Mish's Global Economic Trend Analysis

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Dumb and Dumber Tax Hikes in Italy; Grand Coalition Splintering; Another Italy Convulsion Coming Up Posted: 15 Jun 2013 10:24 AM PDT One of the dumbest things a country can do in a recession is raise taxes. Yet, after pronouncing the end of austerity, Italy's "grand coalition" government, led by Enrico Letta, is going to hike the VAT. Why? It seems they need to hike the VAT to pay for a decrease in property taxes. Recall that Silvio Berlusconi was only willing to take part in Letta's grand coalition on condition property tax hikes were rolled back. Letta agreed to do that, but now Letta says Italy needs revenue hikes to make up for it. Grand Coalition Splintering Curiously, the International Business Times reports Enrico Letta's Grand Coalition Could End Italy's 'Lingering Civil War' . What nonsense. Letta's "grand coalition" is burnt toast already. Eurointelligence gets it right. Il Corriere della Sera and other Italian papers are leading with the news that finance minister Fabrizio Saccomanni and another cabinet ministers said yesterday that Italy cannot simultaneously afford to cut the IMU housing tax and not implement an envisaged rise in VAT, and would thus opt to raise VAT. In its coverage, La Repubblica writes that Saccomanni is now becoming a controversial within the coalition, as Silvio Berlusconi appears to appear chosen him as a target for his verbal attacks. The VAT increase is threatening to drive a gulf between the two largest parties, the PD and Berlusconi's PdL. Another Italy Convulsion Coming Up I agree with the following comments from Eurointelligence: "A rise in VAT is probably the worst thing that can happen right now ... Italy will miss the 2.9% deficit target, since the economy is likely to go into another convulsion once VAT is raised." Beppe Grillo 5-Star Movement Implodes As a side note the 5-Star movement of Beppe Grillo is imploding as well. Two more MPs have left the Movimento 5 Stelle parliamentary group, the Huffington Post Italia reports, bring the total number to five. Lawmakers Alessandro Furnari and Giuliana Labriola have quit M5S after internal fights, accusing Grillo of being a dictator and the party for failing to make substantive proposals. In an interview, Furnari said the M5S was dying due the Grillo' mix of inexperience, rawness and vulgar display of ideas without content. Grillo, meanwhile, has gone again on a verbal rampage. As reported by Il Corriere della Sera, he called the current Italian Parliament an "empty can of tuna." He said it was illegitimate because it was elected under an electoral law that he called is unconstitutional. Support for Grillo is now down to 14% from over 25% in the election (See Youth Vote Propels Five Star Movement Into First Place as Largest Political Party in Italy). Reader "AC", from Italy, predicted the rise of Beppe Grillo well in advance of any mainstream media coverage, also told me "Grillo has peaked" shortly after the national election. She called that one correctly as well. Infighting is everywhere in Italy now. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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