Europe Again – More Dysfunction in Both UK and Italy

There are signs again that Europe is off track with both the anti-European stance by Prime Minister David Cameron and his Euro-skeptics and the politics in a number of member states, not least in Italy, the third largest economy in Europe. But, Italy is not unique unfortunately.

Cameron’s foolishness has already been covered in a couple of our blog posts, and is especially sad since Britain could play a positive role if it could change its leadership’s narrow perspective, its anti-European stand and if it could seek real common solutions and not just protect its financial “City” institution’s desire to enrich their management, but not the nation. 

The political uncertainty in Italy has reverberations throughout Europe, with no clear winner emerging from the Italian elections.  None of the political parties have secured a majority in either houses of parliament. Pier Luigi Bersani’s center-left Democratic Party gained a majority in the Chamber of Deputies, but he was behind former Prime Minister Silvio Berlusconi’s right-wing faction in the Senate. But, the comedian, Beppe Grillo’s Five Star Movement will be strongly represented in both houses of parliament. Prime Minister Mario Monti’s centrist party garnered only 10% of the vote, and an alliance between his party and Mr. Bersani’s Democratic Party would not be enough to gain a majority in the Senate. Further, there is deep division between Mr. Berlusconi and Mr. Grillon on anti-austerity policies. Thus, uncertainty about Italy’s direction remains. .

The deadlock is causing vexation throughout Europe. German Foreign Minister Guido Westerwelle said recently, “What is crucial now is that a stable functioning government can be built as swiftly as possible. This is not only in the interests of Italy but in the interests of all Europe.” Yet, Germany is at the forefront of the problem with its insistence on harsh austerity already proven a disaster throughout Europe. 

Other leaders in Europe are also expressing concern, but not taking the lead in a reversal of austerity, and are not acting to stem the move to radical largely right parties with anti-European nationalistic and bigoted agendas. The financial market’s reaction to the incertitude caused by the election appears to be reacting to a sense of downward and irresponsible politics and a lack of direction. Italian shares recently lost some 5% of their value. The yields on Italian ten-year bonds increased strongly. The Euro also dropped against the dollar and stock markets fell in France and Germany. But, we are likely to see wide swings depending on the news of the day without any sense of a firm future outcome.

We are not immune in America from these tribulations and dysfunctions in Europe. Europe’s collective move toward deep and thoughtless austerity policies have brought much of Europe to its knees economically, and despite the disaster these policies have brought upon the people of Europe, there is no clear sign yet that European leaders have learned any lessons.

But, Americans have no room to be smug. Our own dysfunction seems even more of a worldwide disaster given the global impact in terms of security, economy and international governance that the U.S. has. Together, these two groupings in Europe and North America represent about half of the globe’s economy and much of its scientific and technological talent. 

Further, there are signs that the worse, not better, may lie ahead, unless our collective politics gets better, both at the national, regional and super-national levels. On the latter, I hope that Secretary Kerry and the new incoming Secretary of the Treasury, along with President Obama will put back on the top of our agenda the healing of our economies, will put in place jointly growth strategies and programs, and as part of this, proceed with the idea of a Trans-Atlantic trade pact. But, they need to also act on reigning in the excesses of our private financial institutions, which seem determined to go back to their old greedy irresponsible ways of not investing in the “real economy,” but again in destructive “paper transactions,” which undermine a sound fair economy that creates jobs and not just riches for the very few.

 

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Europe Still in Distress, Disarray Despite Changes in Governments

Posted from London – Coming to Europe one gets the impression that for all the reshuffling of heads of government and promises from other key heads of governments to solve the economic crisis, Europe remains in disarray and the future remains uncertain.  Markets plunged, Italian and Spanish bonds’ interest rates rose to historic levels, and there is no consensus amongst the Euro zone governments on a long-term systemic solution. Indeed their policies seem designed to depress their economies and exacerbate recovery.

Among the many uncertainties is whether the new Greek and Italiangovernments will be permitted to carry out the needed reforms in such a way that they do not lead to further depression of their economies. Things do not look good at the moment. Our TV screen was showing a pompous Berlusconi after his fall indicating that he would stay in politics, implying he may come back.  Just what Europe needs at this moment of deep crisis for his nation. At the heart of the European economic crisis is the total inability of the governments to recognize that austerity policies are counterproductive to solving both the debt problem and fixing the ever higher unemployment and stagnant growth.

German Chancellor Angela Merkel’s odd stance has been to both stand against giving the power to the European Central Bank to act as a lender of last resort to governments in distress, while at the same time she called for Europe to build a stronger “political union” to support the Euro. Confusion over German intentions thus remains.  In the end, much of the blame or much of the praise will rest with Merkel and Germany depending on whether the crisis is solved or Europe falls into even greater disarray as it continues its policies of austerity.

Likewise for France’s President Nicolas Sarkozy, whose poll standing has plummeted.  Like other nations, France faces serious debt and growth problems itself and seems for the moment immobilized by the political forces within the French society and government and anger both from the right and the left.  The French economy just grew in the third quarter at the annual rate of 0.4%, while Germany the so-called “strong economy” grew at just 0.5% and the whole Euro zone grew at just 0.2%.  So much for the results of “slash and cut” as a conservative policy for growth.

Prime Minister Cameron in his speech at the City of London’s Lord Mayor’s Banquet, focused on foreign policy especially the economic/financial crisis including the EURO Zone debt issue. The problem with the speech is the lack of acknowledgment of how disastrous his own austerity policy has been for Great Britain and especially for the middle class and the poor. The background of his speech was not pretty, either at home or in Europe.

Cameron tried to separate himself from the generation of UK leaders before him of the post WWII generation; his youth influence was in the post 1989 fall of the Iron Curtain.  His focus seemed narrow, with self-serving generalizations, and it showed no recognition of the crisis being experienced by his people. He made disparaging remarks about the EU while saying the UK would not withdraw from the EU and wanted to influence it by withdrawing some of its powers.  Confusing and unconstructive would be a fair assessment.

As noted, coincidently, at about the time of his speech in the City (London’s “Wall Street”) two government leaders, Cameron and Bloomberg of New York representing the rich, used police force to remove protesters of the “Occupy Wall Street” and “Occupy the City” (outside of St. Paul’s), showing again that the 1% are having their way, and that free speech and the protests of the 99% are being trampled on. None of this will solve the fundamental problems of either side of the Atlantic. As economic conditions get worse one wonders what the impact will be and whether people will feel even stronger that their voice is not being heard.

The resulting instability, loss of productivity, and ever higher unemployment will undermine the capacity of Europe and America to act effectively to deal with the host of challenges we jointly face in an increasingly dangerous and risky world.

More on these events and trends and their implications in the coming days. We welcome your comments.

By Harry C. Blaney III.