Signs you've gone on holiday to a fascist dictatorship

And what that means for the markets in Italy and Spain.

In 1969, as a nine year-old, the only real sign that we had gone on holiday to a fascist dictatorship was the policemen with machine guns walking up and down outside the hotel. The only other real sign was that Maria, my first true holiday love and our waitress at the Riviera Hotel Benidorm, would religiously count the number of chips each of us were given. Say what you will about Spanish fascism, it had the regularity and order of a well-run capitalist fast food outlet.

Meanwhile, across the Mediterranean, in Italy, they were about to embark upon "The Years of Lead" a roughly decade-long strategy of tension that would see both left and right-wing bombing and kidnapping campaigns designed to discredit their opponents and destabilize Italy. So serious was the threat, in 1990, the government of Giulio Andreotti revealed to Parliament the existence of "Gladio", NATO’s secret network of weapons readied should there be a communist coup in Italy.

Since the installation of King Juan Carlos I in Spain in 1975 and the creation of the First Republic in Italy after the Second World War both nations have designed political systems specifically to keep the extremes out of their politics – in the case of Spain it is fascism and, in the case of Italy, communism. The transition of, in particular, Spain to an unrecognizable modern democracy within a lifetime makes it almost inconceivable that either of these countries could return to their former roots. And yet as the financial crisis intensifies, the disenfranchisement of the young through unemployment and the loss of a stake in society re-ignites the 1899 words of Gustave Le Bon in The Psychology of Socialism when he says, "As soon as he has a family, a house, and few savings, the workman becomes immediately a stubborn Conservative. The Socialist, above all, the Anarchist-Socialist, is usually a bachelor, without home, means or family; that is to say a nomad…and barbarian."

Reinforcing the disenfranchisement, the contradictions within Europe are intensifying; German house prices are continuing to rise whilst Spanish property is still falling. Some estimates suggest that prices in Spain will decline between 10 and 30 per cent in the years to come, putting increased pressure on the banking system. Another cash injection can’t be ruled out. Some twenty billion euros from the European Stability Mechanism – equivalent to one year’s profits - would do the trick. In Italy property prices have hardly started to fall – they are only some six per cent down since 2010. But that isn’t the problem.

What is more worrying for the system is that the crisis that started in the property markets is now spreading to the funding of the small and medium-sized businesses which are the life blood of these nations. Euphemistically these are called "Non-Performing Loans" but to you and me they are businesses that can’t meet their debts because the economy is still in reverse gear. Larger companies have recognized this and are cutting out the banks (who can’t lend, won’t lend) and are going straight to the bond markets for their money. For smaller companies, a self-reinforcing spiral has been put in place at an employer level.  It’s also showing up in the habits of the eurozone as a whole – household borrowing has descended to a crawling pace and as we know capitalism can’t survive without a functioning credit cycle.

Problems in the banks will exclude the young from having a stake in society, as le Bon identified, which turns the financial crisis into a petri dish of social unrest. The post-war political structures of Italy and Spain were arguably put there on a "so-it-can’t-happen-again" basis. Powerful national democracies reinforced by semi-autonomous regional governments rife with self-interest and corruption makes it near-on impossible to have an electoral fascist or communist up-rising that would return them to their collective pasts. But also it creates a sclerotic system unable and unwilling to adapt and respond to crisis in a timely way. So it can’t be said that there won’t arise out of the intensification of the financial crisis a marked movement either to the left or the right in either or both of these countries borne out of a disenfranchised youth which spells trouble for their financial markets. At present both the Spanish and Italian bond markets are being held up by overt or covert market operations which is saving them from any form of real market analysis but this isn’t going to last and with it will come political change and even the end of the euro experiment.

Source: Bloomberg


Photograph: Getty Images

Head of Fixed Income and Macro, Old Mutual Global Investors

Photo: Getty Images
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I'm far from convinced by Cameron's plans for Syria

The Prime Minister has a plan for when the bombs drop. But what about after?

In the House of Commons today, the Prime Minister set out a powerful case for Britain to join air strikes against Isil in Syria.  Isil, he argued, poses a direct threat to Britain and its people, and Britain should not be in the business of “outsourcing our security to our allies”. And while he conceded that further airstrikes alone would not be sufficient to beat Isil, he made the case for an “Isil first” strategy – attacking Isil now, while continuing to do what we can diplomatically to help secure a lasting settlement for Syria in which Assad (eventually) plays no part.

I agreed with much of David Cameron’s analysis. And no-one should doubt either the murderous barbarism of Isil in the region, or the barbarism they foment and inspire in others across the world.  But at the end of his lengthy Q&A session with MPs, I remained unconvinced that UK involvement in airstrikes in Syria was the right option. Because the case for action has to be a case for action that has a chance of succeeding.  And David Cameron’s case contained neither a plan for winning the war, nor a plan for winning the peace.

The Prime Minister, along with military experts and analysts across the world, concedes that air strikes alone will not defeat Isil, and that (as in Iraq) ground forces are essential if we want to rid Syria of Isil. But what is the plan to assemble these ground forces so necessary for a successful mission?  David Cameron’s answer today was more a hope than a plan. He referred to “70,000 Syrian opposition fighters - principally the Free Syrian Army (FSA) – with whom we can co-ordinate attacks on Isil”.

But it is an illusion to think that these fighters can provide the ground forces needed to complement aerial bombardment of Isil.  Many commentators have begun to doubt whether the FSA continues to exist as a coherent operational entity over the past few months. Coralling the myriad rebel groups into a disciplined force capable of fighting and occupying Isil territory is a heroic ambition, not a plan. And previous efforts to mobilize the rebels against Isil have been utter failures. Last month the Americans abandoned a $500m programme to train and turn 5,400 rebel fighters into a disciplined force to fight Isil. They succeeded in training just 60 fighters. And there have been incidents of American-trained fighters giving some of their US-provided equipment to the Nusra Front, an affiliate of Al Qaeda.

Why has it proven so hard to co-opt rebel forces in the fight against Isil? Because most of the various rebel groups are fighting a war against Assad, not against Isil.  Syria’s civil war is gruesome and complex, but it is fundamentally a Civil War between Assad’s forces and a variety of opponents of Assad’s regime. It would be a mistake for Britain to base a case for military action against Isil on the hope that thousands of disparate rebel forces can be persuaded to change their enemy – especially when the evidence so far is that they won’t.

This is a plan for military action that, at present, looks highly unlikely to succeed.  But what of the plan for peace? David Cameron today argued for the separation of the immediate task at hand - to strike against Isil in Syria – from the longer-term ambition of achieving a settlement in Syria and removing Assad.  But for Isil to be beaten, the two cannot be separated. Because it is only by making progress in developing a credible and internationally-backed plan for a post-Assad Syria that we will persuade Syrian Sunnis that fighting Isil will not end up helping Assad win the Civil War.  If we want not only to rely on rebel Sunnis to provide ground troops against Isil, but also provide stable governance in Isil-occupied areas when the bombing stops, progress on a settlement to Syria’s Civil War is more not less urgent.  Without it, the reluctance of Syrian Sunnis to think that our fight is their fight will undermine the chances of military efforts to beat Isil and bring basic order to the regions they control. 

This points us towards doubling down on the progress that has already been made in Vienna: working with the USA, France, Syria’s neighbours and the Gulf states, as well as Russia and Iran. We need not just a combined approach to ending the conflict, but the prospect of a post-war Syria that offers a place for those whose cooperation we seek to defeat Isil. No doubt this will strike some as insufficient in the face of the horrors perpetrated by Isil. But I fear that if we want not just to take action against Isil but to defeat them and prevent their return, it offers a better chance of succeeding than David Cameron’s proposal today. 

Stewart Wood is a former Shadow Cabinet minister and adviser to Ed Miliband. He tweets as @StewartWood.