Friday, 22 February 2013

The Italian election that could sink Europe

Italy’s constant lurching between left and right since WWII had, in the past, become so frequent that few people bothered to pay too much attention to the vagaries of Italian politics. But all that has changed since the advent of the eurozone crisis. All eyes are on the Eurozone's third largest economy this weekend as Italians go to the polls in what could be the most consequential Italian election of the modern republic.

Much of the international media attention has focused on the possibility of a return to power for the country’s notorious former leader Silvio Berlusconi, who was ousted in 2011 by what essentially amounted to an EU putsch. The prospect of a return to power for the now clearly mentally unstable Berlusconi is terrifying to the rest of Europe and would likely result in absolute panic in the Eurozone. But such a scenario is unlikely, even with Berlusconi’s last-minute efforts to try to buy votes by promising tax rebates.

Berlusconi is a man now driven purely by desire for revenge against his EU counterparts who organised his ouster two years ago, and this is clear enough to Italians that even they are unlikely to vote for him in large number. But one never knows with Italy.

There is still a huge degree of uncertainty about the outcome. The front-runner, former Communist Pier Luigi Bersani, has been slipping in the polls. He is the Francois Hollande of Italy – a centre-left Mr. Normal who says he wants to ease the German-driven drive for austerity in Europe.

It is still unclear how Mario Monti, the ‘technocrat’ former EU Commissioner who was put in power after Berlusconi was ousted, will perform. He has had trouble connecting with voters, and his recent assertions that he is the candidate that Germany wants to win were happily embraced by his opponants – both Berlusconi and Bersani have used Germany as the austerity-pushing bogeyman in this campaign.

It is now clear that Monti cannot win, but what Berlin and Brussels are hoping for is a coalition between Bersani and Monti’s parties, with a government headed by Bersani. But the result could be thrown into chaos by a high showing by wild card candidate Beppe Grillo, a comedian who is playing on anti-establishment feeling in the country. He seems to be doing his best 'Italian stereotype' impression in every photo I've seen of him (exhibit A below).

If Grillo polls at more than 20%, it will put him in the position of kingmaker, choosing who will govern based on which party he enters a coalition with. But his price will be high – he is demanding a referendum on the euro and an end to austerity measures. Analysts have warned that such a result would demonstrate a collapse in Italy’s democratic system and would put the country in the same position as Greece.

In fact any result on Monday that isn’t clear could send global markets reeling. Italy is the third largest economy in the eurozone, and it is, as the saying goes, “too big to fail.” If the country descends into political chaos after this election, with no governing coalition able to be reached, we will enter a new phase of the eurozone crisis – after several months of relative calm.

If people in Europe were starting to feel a cautious sense of relief, this weekend’s election could quickly disavow them of their new-found ease.

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