Julie Bishop makes one massive mistake early in this article. Italy does not have a sovereign debt as it has no sovereign currency.

Italy has a massive foreign debt (as do Greece, Spain, Portugal etc) denominated in Euros. If it was still on the Lira Italy could do things to bail its economy out of its present predicament (such as devalue or limit imports) that it cannot do while using the Euro.

It it could even default on its foreign debt, a solution which puts the problem back on the countries and banks which foolishly made the loans that form the foreign debt. Those countries and their banks may even have made the loans to avoid their own internal economic problems which is how China has accumulated massive quantities of USA Loan certificates.

Italy is like a "broke" state in Australia or the USA.

Julie (and Julia) needs to read up on Modern Money Theory. The primer with that title by Professor L Randall Wray of the University of Missouri, Kansas City, might be a suitable starting point.

The Kansas City Economics Department, chaired by Dr Stephanie Kelton, presents some excellent blogs at New Economic Perspectives on just such matters, as does Professor Bill Mitchell at billy blogs.

These intellectually competent people forecast that the present European crisis would occur if the Euro was adopted without the essential strong "Federal" European central government which would have meant that individual countries would have had to give up their principal roles and become dependent states.

The most impoverished USA state recovers form the USA government over two dollars for every dollar that state contributes in Federal taxes. The more prosperous US states recover 60 cents per dollar. The impoverished states are usually the ones complining about the size of the USA government.

Julie,

John Maynard Keynes made it clear long ago, as has Greece recently, trying to reduce the ratio of debt to GDP by austerity measures doesn’t work. Italy is in for the same fate.

Keynes also recognised that the Treaty of Versailles required Germany to accept responsibility for causing the war and under the War Guilt clauses pay heavy reparations. The total cost of these reparations was assessed in 2013 to roughly equivalent to US $442B in today’s dollar terms, a sum Keynes deemed excessive and counterproductive. These Anglo reparation deals lead to fascism, the rise of Hitler and the Nazi party, and was ultimately a major factor leading to World War II.

Europe and the US are faced with the same problems today. Real statistical economic data clearly demonstrate, despite what the mainstream media and politicians are spruiking, that there is no economic recovery. No evidence shows real retail sales, housing starts, consumer confidence, payroll employment, or average weekly earnings indicate economic recovery. Debt deflation is the future for these nations.

Another risk to geopolitical stability is the inability of people like Julie to recognise that austerity like that faced by ordinary people in Germany in the 1920’s and 30’s lead to nationalism, fanaticism and all out conflict.

Europe in particular is facing the same future, politicians in this country, from both sides; do not seem to have any grasp of these broader strategic risks. Not surprising given the calibre of our current crop of politicians

so does this mean the libs are going to cut all that middle classs welfair they loved to dish out under Johnny?

Poor Italy, stuck with a governing party riddled with corruption and sleaze + comedians! Hang on a minute! They're not called Labor and Greens are they?

The problem started a long time ago when our politicians got into bed with the bankers.For the USA is was the instigation of the private US Federal Reserve.The US Govt prior 1913 used to create all the new money from nothing to equal increases in population,productivity and inflation.In 1914 they introduced income tax on the people to pay bankers interest on money that was not theirs.The same has happened in this country.

Under the fractional reserve system of banking,banks can have just $10.00 of deposits and create $100.00 worth of loans.This is why banks are the richest institutions on the planet.They own our productivity by virtue of creating from nothing the money to equal it.Thus they also own our Govts.

Our Govts since 1980 have sold off 4 state Govt banks + the Commonwealth.This is the main reason why our taxes have increased.Our Govts now have to borrow from private banks for infrastucture and services.In Western economies this means the harder we work the more debt we incur,hence our economies are in a perpetual state of collapse and revival, with no real productivity being realised.

There is an immediate solution which I will soon post.

Ms Bishop suggests that Grillo's party is the largest single party in the Italian Lower House and that means gridlock. As so often with her articles it is only half true. In fact the Democratic Party, with its three allies, constitute 29.54% of the popular vote, making it the largest single group. Berlusconi's People of Freedom Party has eight allies and together they achieved 29.18%. Grillo had no allies and polled 25.55%, making him the third largest group.

Under the peculiarities of the Italian Lower House system, the winning group are given a bonus in seats, so the centre-left group centred on the Democratic Party in fact enjoys a comfortable majority in the Lower House.

The problem arises in the Senate which has a different system of allocating seats. There, the centre-left does not have a majority and will need the votes of Grillo's party to pass legislation. It is a recipe for potential instability, but no more so than in Australia when the government of the day has a majority in the Lower House but not in the Senate.

The truly appalling aspect of the vote was not Grillo, whose party reflected genuine outrage, especially among younger voters, with the status quo, but the fact that a discredited crook like Berlusconi could come within .36% of winning.

The weakest part of Ms Bishop's argument was when she tried to link the economic problems of Europe with the Australian government's economic management. The issues are so widely different that she undermines some serious points with her inability to avoid the temptation to try and score cheap political points. When we know the details of the Coalition's economic policy there can be some serious debate, but I doubt they would really want that.

It is really difficult to apportion blame for a country's woes when one is dealing with the likes of politicians, bankers, oligarchs or corporations.

One thing is certain. Most of them are crooks. They are not working for the betterment of the country or the society or the world but only for the betterment of themselves.

We know from the insect world that intelligent creatures put the survival of the nest or hive first. Individuals are given short shrift.

Humans, filled with conceit, think that they can survive by putting the collective of people last and by elevating individuals like Murdoch and his grasping ilk to stardom.

As the world is consumed by nuclear war, the insects will demonstrate their obvious superiority over humans.

King Cockroach is waiting in the wings!

Debt and Deficit hysteria is what Tony Abbott is now whipping up in the pre-election period as the core of the Noalition's campaign, in place of the flopped Great Big New Tax.

Read my words … slowly … carefully ...

There
is
no
need
to
"repay"
ANY
Commonwealth
Debt.

Australia still has one of the lowest Government debts in the world. Net government debt is about 8% of GDP, whereas private debt is over 150% of GDP . It is too low to impose any restraint on our economic options, unlike the U.S., Japan, and all European countries.

It is often claimed that net government debt was negative at the end of Howard’s time. But that was equally true of Whitlam.

It is increasingly clear that Hockey and Abbott et al also want to replicate NATO/Eurozone austerity. As there, they aim to preserve the graft looted by the moneybags during the long boom that that preceded and caused the Great Recession.

Quite frankly, the article submitted under Julie's name is of senior high school standard. Can Do Better. B-

Ambrose Raven,according to the Centre for Indpendant Studies we should be looking at gross Govt debt which is 25% of GDP.Our total debt is over $20,000 for every person in Aust.

Most of this debt is absolutely false and unnecessary.Private banks should not be able to create money from nothing just like we as individuals should not be allowed to counterfeit money in our garages.This the the crux of our debt slavery.

The immediate way forward is to get our RBA to at least create our inflationary money debt free.Inflation is the theft of our currency or spending power by the creation of too much money.Our inflation averages 3% which means a loss of $ 36 billion plus interest to our country which is created as debt by the private banking system.

The solution is to get our RBA to create at least our inflationary money debt free either as infrasture or loans to our private banks.
Our private banks will benefit since more money will stay here and they won't have to borrow from foreign Central banks who just create it with the click of a computer mouse.

GOP, and RAB,

Keynes advocated excess government spending in the case of a recession, to maintain employment, but also advocated running a surplus when there is no recession to reduce or remove the deficit to ensure that the state has the reserves to spend. The problems in the EU are purely from the socialist governments running deficits in the good times and finding themselves up poo creek without any resources to mitigate the recession.

As Labor has pointed out, at no point has Australia been in recession, and the unemployment has always been low, so while there was some justification for running a deficit in 2008/9, there was no justification for running a deficit after mid 2010, and trying to claim that this is following Keynesian economics is pure bollocks.

In reply to Arjay, briefly: NO.

Firstly, the CIS is a pro-Noalition Hard right lobby group.

Secondly, a better measure of government debt is net rather than gross debt, and even better is the net rather than gross interest repayment burden, expressed as a percentage of GDP. “What really matters for countries with large government debt is the size of the net interest repayment burden. This is what separates the US and Japan – countries with a relatively high level of government debt – with the basket-case PIIGS nations (Portugal, Italy, Ireland, Greece and Spain).

Australia is currently situated in an excellent position, and even if the government debt:GDP ratio were to rise, this does not necessarily translate into higher net interest repayments if the Reserve Bank further cut interest rates from already historical lows and purchased government bonds.”

Thirdly, Arjay, does your bank lend to you on the basis of your gross earnings or your net earnings?

Ambrose,there is no necessity for any Govt to go into debt.Govts can create all the money they want within growth paramaters.Why pay private central banks to create you money when yo can do it yourself?

There is one point about Italy that has been missed by the author and all commentators:

That is that in Italy, the situation is critical, but not serious.

The fact that a former clown could win a large proportion of the vote truly puts things in perspective.

My prediction for Spain, Greece and Italy is that one or more of them will eventually have a military coup, which will take them out of the EU, default on all debts, and possibly plunge the world into a major depression.

Those few who study history will be aware that only a few decades ago both Spain and Greece had military governments.

Another fact which is apparent is how, once again, Australia has benefited from undeserved luck. The massive suffering which is accompanying the collapse of the EU is so great that any thought by internationalists that Australia might be coaxed into such a union has vanished. Again, the suffering of the PIIGS is a salutary lesson in the need to balance our government's books.

The best summary of the current world situation has been given by Niall Ferguson in his 2012 Reith Lecture, when he said:

"The problem is that governments are no longer able to maintain the welfare community at the standard of living to which they consider themselves entitled, with the revenue they receive from the taxes that people are prepared to pay".

Current pension schemes in almost all western countries will bankrupt governments in coming decades due to people living longer and needing more expensive medical treatment. The only answer, unpalatable as it might be, is massive cuts to all pensions, including age, disability and unemployment.

European crisis is no laughing matter. Your right there, but why restrict that comment to Europe?

The whole of the EU is not a basket case however. Germany (although not perfect) with a proportional voting system and high productivity you must agree is a stand out. It is a contrast to the rest of the EU, most of the world and Australia for that matter.

If Australia did not have the natural resources to fall back on I have no doubt Australia would be in the same position as Italy, Spain, Greece and Ireland. This I believe would be the case irrespective of which major franchise was in power.

Austerity in EU style cannot work. The two reasons are, it does not penalise the parasite rich and it is not linked to productivity.

While parasite activities (Politicians, Bankers, Lawyers, Advertisers) attract more reward than productive ones (Farmers, Manufactures, Builders), productivity will continue to decline along with competitiveness.

Until voters can elect proportional government to represent them, they will continue to get minority governments with majority control and leaders they don’t deserve or want.

The poor will get poorer and pay. The rich get richer and take more.

It is a global condition, not just a European one and it is no laughing matter.

The best result for this year’s election is another hung parliament and a move to proportional representation.

Arjay and I are actually at cross purposes. My point there is that the debt hysteria is a deliberate and cynical political creation.

Arjay and I are strongly in agreement on funding debt - a government bank could and should fund public debt. Arjay is entirely correct about the savings from getting the banksters' snouts out of the trough.

plerdsus is acting in common with the Hard Right's denialists and fellow travellers - to transfer the blame for the Great Recession from the villains - the banksters and their class - to the victims. Thus they pretend that the problem is an unaffordable social welfare system, to preserve the plunder of the rich.

For such people, truth is whatever serves the needs of the moment.

Current global economic difficulties are indeed largely the fault of the banksters, due to the (inevitable) bursting of a three-decades-long debt-driven asset price bubble that they created to enrich the rich, perpetuated by them and the politicians and media that they own and also of course the aspirationals whose wealth is dependent on the pyramid scheme continuing.

RAR,

While incurring a deficit might help boost the economy in the short term, there is a point at which the debt level causes the cost of borrowing money to rise to the point where the cost of servicing the debt starts to overwhelm the ecomomy. Many countries in the EU have reached this point.

You cannot spend your way out of debt. Keynes was a fiscal conservative who recommended running a surplus in times of growth to enable deficit spending in times of recession. Successive Labor government have misrepresented Keynes to run continuous deficits in the EU and Aus leading to unnecessary pain when a real recession occurs.