There is a financial monster haunting both Europe and the United States. Its name is austerity. Both Europe and the United States are in frightening financial shape, and both need desperately to balance their books. With the exception of Germany and a few others, neither the will to take the necessary steps to create financial stability is lacking.
President Barack Obama is more interested in creating a European style polity than in seriously cutting our deficit. The problem on both sides of the Atlantic is how to get citizens to willingly accept austerity measures when doing so means the end or reduction of money they receive from the government.
The seriousness of this situation was brought home by the recent election in Italy, which has one of the most dysfunctional political systems in Europe. It is important to understand that Italy’s often chaotic system was set up to prevent another Mussolini from amassing the kind of power he did in the years before World War II. Also with the past in mind, the Italians constructed a political system that makes radical changes difficult.
Italy is not the only country in Europe with financial problems Greece, Spain, Portugal and Ireland also have financial problems: in short, they spend more money than they take in. The primary culprit is social programs (medical care, housing and education). In Ireland, the government has introduced austerity programs, including a 20-percent cut in the budget of the national police. But Ireland is a minor player compared to countries like Greece and Italy. Greece has introduced numerous measures, but watching what is happening in Greece reminds one of the old Soviet worker’s joke, “We pretend to work, and they pretend to pay us.”
With Italy, German Chancellor Angela Merkel has played a key role in shaping European Union policy. She has also made clear that she and her fellow Germans are tired of bailing other countries out of their financial morass.
With regard to Italy’s election, there was hope that Mario Monti, who took over as caretaker president and was beginning to move the country toward a more austere form of government support for a number of programs, would win. Merkel hoped he would be the force behind an increasingly financially stable Italy.
In the runup to the election, Monti said repeatedly that if Italy could make its economy more competitive, taxes could eventually be lowered. Unfortunately, his austerity message was drowned out by politicians who argued against austerity. In the end, Italian voters gave Monti and his civic movement only 10 percent of the vote — enough for fourth place.
There was no clear winner. The comedian Beppe Grillo, who heads the Five Star Party, argued that there was no problem with Italy’s deficit was one of the winners; he won 25 percent of the vote. The left-leaning Democratic Party, led by Pier Luigi Bersani, fell far short of expectations, although it did well in the lower house of Parliament. Silvio Berlusconi, the former prime minister who every one thought was through in Italian politics, received 30 percent of the vote.
There is now three-party gridlock in Italy. The result is likely to be the first hung parliament in modern Italian history. Meanwhile, Italy’s economy continues to deteriorate. Italy’s economy contracted by 2.4 percent last year. Unemployment rose to a record 11.7 percent in January — 39 percent for youths.
The election has had a number of ramifications. First, there is talk of holding another election in the hope that it will produce a clear winner. Also, Italy’s financial markets plummeted and the cost of borrowing increased. For good measure, Grillo said he believes the economy will collapse in six months and that Italy will leave the EU.
The response in the rest of Europe was not positive. As one publication put it, “Italy must know what is at stake.”
One can understand the discontent when citizens see reductions in social programs as well as salaries, educational opportunities and pensions taken from them. In my opinion, the real problem comes when politicians make promises governments cannot keep. Yet expecting a politician whose future depends on the whim of the voters to tell them “No!” does not seem likely.
If Italy’s situation is indicative of the future in southern Europe and elsewhere, all of us face an unpredictable and potentially unstable world.
Dale R. Herspring, a University Distinguished Professor and a member of the Council on Foreign Relations, is a retired U.S. diplomat and Navy captain.