STAFF NEWS & ANALYSIS
With Italy's Election, the EU Chasm Grows
By Staff News & Analysis - March 07, 2013

Italy's Bersani on collision course with Germany and ECB over austerity … Italy's Pier Luigi Bersani vowed to break free of the country's austerity regime as he laid out plans for a centre-Left government, risking a serious clash with Germany and the European Central Bank. Mr Bersani's Democrats (Pd) and its allies control the lower house but failed to win the senate. He is hoping for tacit support on a law-by-law basis from the Five Star Movement of comedian Beppe Grillo. Critics says Mr Monti, whose Civic Choice list won just 10pc of the vote, went native in Brussels long ago and has been slow to understand the deeper political crisis unfolding in Italy.The outgoing premier gave them fresh ammunition today, saying that it would be better to hold fresh elections than to see an anti-EU government to take power. – UK Telegraph

Dominant Social Theme: The Italian elections are a disaster for peace and security in Europe.

Free-Market Analysis: Italians went to the polls and rejected the EU's faux austerity program but former premier Mario Monti doesn't accept the new course and has proposed new elections instead.

This has happened before. When Ireland voted against the wishes of the Eurocrats, Ireland was made to vote again. Now perhaps it is Italy's turn.

Certainly what has happened in Italy is making officials in Brussels uncomfortable. But Monti's statements are probably not improving what is already a fractious situation. The India Times summarizes it this way:

Italy's Mario Monti warns of danger of anti-Europe government …Italians should vote again. No party won a clear victory in last month's national elections, and Italy's president won't convene talks to establish the government's composition until March 20. The center-left leader Pier Luigi Bersani is expected to get the first shot. He has ruled out an alliance with Silvio Berlusconi's forces, which leaves comic Beppe Grillo's euro-skeptic 5 Star Movement.

Grillo has proposed a referendum on the euro single currency, which could hurt investor confidence. Monti, who finished fourth, told a news conference Wednesday that it would be better to have new elections if a new government "is oriented to interrupt Italy's European path and that of reform."

It cannot please Brussels that Grillo is proposing a referendum on the euro. Obviously, a new election would be preferable. But there is a difference between the Italian scenario and others of late. Italy is not, for instance, Ireland, which has about 5 million people. A census in 2001 shows nearly 60 million people in Italy. Again, Italy is not Ireland.

Ultimately, we would propose that all this to-ing and fro-ing is incidental. In Greece and Spain there are regular riots over austerity. Iceland has provided Europe with a different direction by rejecting a taxpayer funded bank bailout. What is going on is a gradual unraveling of the EU experiment.

In Britain, UKIP – a free-market oriented party – is gaining ground as the Tories retreat. One of the big issues is the EU and the lack of any input that British voters have had regarding the "grand experiment" for several decades. The irritation is palpable; the anger seemingly will lead inexorably to changes in the British posture.

If one steps back, the unraveling becomes obvious. Those at the top in the EU can continue to insist with rigor that the European Union and the euro will go forward as intended but at some point the constant negative electoral results regarding the EU will have to be taken into account.

The Telegraph article doesn't dwell on the ins and outs of Italian politics but it does make a larger point regarding the gravity of the current Italian disaffection. Elections have consequences and it sounds like in this case one consequence will be further difficulty with Italy's creditworthiness, as follows:

… The ECB …is constrained from helping to shore up the Italian bond market unless Rome complies with Europe's austerity agenda.

"Italian voters may have effectively voted away the ECB safety net," said Christian Schulz from Berenberg Bank. The central bank cannot activate its bond purchase programme (OMT) unless Italy requests a rescue from the EMU bail-out fund, and that in turn requires a vote in Germany's Bundestag.

"The ECB cannot – and will not want to – do anything to help Italy after the inconclusive election result, even if borrowing costs spiral out of control," he said.

There are voices in the current Italian government that want to negotiate with Brussels and come up with a compromise of sorts. But again, this begs the larger issue – a fairly intractable one: The North of Europe does not want to pay for the South and the South is defiantly refusing the "austerity" prescriptions of the North.

Imagine Europe as a continent riven by a divide that is growing bigger and bigger. The movement is not overly perceptible day to day but over months and years the chasm grows larger and deeper. The North and South are indeed like tectonic plates moving away from each other.

The problems between North and South have been exacerbated by the euro and deepened by austerity. Already in Italy there is reportedly approving talk of fascism again and providing solutions via government power that the people themselves cannot muster.

The longer that Brussels insists on unworkable solutions, the more powerfully Eurocrats will polarize the South both politically and economically.

After Thoughts

The European experiment was supposed to bring peace to Europe. How ironic if it would be responsible instead for a rise in political intolerance, authoritarianism and even, eventually, renewed nationalism and militarization.

Posted in STAFF NEWS & ANALYSIS
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