As reported earlier, China lobbed its diplomatic reaction to Trump’s Sunday interview, in which the President-elect hinted he would use the “One China” policy as a bargaining chip in negotiations with China to extract futures trade concessions.

China responded and expressed “serious concern”, warning Donald Trump that the two countries will have “nothing to discuss” if the US president-elect’s incoming administration decides to discard the four-decade old “One China” policy.

“Adherence to the One China policy is the political bedrock for development of [bilateral] relations,” Geng Shuang, a foreign ministry spokesman, said on Monday. If it is compromised or disrupted, the sound and steady growth of the China-U.S. relationship as well as bilateral cooperation in major fields would be out of the question.”

“We urge the new [US] leadership to recognise the sensitivity of the Taiwan question and to deal with it in a prudent manner,” Geng added. “Upholding the One China policy was America’s promise and we want them to fulfil this promise.”

As China’s CCTV tweeted, a sampling of the Chinese popular reaction to Trump’s comments was less than enthusiastic.

However, realizing that for Trump it may need to escalate beyond mere words, shortly prior to today’s latest escalation, China flew a long-range nuclear-capable bomber outside China for the first time since President-elect Donald Trump spoke with the president of Taiwan, two US officials told Fox News. The dramatic show of force was meant to send a message to the new administration, according to the officials. It marks the second time Beijing flew bombers in the region since Trump was elected.

The Chinese H-6 bomber flew along the disputed “Nine-Dash line” Thursday, which surrounds the South China Sea and dozens of disputed Chinese islands, many claimed by other countries in the region.

The Pentagon was alerted to the Chinese flight Friday. It was the first long-range flight of a Chinese bomber along the U-shaped line of demarcation since March 2015, according to the officials.  Over the summer, Chinese bombers flew over the South China Sea and the contested islands, but they did not fly nearly as far as this one, the officials said.

At various points in recent long-range flights, Chinese fighter jets provided escorts to the single Chinese bomber.

In recent days, U.S. intelligence satellites have spotted components for the Chinese version of the SA-21 surface-to-air missile system at the port of Jieyang, in southeast China, where officials say China has made similar military shipments in the past to its islands in the South China Sea.

Just as concerning for the Pentagon, China has been seen by American intelligence satellites preparing to ship more advanced surface-to-air missiles to its contested islands in the South China Sea.

 In February, Fox News first reported that China had deployed an advanced surface-to-air missile system, the HQ-9, to Woody Island, a contested island in the Paracel Island chain in the South China Sea, also claimed by Taiwan and Vietnam.

The HQ-9 is based on the Russian S-300 missile system and has a range of roughly 125 miles.

The Chinese SA-21 system, based on the more advanced Russian S-400, is a more capable missile system than the HQ-9.

It wasn’t just military posturing however: having largely ignored Trump’s verbal outbursts so far, today Chinese state media went on the offensive after Trump’s latest remarks, slamming the US president-elect for being “as ignorant as a child in terms of foreign policy” the SCMP reported.

Beijing added it would have no reason to “put peace above using force to take back Taiwan” if Trump abandoned the policy, which recognises Taiwan as part of China, stated the editorial in the Global Times, which is published by the People’s Daily.

And with these two responses, China has almost certainly assured further escalation from Trump, who is not known for leaving a heated back-and-forth such as this one, especially with such a prominent opponent, without getting some benefit from the exchange and without being able to claim the upper hand, especially coming from the position as leader of the world’s most powerful nation.

Submitted by Michale Shedlock via MishTalk.com,

The eurozone cannot survive without Italy. The serious problem at the moment is the Eurozone also cannot survive with Italy.

Two of Italy’s three largest parties are anti-Euro. The only party in Italy that does support the euro is ex-prime minister Matteo Renzi’s Democratic Party. And with Renzi gone, there’s a huge risk the party splinters.

Regardless, there are no likely scenarios that can keep things from flying apart according Wolfgang Münchau. I believe his analysis is solid.

Münchau makes a detailed case why the eurozone is doomed in Italy Poses a Huge Threat to the Euro and Union.

He lists five ways the Eurozone can stay intact. However, none of them stands up to close scrutiny.

1. Italy and Germany could converge. To do this, Italy would need to undertake economic reforms to clean up the justice system and the public administration, cut taxes and invest in productivity-increasing technologies. Germany would need to run a higher fiscal deficit.
2. The northern European states accept large fiscal transfers to the south.
3. The EU creates a federal political authority with powers to raise taxes in order to transfer income from high to low-income earners.
4. The ECB finds a way to bankroll Italian public and private debt indefinitely.
5. Italy’s government will forever continue to support euro membership.

“Only one of those five conditions may be sufficient for Italy to remain a member of the euro. The problem is that each one is extremely improbable. And I cannot think of a sixth one,” says Münchau.

However, the consensus opinion is that Italy will not leave the Eurozone because the deck is stacked against that event.

The Italy won’t leave rationale looks like this:

• The Five Star Movement (M5S) would have to get into power, but the new technocrat government’s first mission is to rig the rules so that does not happen.
• Even if M5S wins the lower parliament, it still may not control the senate.
• Even if M5S takes complete control of parliament, it would have to change the constitution.
• Changing the constitution without a super majority would require a vote.

The problem with the above thesis is there is only one party that wants to keep the Euro and coalitions will form if for no other reason than people are fed up.

Showdown with Germany

According to Münchau

 The next Italian prime minister will need to explain to the next German chancellor, presumably Angela Merkel, that her choice will not be between a political union or no political union, but between a political union or Italy’s withdrawal from the euro.

Would it even be Merkel’s choice to make? I think not, it would take a German constitutional change. And nNot only would Germany have to go along, so would every other nation in the Eurozone.

German politicians would not agree, and even if they would, it’s likely Italy would never present the demand, at least as implied above.

Italy will simply hold a referendum. That would be the demand. By then it would likely be too late.

Biggest Default in History

 The latter would imply the biggest default in history. The German banking system would be in danger of collapsing, and Europe’s biggest economy would lose all the competitiveness gains so painstakingly accumulated over the past 15 years.

It has been the historic failure of consecutive Italian prime ministers to avoid this necessary confrontation, and to think that staying off the radar screen constitutes a viable strategy.

What about point number 5?

I addressed that long ago, and I am still waiting the inevitable.

Let’s flashback to November 23, 2011, to my statement Eventually, Will Come a Time When ….

  Eventually, there will come a time when a populist office-seeker will stand before the voters, hold up a copy of the EU treaty and (correctly) declare all the “bail out” debt foisted on their country to be null and void. That person will be elected.