First Crimea, now Venice. The city of the Doges, Marco Polo, Vivaldi and Canaletto has voted to secede from Italy. In a ballot held last week, more than 2 million voters in the city and surrounding region agreed with the proposition that Veneto should become an independent and sovereign federal republic.
The pro-secession lobby scored a thumping 89 per cent majority but you need not cancel your honeymoon visit. The Serene Republic of Venice is unlikely to be plagued by Kiev-style riots, nor does anyone expect annexation by Austria (which ruled the city state before Italy's unification in the late 19th century). The vote, which took place online with electors identified by a unique digital ID, was organised by a coalition of Venetian nationalists and has no legal significance. Yet it seems to chime with the popular mood of discontent with established and centralized authority, that is sweeping across the European continent, into Turkey, the Middle East and, as ever, finding support in regional nationalism in Canada.
Venetians are expressing a rumbling discontent common among many northern Italians who deeply distrust the chaotic politics of Rome and who resent supporting the indigent and dependent Mafia-ridden states of the south. The likelihood that latent anger will flare into full blown political revolt is slim, but such sentiments are barely hidden in nationalist parties such as Lega Nord, which campaigns for northern regional autonomy. In France, the National Front, a far right party which campaigns against immigration scored big gains in local elections over the weekend and similar success is anticipated for UKIP, the English nationalist party which campaigns for a British exit from the EU, in forthcoming elections to the European parliament.
The question is whether these and other signals, the civil unrest in Turkey, the diplomatic confrontation in Ukraine should be read by markets as fundamental warnings about widening political risk or as isolated incidents, of no great economic consequence. So far, markets have largely ignored the shouting and waving in Washington and in European captials over the Russian takeover of Crimea. The almost entirely bloodless putsch and plebiscite has, predictably, accelerated capital flight from Moscow. Andrei Klepach, Russia's deputy finance minister, gave warning on Monday that he expected outflows as high as $70-billion in the first quarter, equal to the capital flight from Russia over the whole of last year. In an article in the Financial Times, Mohammed El-Erian, the former Pimco managing director, suggests that the market's tranquil response to political crisis is complacent and undeprices the potential risk.
Russian stocks have been battered, notably major energy exporters Gazprom and Rosneft. But while European bourses have dipped, there is no sign of financial panic as Brussels and Washington target a few noteworthy members of President Putin's clique for special punishment. Investors have taken the view that Russians and Europeans stand to lose too much from a major confrontation. Indeed, a close analysis of the economic weapons available to both sides indicate they are close to nuclear options. A gas cut-off to Europe would be catastrophic and if it continued, would certainly tip many Eastern and Central European states into recession. However, it would also quickly push Russia into a financial black hole. A retaliatory embargo against Russian bank access to European and American capital markets would seal the fate of the Russian economy. Without access to liquidity, the Russian financial system would quickly descend into Argentina-style chaos.
If that analysis is correct, the markets are right to assume that President Putin will probably tot up his diplomatic and territorial gains and resume his Sochi "Mr Nice Guy" face until the next opportunity for mischief. However, such a short-term analysis is also short-sighted. Underlying the ferment in Ukraine and Turkey is public anger about the arrogant behaviour of political and economic elites. Similar discontent fuels the success of far right political parties and separatist movements across Europe. It is the same bubbling anger that provoked the Arab Spring and it is showing its face in protests against political corruption in China. In isolation, such phenomena do not have the scale to precipitate a global market upset, but a coincidence of political failures could do so. There are already enough small fires burning.
Carl Mortished