Italian elections a disaster for the Euro?

posted at 3:21 pm on February 26, 2013 by Ed Morrissey

That depends on whether the EU had been on a course for anything but disaster prior to this week’s elections in Italy, one of the flashpoints of the European debt crisis.  Mario Monti had tried to impose spending cuts and debt discipline in his government, and it looked as if the EU had headed off at least that particular crisis.  Thanks to a backlash to that austerity program and a populist ex-comedian, though, Monti got crushed in the election — and no one knows exactly what Italy will do now (via The Week):

Can the Italians be serious? That is likely to be the reaction of financial markets and the country’s euro zone partners as they ponder a disastrous election result, which could reignite the euro crisis. More than half of those who voted chose one of two comedians: Beppe Grillo, who really is a stand-up comic; and Silvio Berlusconi, who drove Italy to the edge of the abyss when he was last prime minister in 2011. Both are anti-euro populists.

This comedy could easily end in tragedy. The inconclusive result has echoes of last year’s first Greek election – except that Italy is bigger and more strategic. The country faces political paralysis, while its economy is shrinking and its debt is rising. The European Commission forecast last week that GDP would fall a further 1 percent this year after last’s year 2.2 percent drop. Debt, meanwhile, would reach 128 percent of GDP by the end of this year. …

The risk is not that Berlusconi or Grillo will be prime minister. It is rather than nobody will be able to form a stable government. The electorate split into three roughly equal groups: Berlusconi’s centre-right group, Grillo’s uncategorisable 5-Star Movement and the centre-left coalition led by Pier Luigi Bersani. The centrist coalition led by Mario Monti, the technocratic who saved Italy from Berlusconi’s antics but whose austerity policies were deeply unpopular, came a poor fourth.

But is this a setback, or just a demonstration that nothing much has changed?  Time’s Michael Schuman says it’s the latter:

Many of us warned that without major structural changes to strengthen the monetary union, intensive reforms within euro zone countries and an entirely different approach to tackling the crisis (not just austerity, austerity and more austerity), the debt crisis was impossible to resolve. Had Europe really escaped the jaws of death, without the dramatic reforms so many economists thought were necessary? In recent weeks I was wondering if my analysis had gone badly awry.

Ah, but then, there’s Italy. …

What we do know about the Italian election is that it showed how quickly the euro zone debt crisis can come back to life. Italy’s 10-year bond yields, a measure of how risky investors perceive Rome’s debt to be, began rising again after the messiness of the poll results became clear. Stocks tanked in the U.S. on the news. Italy’s FTSE MIB index was trading 4.99% lower at 15,552 at 11.30am EST Tuesday, when the market closed for the day. The market turmoil tells us how any one event in any of the euro zone’s troubled economies can resurrect jitters over the future of the monetary union.

The election also sends some even more worrying signals. Mario Monti, the outgoing prime minister, and his allies got trounced in the election, polling a dismal fourth. Monti, a former E.U. commissioner, was airlifted into the prime minister’s office in late 2011 to employ his technocratic skill at reforming the economy and averting an Italian meltdown. He managed that with some painful budget cutting and deregulation, and Monti was seen by many in Europe as one of the euro’s chief and most important defenders. His defeat sends a resounding message from Italian voters that they don’t much care for Monti’s euro-saving reforms, which helped topple Italy into a recession. Monti becomes the latest political casualty of the euro crisis. Meanwhile, that same disenchantment with reform is also building support for once-fringe parties. The new Five-Star Movement, which campaigned on an anti-austerity platform, was running a close third in the election results. What all this tells us is that the steps needed to put the euro on firmer ground are too politically unpopular to implement in today’s European democratic politics – a reality usually ignored by Europe’s leaders.

No matter what the politicians decide, it looks like they’ll have to run it by the comedian, although that won’t do them much good.  Beppe Grillo controls more than 160 seats in Italy’s Parliament, and has plans to force a new election if he can to win even more:

Grillo’s parliamentary list filled with political neophytes amassed enough votes in yesterday’s election to deny a majority to front-runner Pier Luigi Bersani and a comeback to three-time Premier Silvio Berlusconi. As his competitors seek to cobble together a make-shift alliance, the 64-year-old Grillo is keeping his distance and preparing for a new vote.

“They can’t hold us back any longer,” Grillo said late yesterday in a video posted to his website. “They might go on another seven or eight months and produce a disaster, but we will be watching and working to keep it under control.”

It could have been worse:

Grillo’s 5 Star Movement garnered the most votes of any single party in the Chamber of Deputies with 8.69 million of 35 million ballots cast, or 26 percent. The comic was denied the bonus seats handed out to the winning coalition because Bersani’s Democratic Party, which got 8.64 million votes, was boosted by smaller allies that brought its total to 10 million.

Whatever one thinks of Grillo’s background, he managed to tap into a deep vein of discontent among Italian voters on austerity measures and monetary policy necessary to keep the Euro afloat.  He could end up with another opportunity to gain traction with that message if Berlusconi, Bersani, and Monti can’t come up with some kind of combination that maintains a debt-management direction.  As it is, the prospects for economic stability seem to have worsened considerably, and the ripples of the election will find its way to the US economy soon enough.


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Italian elections a disaster for the Euro?

Heh, why not, they have been a disaster for Italy for generations…

SWalker on February 26, 2013 at 3:23 PM

It’s not austerity when their spending and debt continue to rise.

MoreLiberty on February 26, 2013 at 3:28 PM

I’m a wanna, you a gimme.

- Typical Italian and American Voter.

Finally, the Left have their unity with Europe.

OhEssYouCowboys on February 26, 2013 at 3:30 PM

Shows how terrible the situation is there, they need to rely at least short term on a hard leftist, Pier Bersani as the only one with even a modicum of fiscal common sense. Aside of course from Monti who’s been thoroughly booted out….

Grillo has no use for one side or the other. He just wants to screw the entire system and preside over a policy of sticking fingers in ears and thumbs up asses. Pretend the whole crisis isn’t real. The right meanwhile actually needs a solid defeat so that they can restructure themselves away from this Berlusconi nonsense.

Gingotts on February 26, 2013 at 3:30 PM

Geez, if it`s a day ending in “Y” they`re having an election over there.

ThePrez on February 26, 2013 at 3:31 PM

As it is, the prospects for economic stability seem to have worsened considerably, and the ripples of the election will find its way to the US economy soon enough.

Actually, turmoil in Europe could help the US. If we look relatively stable by comparison, in spite of our own mess, that will prop up the dollar. US bonds will be seen as a safe haven so interest rates will stay low.

Mark1971 on February 26, 2013 at 3:31 PM

Backwards countries, like Italy, have pursued a third world monetary policy for generations. That’s why the Lire was something like 2000 to the dollar, before the Euro. They’ve always printed away.

Going under the Euro isn’t going to civilize a backwards people.

MNHawk on February 26, 2013 at 3:33 PM

Is Prof. Morrissey teaching law at Haarvard now?

sauldalinsky on February 26, 2013 at 3:34 PM

Actually, turmoil in Europe could help the US. If we look relatively stable by comparison, in spite of our own mess, that will prop up the dollar. US bonds will be seen as a safe haven so interest rates will stay low.

Mark1971 on February 26, 2013 at 3:31 PM

Even a broke superpower run by a Marxist and half populated by the likes of chump and liveasaslaveanddie is preferable to a fracturing EU with all the chaos that entails.

MelonCollie on February 26, 2013 at 3:34 PM

Who are we to talk with our own clown in the WH?

Blake on February 26, 2013 at 3:37 PM

Pasta!
–Italy, from Hetalia: Axis Powers

Gatsu on February 26, 2013 at 3:38 PM

I look forward to massive economic expansion in Italy after they abandon “austerity”.

/Krugman

gwelf on February 26, 2013 at 3:38 PM

Beppe Grillo? Looks like Jonathan Winters.

Mr. D on February 26, 2013 at 3:41 PM

Actually, turmoil in Europe could help the US. If we look relatively stable by comparison, in spite of our own mess, that will prop up the dollar. US bonds will be seen as a safe haven so interest rates will stay low.

Mark1971 on February 26, 2013 at 3:31 PM

Propping up our currently unsustainable system a bit longer so the bubble grows and pops rather than being deflated now. Just because Italy finds dumber and crazier people doesn’t mean we really are a beacon of fiscal sanity.

If all that matters is who is in the relatively less screwed position then forget the Dollar, Euro, and Lira and let’s all just start buying Rubles now.

Gingotts on February 26, 2013 at 3:43 PM

The euro is a goner, no matter what anyone does. There are two futures for the eu: sharia dominance or fascism.

nobar on February 26, 2013 at 3:43 PM

Whatever one thinks of Grillo’s background, he managed to tap into a deep vein of discontent among Italian voters on austerity measures and monetary policy necessary to keep the Euro afloat.

The US is due for one of these movements, too. We saw it in Greece with the rise of Tsipras and SYRIZA and the collapse of the old PASOK, and now in Italy. Their current party system is sclerotic at best and someone like Grillo can capitalize quickly on the discontent there.

It is my hope that when our “Grillo” or “Tsipras” appears, he or she will be a conservative and not a crazy leftist rabble rouser.

It’s not austerity when their spending and debt continue to rise.

MoreLiberty on February 26, 2013 at 3:28 PM

Their idea of austerity was essentially Obamanomics. The outgoing Mario Monti for the most part raised taxes in order to finance spending (though I guess his raising of the retirement age was a step in the right direction).

Doomberg on February 26, 2013 at 3:44 PM

The US is due for one of these movements, too. We saw it in Greece with the rise of Tsipras and SYRIZA and the collapse of the old PASOK, and now in Italy. Their current party system is sclerotic at best and someone like Grillo can capitalize quickly on the discontent there.

It is my hope that when our “Grillo” or “Tsipras” appears, he or she will be a conservative and not a crazy leftist rabble rouser.

Most of the country is disenfranchised by way of representation, and my gut tells me that outside of a major city or a super blue county most will be right, and that would be true right, not DC right, which is actually left.

Gatsu on February 26, 2013 at 3:51 PM

It’s not austerity when their spending and debt continue to rise.

Cuts in the expected rate of growth? It is austerity. It is insane. It is worse then Hitler! –your average liberal

18-1 on February 26, 2013 at 3:51 PM

As it is, the prospects for economic stability seem to have worsened considerably, and the ripples of the election will find its way to the US economy soon enough.

Ripples? We’re worrying about ripples from overseas?

Dusty on February 26, 2013 at 3:52 PM

Amatraka runna ona da tima undera mea.

- Il Baracka

OhEssYouCowboys on February 26, 2013 at 3:53 PM

Ripples? We’re worrying about ripples from overseas?

Dusty on February 26, 2013 at 3:52 PM

We’re on an incredibly shaky foundation; we do not necessarily need a great big earthquake to set things off.

MelonCollie on February 26, 2013 at 3:56 PM

The euro is a goner, no matter what anyone does. There are two futures for the eu: sharia dominance or fascism.

nobar on February 26, 2013 at 3:43 PM

That’s actually one in the same.

Thomas More on February 26, 2013 at 3:57 PM

“Where Are The Clowns?

Send In The Clowns….”

williamg on February 26, 2013 at 4:00 PM

This reminds me of my former spouse. He has loads of health issues which are the direct result of his not taking care of himself and weighing nearly 400 pounds. Every time there’s a crisis and something bad could happen–like losing a leg–he panics and swears he’s going to change his lifestyle so it doesn’t happen again. It lasts a few months, then he’s back to his bad old ways again. He never learns.

Bob's Kid on February 26, 2013 at 4:00 PM

Hmmmmm

Akzed on February 26, 2013 at 4:03 PM

Whatever one thinks of Grillo’s background, he managed to tap into a deep vein of discontent among Italian voters on austerity measures and monetary policy necessary to keep the Euro afloat.

This is just more proof of why all democracies with universal suffrage are doomed to failure.

the reality is that there will always be a sizeable contingent – if not an outright majority – of voters who are too dumb to understand simple economics or math and will vote for whoever tells them they can get more free stuff from gov’t without any consequences (i.e., see re-election of Obama).

Universal suffrage democracy cannot survive for this reason. Eventually, it will always bankrupt itself.

Monkeytoe on February 26, 2013 at 4:10 PM

On what is the value of the Euro based? Is it faith in something? If so, what is that “something”? At least Americans’ bogus currency is backed by trust in God. God must just love being used for that association.

Buddahpundit on February 26, 2013 at 4:12 PM

Send In The Clowns….”

williamg on February 26, 2013 at 4:00 PM

Why pick from the usual amateur ones when you can choose a professional?

KW64 on February 26, 2013 at 4:17 PM

…and no one knows exactly what Italy will do now…

If I were Italian I would want to escape the EU.

FloatingRock on February 26, 2013 at 4:19 PM

Until the lunacy in the Italian election, America had a solid grip on having the TOP IDIOT VOTERS IN THE UNIVERSE. But after I saw the results in Italy I had to think about the White House, the Senate, Bankruptifornia, Illinois, Maryland, NYC/NY and Taxachusetts before I, once again, convinced myself that as far as totally stupid voters are concerned, WE ARE STILL #1.

TeaPartyNation on February 26, 2013 at 4:19 PM

Yeah, Italians are boneheads when it comes to economics and politics, but man they make some good food. It’s hard to get a bad meal there. I like that their culture is so family-oriented too. And the women are gorgeous. Dumb as rocks, but serious breeders, and they know how to treat a man. I’ve also found Italians in general to be one of the least anti-American people in Europe. Overall a beautiful country.

Maybe we should just make Italy a US state, except not give them the right to vote so that they can’t eff us up politically and economically (any more than we already are). Then they could help us with food and family values in return. Just thinking out loud here…

WhatSlushfund on February 26, 2013 at 4:27 PM

Send In The Clowns….”

williamg on February 26, 2013 at 4:00 PM

You have a grip on the crux.

I read in German and Italian.

You would be surprised what fails to make it to the English rags. Oh, yes, around here, maybe you wouldn’t.

It is humbles me to translate the comment that “Merkel has an unpackbarren butt” by Berlosconi from Spiegel.

The comics that were elected, make Senator Al Franken look like…well, almost a normal person. And just think about the word Senator before that name here in the largest empire on earth.

Also, the Italians feel sorry for themselves and want taxes returned to get their economy moving since they blame austerity for a recent slowdown..they feel they have a very rough time and need a break or some money.

I good news, Don King is promoting a fight over there and the Germans want to help the French in Mali.

My pretty friend over there has been in low nuclear burn over Greece for about a year.

The best news is that Germany is the adult everyone bashes, NOT the US! We REALLY WANT O to keep leading from behind on this!

IlikedAUH2O on February 26, 2013 at 4:28 PM

I good news, Don King is promoting a fight over there and the Germans want to help the French in Mali.

IlikedAUH2O on February 26, 2013 at 4:28 PM

Ugh. The best thing to happen to boxing in Europe is when Vitali Klitschko took a visit to Don King’s home, was able to spot within minutes that the man is a fraud and a cheat, and vowed to stay the hell away from the creep.

Gingotts on February 26, 2013 at 4:34 PM

Beppe Grillo? Looks like Jonathan Winters.

Mr. D on February 26, 2013 at 3:41 PM

I was wondering what Rob Ryan is doing in Italy playing politics.
Did the Cowboys fire him?

dentarthurdent on February 26, 2013 at 4:38 PM

My bet is that Italy will spike tensions and crash markets and then go to gridlock. There are still too many sane people left in office.
The crashing stock markets were considered just “crazy” by Berlusconi and he seems to want them ignored.

On the war front, Paris has soldiers all over town on guard duty and Mali is getting worse. Brits and Germans are moving in to help the French.

Danke.

IlikedAUH2O on February 26, 2013 at 4:38 PM

It is my hope that when our “Grillo” or “Tsipras” appears, he or she will be a conservative and not a crazy leftist rabble rouser.

Doomberg on February 26, 2013 at 3:44 PM

I think he is here. He is called Obama. Number 2 is Moochelle.

Oil Can on February 26, 2013 at 4:42 PM

As it will be in the future, it was at the birth of Man
There are only four things certain since Social Progress began.
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool’s bandaged finger goes wabbling back to the Fire;

And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins,
As surely as Water will wet us, as surely as Fire will burn,
The Gods of the Copybook Headings with terror and slaughter return!
Rudyard Kipling, “The Gods of the Copybook Headings”

quikstrike98 on February 26, 2013 at 4:43 PM

More than half of those who voted chose one of two comedians: Beppe Grillo, who really is a stand-up comic; and Silvio Berlusconi, who drove Italy to the edge of the abyss when he was last prime minister in 2011.

Is Beppe Grillo the Italian version of Senator Al Franken?

What all this tells us is that the steps needed to put the euro on firmer ground are too politically unpopular to implement in today’s European democratic politics – a reality usually ignored by Europe’s leaders.

A single currency was never a good idea for a group of countries including places like Portugal, Italy, and Greece, with other well-disciplined countries like Germany and Benelux. Socialist countries are continuously running up budget deficits, and their government-paid bennies always drive up the price of exports to neighboring countries. A socialist country with its own currency can always devalue it so that exports are cheap, and attract tourists if it has a pleasant climate (as Italy and Greece do).

But a socialist country tied to the Euro doesn’t have that option. If exports and tourism are too expensive in neighboring countries using the same currency, the home economy tanks, and the only remedy is to cut social welfare programs, which are unpopular to the people receiving them.

The only reasonable solution for countries like Greece and Italy are to re-issue their own currency, which is exchangeable against the Euro with a floating exchange rate. Besides, in Lira, all Italians are millionaires!

Seriously, if Italy does issue its own currency, the base unit should have an initial value close to that of the Euro, in order to avoid confusion of dealing with lots of zeros on bank notes, similar to the way French President Charles De Gaulle introduced “Nouveaux Francs” in 1960, which were worth 100 “Anciens Francs”.

Steve Z on February 26, 2013 at 4:52 PM

The euro is a goner, no matter what anyone does. There are two futures for the eu: sharia dominance or fascism.

nobar on February 26, 2013 at 3:43 PM

That’s actually one in the same.

Thomas More on February 26, 2013 at 3:57 PM

I may be wrong about this but it seems to me that the reign of fascism will be heralded by the government taking over the banks. But all the Italians can really do is take over their own banks which is not going to yield enough riches to sustain a socialist government, let alone the people. They can’t take over Germany’s banks or any other international financial institution and I don’t think their military is in any shape to go nation conquering.

So politicians can’t offer continued bail outs or justice through military action. There is no national wealth to plunder. Without any of that how to politicians sell socialism to the people?

hisfrogness on February 26, 2013 at 5:32 PM

Thank you, I voted in the Italian election as I have dual citizenship.

Silvio is a corrupt crony capitalist. The entire country has been cronyism on steroids for years.

If Bersani is a leftist, Lenin is a moderate. Silvio won many votes because he called him the communist that he is. Try checking out the GAY Militant communist Bersani intended to partner with to get the majority to form the government. (I know how much you love the butt boyz around here.)

Monti hired Axeldork’s firm who went totally negative and pissed off the Italians even more than his austerity.

And last but not least the Italian didn’t want to be in the EU. They hate the EU that is run by a pack of Marxists and they despise the Euro.

Bravissimo! I applaud the Italians. They are sick of the corruption.

ALL POLITICIANS ARE CORRUPT.

Keep dreamin and looking for your Savior. You will only find Him when you get upstairs.

Jayrae on February 26, 2013 at 6:05 PM

I’d love to get a reputable, non R-R citation as to why austerity is the path out of high-debt/high-unemployment, when the ECB has already bailed out the euro twice and the IMF is showing “more austerity = slower growth/more debt” across the board.

Rainsford on February 27, 2013 at 8:08 AM

And the punch line is….Beppo yayyy.

jake49 on February 27, 2013 at 4:00 PM