Tuesday, February 26, 2013

The Italian Elections in European Perspective

The results of the Italian elections, although not far from what polls had predicted, have shocked the world, and especially the world's financial markets. Set in a broader context, I take the Italian electorate's repudiation of Mario Monti and "the European consensus" as one sign among many that that consensus is coming apart at the seams. Consider the following:

1. Meanwhile, in the north, France has been rebuked for failing to reduce its deficit under Hollande, and another year of no growth is forecast, while the UK has been downgraded. Yet despite the failure of the austerity program to deliver the promised results anywhere, no one in power has yet dared to breathe word of an alternative. Last May, there was hopeful talk that Hollande would join with Monti to mount an anti-austerity offensive, but Monti's fate is now sealed, and Hollande, though now securely in power, barely even pays lip service to the pro-growth agenda that he dangled in front of voters as an alternative or companion to austerity. His response to Europe's scolding was simply to whimper that, given time, he would find a way to cut the budget.

2. Austerity has not failed to produce certain kinds of "adjustment." The unit labor cost gap between Germany and the rest has shrunk significantly, more because of higher wages in Germany (as Germans will insist to you at the drop of a hat) than because of wage cuts in the south. And yet this adjustment has improved the current account picture only marginally and placed such a drag on demand that growth seems even more out of reach now than it did a year ago.

3. None of this bad news is really news, nor have the monitory signs been invisible for quite some time now, yet the financial markets have treated the Italian elections, whose results were more or less accurately predicted, as a "shock" worthy of triggering major price movements world-wide. Conclusion: "Denial" is not confined within the borders of Egypt.

4. As comical as the conjunction may seem, the Italian elections plus the American "sequester" may suffice to awaken the complacent from their dogmatic slumbers to trigger a mini-panic. Hold on to your hats. I'm too old to relive October 2008, and it probably won't be that bad, but I foresee considerable carnage and a return to crisis-a-month Europanic.


Massilian said...

And I foresee a new future for the european institutions, more democracy and a stronger parliament. There is a different way to restore the balance and the confidence then the German way. The E.U. was not built for Standard & Poor, Moody's etc. Despite the short view analysis I don't think the people of Europe had enough with Europe and want to go back to their national arrangements. Except the Britons and they have my benediction. The people of Europe are plagued with opportunist cowardly politicians with no vision and no guts to back it up. The kings are "à poil" and it shows more and more. Nobody wants their country to be run by a Marine Le Pen or a Beppe Grillo or whichever populist they might vote for to get rid of the mediocre main characters.
Europe won't collapse. It is not the problem, it is the solution. I am not old enough to give up the hope to see that happen.
ps : one good thing is that if the USA don't give a damn about Europe, nor does the Europeans give a damn about the US anymore. We are on our own.

brent said...

I agree that the economic predicament has been written on the wall for all to see for some time. But the shock wave out of Italy comes precisely because Monday's results were NOT accurately forecast. For months the bien pensant of Northern Europe trusted that the voice of reason would put Monti back in power, at least as part of a coalition, or as President of the Republic. As his campaign tanked, those same Austerians decided that Bersani, based on his tepid noncommittal campaign, would be safe, particularly as he would need Monti's centrists to run the Senate. Grillo was an interesting diversion, Berlusconi (for some) an amusing one, but hardly anyone thought Berlusconi would run even with Bersani, or that Grillo's M5S would overnight become the #1 party in the nation. A late shift of about 10-15% of the electorate, some to Berlusconi but most to Grillo, turned a divided electorate into a legitimation crisis, and Grillo is elevated from marginal grouch to prophet of a new post-partisan, 'virtual piazza' politics that deeply engages the underemployed but tech-savvy young. Their decision to reject en masse the traditional forms of politics has a special Italian flavor, but is not so far removed from the Occupy movements and the indignés, as well as Syringa. If this is the face of the European generation just coming into its 'productive' years, it would be best not to underestimate its dare I say revolutionary force....

Anonymous said...

I wish there was better English or French language coverage of Grillo's "movement." Is it lefty, righty, incoherently populist, who's likely to steer it as it develops, etc.? If it is genuinely "anti-corruption," which is one of the things one most often hears, then I'm all for it. A Bersani-Grillo coalition could be very productive: Grillo gives in somewhat on Europe-related issues, Bersani makes a true anti-corruption push to rationalize the Italian state, and both coalition members get their way in easing "austerity" (an ambiguous term).

brent said...

@ Anonymous
Here's a link to a substantial article (in English) by two poli scientists from Urbino on the Grillo movement--really quite detailed and interesting:
And here's my own far shallower take on his significance:
In French, Philippe Ridet's Campagne d'Italie blog in Le Monde has a few good pieces--short--and The Economist's Charlemagne blog has a few jaundiced articles. But you're right--there's a lack of useful coverage, other than the Italian.
Bersani and Vendola are definitely reaching out to Grillo--he responded by calling Bersani a "dead man who speaks"--but maybe that was just a negotiating first position.