Brussels, 26/02/2013 (Agence Europe) - The reactions of the money markets and European leaders have flooded in after the general elections in Italy on 24 and 25 February and the prospect of prolonged instability due to the inability to form a government without lengthy horse-trading to ensure continuation of the structural reforms that began 15 months ago when Mario Monti took over as prime minister with the brief of cleaning up the finances of the third-biggest economy in the eurozone.
A centre-left coalition headed by pro-European backer of economic reforms Pierluigi Bersani has won the majority of seats in the Chamber (340 of the total 630 as we went to press), but was beaten in the Senate by the centre-right coalition under Silvio Berlusconi, which is highly critical of the tax reforms introduced by Mario Monti to meet the demands of Europe and the money markets and determined to remove many of them. The true winner seems to be the Cinque Stelle movement of former comedian Beppe Grillo, who took advantage of the anger at the economic recession and increased unemployment and slammed politicians in general in his election campaign, rejecting the austerity measures introduced by Europe and the Monti government. His movement has become the most popular political movement in Italy, with more than 29% of the vote, and says it is determined to oppose any coalition left-right compromise government. Mario Monti's coalition has been relegated to the margins, getting less than 10% of the vote in either chamber - a clear sign of public opinion's rejection of the austerity measures.
The emerging uncertainty has been greeted by a fall on the markets in Europe and a rise in Italian ten-year interest rates to 4.7% along with the spread with German bonds (337 points), having an immediate impact across the eurozone and the wider EU27. The European Commission has tried to calm nerves with a Commission spokesperson expressing support for Italy and confidence in the ability of the future government to introduce the commitments made by Italy and cut its unsustainable debt and deficit. Reacting to criticism of the failure of the austerity policy recommended for Italy by Europe (which has led to increased debt, fewer jobs and lacklustre growth) and the rejection of these policies by the high votes for Beppe Grillo and Berlusconi, the Commission refused to change direction. The spokesperson said the reforms were needed and had to be put in place now because the longer the delay, the higher the price to be paid by Italy, and that, along with austerity, Europe also provided much support, such as finance for young people, the EU Structural Funds and aid for small business and industry.
The president of the European Parliament, Martin Schulz, stressed the dangers of post-election instability, saying a stable government was needed in one of the EU's most important member states. He pointed out that Italy is a member of the G8, the fourth biggest economy in the European Union and one of the pillars of the Eurozone, so what happens in Italy affects everyone else as well. He said the protest by many Italians at measures that had been portrayed in the election campaign as being forced upon Italy by Europe had to be taken very seriously because the blame game puts all successes down to individual governments and all problems down to Brussels, which simply isn't true - but that's how it's seen in public opinion. Hannes Swoboda, head of the S&D Group at the EP, also warned of this danger, saying that the Italian elections were part of a process seen everywhere in Europe with ordinary people expressing disappointment with the austerity measures and despair about the future. He said Italy's top priority was to form a stable government that can bring the country back to economic growth, jobs and decent living conditions in Italy. The head of the ALDE Group at the EP, Guy Verhofstadt, urged Europe's leaders to learn from the Italian polls. He said budget discipline was absolutely essential but must not be the only way of dealing with the crisis. The European Union has to bear a share of responsibility for the election results, said Verhofstadt, because it has failed to respond to the repeated calls for help from Mario Monti to bring down the high interest rates on the huge Italian sovereign debt. A European redemption fund or some form of partial pooling of debt in the eurozone would make a better reduction of the interest rate burden, he said.
In its recent economic forecasts, the European Commission expects the Italian economy to shrink by 1% in 2013 (following a contraction of 2.2% in 2012, see EUROPE 10792). Annual growth is expected to return in 2014, when GDP is expected to rise by 0.8%. Italy is expected to have reduced its public deficit to below 3% last year (to 2.9% in fact) and is expected to continue the process in 2013 (to 2.1%). The Commission says Italy is likely to have returned to a balanced budget in 2012 (not including debt servicing) and urges the Italian authorities to pursue their work of cutting the debt - currently the highest in the eurozone at nearly €2 trillion. (FG/MB/transl.fl)