, and restrictions on dominant shareholdings in national broadcasters and newspapers); economic and corporate-governance reforms (such as restrictions on stock options and (implausibly) a reduction of government debt from cutting waste and making use of digital technology in order to cut spending); the encouragement of public transport; the safeguarding and promotion of the public-health model; and education reforms (including a move to digital books, compulsory English in kindergarten, and evaluations of university teachers by students).
The main threads in this programme appear to be environmentalism, the promotion of digital technologies, much-needed political and media reform and a faith in the ability of government to improve society. It is not hard to see why someone would vote for a programme like this. The market commentary has focused on Mr. Grillo’s macroeconomic ideas, which do exhibit, if not stupidity as I said above, at least a certain naivety; but my impression is that macroeconomics is not really what this movement is about.
Some news points:
– Bloomberg reports that median estimate by the economists it surveys of the effect of the sequester on US GDP would be -0.5%.
– Mr. Draghi said that inflation was expected to be “significantly” below 2% next year, and that the ECB was therefore “far” from an exit from its stimulative policy.
– Wen Jiabao will announce China’s national economic targets next week.
– McKinsey estimates that global capital flows (of debt and investment) were $4.6tn in 2012, down from $11.8tn in 2007. The recent low was $1.7tn in 2009. Europe accounted for 72% of the decline since 2007, which suggest the European crisis is a big factor — people have been avoiding the Eurozone. The UK saw a fall of 82%, on account of its importance as a hub for European investment.
FT Alphaville has a discussion of the idea of negative rates, which Paul Tucker has recently talked about. Alphaville argues that negative rates could have severe negative effects: they would “destroy” the banking model because banks need a positive carry, and could send bond yields negative and create a “destructive spiral”; and negative rates would just cause banks to hoard physical cash. I have not thought through this issue in detail, but it seems to me that these problems are probably overdone. Denmark’s banks are still going, in spite of negative short-term rates. And negative rates at the short end would bring all yield curves down, but would probably not take rates negative all along the curves. So the effect of negative rates would presumably be to incentivise longer-term lending, which would probably be a good thing. But as I said, I could be wrong about this. Still, it strikes me that it is not worth spending a lot of time on this until it becomes a serious prospect in a major economy.