Italy Fails at Choosing a Government, Succeeds at Scaring Europe

Photographer: Alessia Pierdomenico/Bloomberg

Beppe Grillo, comedian-turned-politician, during an election campaign rally.

(This appeared a couple of days ago in the TMN newsletter. Posting it somewhat late–but then, nothings changed much, though the bond markets seem to think that whatever the campaign rhetoric, Italy will keep muddling through its debts and Europe will keep muddling through with bailout.)

There may be no clear winner in Italy’s election so far, but it’s not too early to declare a loser: austerity. Having delivered to Europe a package of spending cuts and tax increases, Mario Monti came in a distant fourth in the Italian vote.

It wouldn’t have been a big surprise to Monti 1.0, the technocrat who came in with no plans to run again. The seductions of electoral power, it turns out, are powerful. The basic principle that was evident a year ago, however, still holds: Anyone seen as enforcing a Brussels-and-Berlin-designed regime of austerity is preparing a policy of electoral defeat.

The Market Now has touched on this theme before. Whenever you hear folks talk about euro zone bond yields and borrowing costs, it helps to take a look at the unemployment chart instead. That’s what European voters are focused on. Ergo, the Italian vote for Beppe Grillo, a.k.a. “none of the above.”

All this is likely to make Italy’s next government, as well as Spain’s, even less willing to take the invitation to commit political suicide. On the Metroscopia blog at Spain’s El Pais, an excellent indicator of how European voters feel about austerity, 85 percent of Spain’s voters have no confidence in Mariano Rajoy. And 57 percent of those who voted for his party don’t trust him.

That last part is based on a poll taken before the latest slush fund scandal confronting Rajoy. It makes some sense, though, that Rajoy is unpopular even among his nominal supporters. It’s more or less the same situation with every leader implementing an austerity program. The Greek, Spanish and Italian public hates (with good reason) cuts in times of crisis, but.a fair number see the difficulty in avoiding them. The money for additional services just isn’t there.

The only way Spain and Italy can get more money is borrowing … and that means relying on the implicit and explicit guarantees of the European Central Bank. Which in turn come with what the ECB euphemistically calls “conditionality,” a fancy word for budget cuts. Voters recognize some version of austerity is inevitable; the question is how little they can get away with. Credit the Italian voter with this: If there was any way to scare Europe’s policy makers into reducing their demand for cuts, this was it.


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