The Eurozone crisis may deepen as a direct consequence of the Berlusconi effect
While down, Silvio Berlusconi was never really out. Although Italy’s ex-prime minister gave retirement some consideration, at the end of the day, he realized that the only real option for him was to bounce back onto Italy’s political scene and this he has done in spectacular fashion.
Berlusconi’s comeback has not been welcomed. Italy’s financial markets have gone into freefall – down over 3.4% at the time of writing, as investor confidence drains away.
The Italian bond German bund spread, which was on the verge of falling beneath 300 points, has surged to stand at well over 350 points - so far today, and it is not even lunchtime.
Over the last year, Mario Monti had managed to begin the process of rebuilding Italy’s credibility. It’s looks as if Monti’s work is likely to be undone virtually overnight. Others, such as the EU, IMF, OECD, and ECB fear this might be the case too. For them, Silvio Berlusconi is synonymous with instability. The reaction of Italy’s financial markets and the growth in the spread seems to be some justification for their worries.
Last year, Silvio Berlusconi was making a pigs ear of trying to sort out Italy’s flagging economy. He and his party had been dithering over the introduction of an austerity package requested by Europe, so Mario Monti was brought in to do the job Berlusconi and his increasingly unstable government were unable to do.
It is no secret that Monti’s implementation of the austerity measures Berlusconi should have introduced has caused considerable pain for Italians.
Had Berlusconi and his government done their job in the first place, Monti’s austerity medicine may not have been so painful. Up until a few weeks ago, Berlusconi supported the efforts of Monti. Then, suddenly, possibly because Berlusconi’s legal woes are coming to a head, Berlusconi decided to make his move – saying that Monti’s measures had taken Italy to the edge of an abyss – the same abyss Berlusconi had brought Italy to the edge of prior to his replacement.
Ironically, Berlusconi claimed that he had given Monti a chance to repair Italy, but Monti had failed. Whether Italians will recall that Italy had been damaged in the first place by the inept mismanagement of legally entangled Berlusconi and his party will only become evident in elections which may be held in mid February 2013.
Towards the end of last week, the Berlusconi camp withdrew most of its support from Mario Monti’s technocrat government, ostensibly because one of Monti’s ministers had criticized Silvio Berlusconi.
It is suspected Berlusconi merely wanted to fire warning shots over Monti’s bow and prepare the ground for the return of his party to front-line politics in Italy. The warning shots scored an unexpected direct hit and Mario Monti announced he would tie up a few lose ends and leave. That Mario Monti is to go sooner than expected is not a problem in Berlsconi’s eyes.
According to Berlusconi, he had tried to find a worthy successor, but had failed and this coupled with encouragement from his own people forced him to make his move. Prior to the assault on Monti, Berlusconi’s PdL party had been falling apart at the seams, or so when reports in Italy’s press.
The assault on Monti does appear to a reunited Berlusconi’s PdL party, at least outwardly.
Could Berlusconi win elections? That is a very good question, and people, Italians and others such as the Economist’s Charlemagne, seem to be divided on this. Some think Berlusconi is history, others are not so sure.
One of Berlusconi’s skills is his ability to understand and then target the desires of Italy’s people. Whether the old and unfulfilled promises of tax cuts will be believed this time round remains to be seen.
Back to the Past
Around this time last year, there were serious worries one of Europe’s largest economies would need a bailout, the cost of which may have led to the collapse of the Eurozone, if not Europe.
Mario Monti calmed the storm and worries, while they did not go away, diminished. Now though, it is looking as if Italy may end up back in a repeat of the storm which blew up last year – and all because Silvio Berlusconi has decided to make his play. Europe is still unhealthy. The Berlusconi comeback effect might cause the illness to worsen.
That Berlusconi would return and upset the apple-cart had always been a risk, although some assumed the disgraced former Italian prime minister was a spent force. It is easy to underestimate the insanity of Italian politics. Assuming Italy is a normal nation with responsible politicians is a major error.
The misjudgment may have serious consequences for not only Europe, but also the world.
What can be done? First of all, stability needs to be restored to Italy as this will help restore confidence. How could this be achieved? Well, first things first, how about locking up Silvio Berlusconi? With him out of the way, elections could be held without fear of self-interest driven interference.