Italy is the third largest economy in Europe just behind France, but it is number two insofar as industrial production is concerned. The French manufacture three main brands, Peugeot, Citroen, and Renault, in the world of automobiles which are not very popular in the USA. The Italians, however, have the more recognized brands worldwide such as Ferrari, Maserati, Lamborghini, Alfa Romeo, Fiat, and Lancia. The sports car enthusiast is always torn between a Ferrari and a Lamborghini while you are beginning to see Maserati’s everywhere in the standard high-end marketplace.

From the manufacturing perspective, the Italians have been able to compete producing cars in Euro for their reputation in car production carries the day. The crisis for Italy with respect to the Euro has been the conversion of their past debt to Euro which altered the standard depreciation of debt whereby you are paying back with cheaper currency.

The idea that was floated as an alternative to leaving the Euro calling for a referendum on the country’s EU membership was the proposal which called for the introduction of so-called mini-bots – government guaranteed bills. The catch was that they were to be restricted only to Italy and can be used to pay taxes. This idea does not seem to be moving anywhere close to reality. However, it recognized that there was a problem with its debt.

Instead, the proposals have turned on reforming the ECB. There are people in the Italian government who want to alter the ECB as a direct result of Draghi’s policy of Quantitative Easing which has destroyed the European Bond Market. The Italian proposal call for the ECB’s statutes should be changed to allow the central bank to act as a lender of last resort and acquire Italian government bonds not only on the secondary market by QE, but also on the primary market buying them directly from the Italian government. In reality, this would be a direct assault on the German philosophy of austerity. There would be nothing against higher inflation if it would create more jobs. Italy is making it clear that they would prefer 7% inflation and an unemployment rate of 2% rather than 2% inflation and an unemployment rate of 7%. In reality, Italy is arguing for the same policies that were adopted by Roosevelt to end the Great Depression.

This is becoming a battle behind the curtain between austerity and reality. The question to emerge is what happens if Germany refuses to yield? Are we looking at the very issue that brings down the entire EU house of cards?

People really think we have free trade and somehow Trump is reversing that fact. This, of course, is how the press has portrayed the issue, but that is just far from the truth. Trump is now looking at putting a 20%-25% tariff on cars coming from Europe. Personally, I only have German cars so I would not like to see that outcome. But personal wishes are not something I can explore for analysis. What I can say is that far too much is being fudged.

Countries are using DUTIES as the alternative to tariffs. It has gotten so impossible, we can no longer create the mugs we always give away at every conference in the USA when the conference is in Europe or Asia. Our last two conferences in Asia required us to manufacture the mugs in the country of the conference because we cannot get them into the country even when we hand them out for free. To government’s nothing is FREE and then you have to negotiate the “duty” to pay based upon what you would have paid for a cup manufactured in their country.

On that score, I have to agree with Trump. He has offered a free trade deal to the EU dropping all tariffs if they do the same. France rejected. There should be no tariffs and NO duties. Just for once let there be free trade. It has NEVER existed. Before the income tax, the US-funded itself with excise taxes. Excise taxes are taxes paid when purchases are made on a specific good, for example, gasoline. Excise taxes are often included in the price of the product. There are also excise taxes on activities, such as on wagering or on highway usage by trucks. One of the major components of the excise program is motor fuel today. Now we have consumption taxes in this manner AND income taxes. Government is now funded by just shaking us upside down and inventing countless taxes so they do not have to report the total cost of taxes.