Europe’s worries about Italy
Italy’s latest mess has shocked European leaders. But their problems run even deeper
Some see hopeful signs amid the dismay. The outcry over Mr Berlusconi’s possible return, they think, demonstrates that Europeans are at last developing an elusive sentiment: a common political consciousness that might serve as the basis for further integration. Just look at the horrified headlines and statements across Europe. “Bunga-bunga comeback” declared Bild, a German tabloid. “The Mummy Returns” shouted the front page of a French daily, Libération, capturing both the strangeness of Mr Berlusconi’s surgically enhanced visage and the creepiness of his return from the political underworld.
In the European Parliament Mr Berlusconi’s own political family, the European People’s Party (EPP), delivered an uncharacteristic reprimand. Whether the EPP would dare to eject Mr Berlusconi is another matter. As The Economist went to press, Brussels prepared for some odd theatre: the appointed Mr Monti was due to launch a new book on European democracy that he co-authored, and then to attend yet another European Union summit to “explain” the flaws of Italian democracy.
The euro crisis means that, increasingly, the domestic politics of one country concerns all Europeans. And European policies have become big issues in national elections. But that does not, of itself, create a European demos. Mr Berlusconi is exploiting a well-established current of Euroscepticism. Germanic fiscal rigour is weakening Italy’s economy, not strengthening it, he says. What about the lower spreads on Italy’s debt under Mr Monti? A hoax perpetuated by Germany to unseat the Berlusconi government last year.
All this may be a sign of desperation from a political leader who has lost much of his support and faces multiple court cases. But even if Mr Berlusconi loses, his actions matter. He is not a fringe politician brought to sudden prominence, like Geert Wilders in the Netherlands or Alexis Tsipras in Greece. He is a thrice-elected prime minister. Euroscepticism in Italy, usually a strongly pro-European country, comes in different forms, from the Northern League on the right to the former communist fringe on the left, and the Five Stars movement of Beppe Grillo, an anti-establishment comedian. If Mr Berlusconi leads a centrist stream, backed by his money, media power and residual support, Euroscepticism could become a more powerful force.
Eurocrats often dismiss their critics as “populist”. Yet any doubts about Italy’s readiness to work off its debt and adopt growth-enhancing reforms could easily push the euro zone back into an acute crisis. Only recently Olli Rehn, the European economic and monetary commissioner, declared the euro zone to have turned the corner, from managing the crisis to promoting reforms to boost competitiveness.
This was only ever partly true. Spanish banks are indeed being cleaned up and the Greek crisis has been brought back under control for now. Above all, the promise by Mario Draghi, president of the European Central Bank, to intervene in markets on behalf of countries that seek help (and accept a reform programme) has brought down borrowing costs. Even so, the economy of the euro zone is slowing and the recession in the troubled periphery is deepening. Capital and liquidity are flowing out of vulnerable countries, squeezing credit for their companies. Excessive austerity is sapping domestic demand.
Mr Draghi may have reduced the risk of markets pushing countries out of the euro, but even he cannot eliminate political risk in Italy. That said, recent elections have offered some comfort for Europe’s leaders despite the fears about populism. In the Netherlands, Mr Wilders lost support (though he has rebounded a bit since) and the pro-EU Labour Party made big gains. Even in Greece, the most traumatised euro-zone country, voters returned a leader ready to take more of the Brussels medicine under threat of ejection from the euro.
It is harder to threaten Italy, if only because it is both too big to rescue and too big for the euro to survive its possible departure. The hope is that Italian voters will themselves reject Mr Berlusconi’s blandishments and return a reformist government to power—with or without Mr Monti.
European elections are traditionally dull affairs. That they have become heart-stoppers says much about the mess the euro zone is in. For as long as the underlying flaws are not fixed, every national election will have the potential to cause trouble.
Stabilising the single currency requires not only tougher fiscal rules and reforms, but also a long-term plan to mutualise the liabilities for government debt and the banking sector. Solidity has to be buttressed by solidarity. For a while, euro-zone leaders seemed to accept this. In June they set out to create a banking union, starting with a joint bank supervisor, and called on European institutions to draw up a road map to secure the future of the euro. But even though the outline of a euro-zone bank supervisor has been agreed, other aspects of the banking union are being slowed down, and long-term reforms all but shelved. Instead of a road map, there is a sign that reads “road blocked”. Germany, in particular, wants to put off talk of future mutualisation, at least until after its own election next autumn. Italy is not the only country whose politics should cause concern.
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