He notes that lending rates to Italian businesses by Italian banks is in the 10% range, because Italy is going into a recession, raising business risks which raises lending rates which puts further recessionary pressure on the economy.
Given the level distinct anti-austerity and even anti-EU sentiment expressed in the Italian election, the government will have to back off its austerity program. But further EU assistance to Italy under Frau Fritz' leadership would be conditioned on further austerity. In other words, Frau Fritz doesn't have a recovery program for the eurozone, she has a recession program.
Paul Taylor notes the continuing EU elite complacency about austerity politics despite the Italian election results in EU needs "who lost Italy" debate on austerity Reuters 03/04/2013:
Italy, which had been governed by respected technocrat Mario Monti for 15 months since Berlusconi's last government fell, is far from the worst affected by the three-year-old debt crisis.Münchau sees a breakup of the eurozone, i.e., countries being brutally impoverished by Frau Fritz' Heinrich-Brüning-style austerity policies dropping the euro and going back to their own currencies, as the likely outcome. The nature of the currency union means that the alternative to austerity policies would be to use massive transfers from the richer countries of the eurozone to the poorer ones. And after years of Frau Fritz and her supporters deriding the countries already being inadequately assisted as lazy, irresponsible, etc., there is no constituency in Germany and the other richer countries like Austria and the Netherlands for such transfers. In practice, the only alternatives left are (1) a breakup of the eurozone; (2) an acceptance of major reduction in living standards and devastation of social services and permanent, major economic damage to an entire generation of younger workers in particular by the people of Greece, Ireland, Italy, Portugal and Spain; (3) toss any pretense of democracy overboard and have Germany via the EU structure impose outright dictatorships on those countries.
Unemployment there stands at 11.7 percent, less than half the rate of Greece and Spain, where one of every two young people is without a job.
If a milder recession and less severe spending cuts and tax rises can cause such a social and electoral revolt in Italy, the risks of an explosion in Greece and Spain ought to be greater.
Yet the official reaction from Brussels and Frankfurt is to act as if nothing, or almost nothing, had happened.
But it's not just Frau Fritz and her supporters that are to blame for frittering away any realistic chance of converting the EU into a genuine transfer union that could make a common currency work. As Münchau mentions in his article, the German Social Democrats (SPD) have support Frau Fritz' austerity policies. Other EU Social Democratic parties - France, Italy's, Spain's, Greece's - have notably embraced the Heinrich Brüning course. They've drunk the neoliberal Kool-Aid, and they haven't built an alternative, more constructive economic narrative. SPD Chancellor candidate Peer Steinbrück, one of the least attractive SPD leaders since Gustav Noske, drew some criticism last week for his lack of diplomatic finesse in commenting that two clowns won the Italian election, meaning the actual comedian Beppe Grillo, leader of the Five Star Movement that won the most votes of any single part, and former Prime Minister Silvio Berlusconi. (Grillo himself can't actually stand for office because he was convicted in 1980 of manslaughter over three deaths in an auto accident.)
But the real significance of Steinbrück's remarks was that he was trashing the two major vote-getters who successfully ran on anti-austerity platforms. The Italian Democratic Party (PD) of Pier Luigi Bersani that headed the largest coalition vote-getter in Italy's election is the official sister party of the SPD. And, like Steinbrück, Bersani's party supports Merkel's austerity policies. As Münchau says of Steinbrück, he fails to recognize that "das eigentliche Problem nicht Grillo oder Berlusconi sind, sondern seine politische Gegnerin" ("the real problem isn't Grillo or Berlusconi but rather his political opponent," Angela Merkel and his disastrous economic policies.
What we have in Europe is an astonishing failure of leadership, comparable to that of the Obama Administration and the mob of feral children (to steal a phrase from Charlie Pierce) that we know as the Republican Party in Congress. As Mark Mazower writes in Italy exposes wider crisis of democracy Financial Times 02/28/2013:
The turmoil produced by the Italian elections has directed attention back to where it should have been all along – to the politics of the eurozone crisis. We have had six months of complacency, rising stock markets and wishful thinking. The conventional wisdom was that the crisis had been contained, with Ireland recovering and the risk of a Greek exit from the eurozone reduced. But this view always ignored the politics.The fact that political elites that have been acting irresponsibly are discrediting themselves is a good thing in itself. But, as in the situation pro-democracy activists in Egypt faced when the Muslim Brotherhood turned out to be the main immediate party beneficiary of the democracy movement there, the rejection of discredited elites doesn't always lead to a happy outcome. As Mazower puts it:
Greece, in particular, showed that even if capital flows might be going in the right direction, the democratic deficit was widening. No one has much cared outside Greece that a neo-Nazi party could shoot to above 10 per cent in the polls. But it is a warning of what can happen to other eurozone members.
The result is dangerous. It is but a short step from writing off the political class to writing off the institutions of democracy. So far most voters have not done this in either Italy or Greece. But some have and the temptation is there for more to do so, whether by drifting towards the far right, towards an anti-capitalism that is the prisoner of its own revolutionary rhetoric, or towards a kind of anarchic alternative to party politics – the direct democracy espoused by Beppe Grillo’s Five Star Movement in Italy.Former German Foreign Minister Joschka Fischer, who has spent some time in his life thinking and studying about revolutions, writes, "All of us tend to make the same mistake repeatedly: we think at the beginning of a revolution that freedom and justice have prevailed over dictatorship and cruelty. But history teaches us that what follows is usually nothing good." (The Arab Revolutions' Reality Check Project Syndicate 02/27/2013) His German version is perhaps a marginally less pessimistic generalization: "Es ist ein immer wiederkehrender Irrtum, dass Revolutionen zu ihrem Beginn als ein Sieg von Freiheit und Gerechtigkeit missverstanden werden, da sie die alte, als ungerecht empfundene Herrschaft, ja Diktatur des alten Regimes umstürzen. Nur was kommt dann? In der Regel nichts Gutes, wie uns die Geschichte lehrt."
The response from Brussels and the creditor north to all this has been robotically unimaginative – to insist that the debtors, like the little fish in Finding Nemo, must just keep on going. And so they may – for a while. It is possible that southern Europe will give the Germans until the autumn to come around to a new approach. But toleration for austerity is unlikely to last much beyond then.
Tags: angela merkel, austerity economics, eu, euro, european union, italy