EU struggles to make sense of Italy’s election

Parties arguing against a continuation of spending cuts won 57% of the vote.

In the wake of Italy’s general election, the European Union is facing calls to re-examine its demands for austerity in public finances.

The election results in Italy are being interpreted on both left and right as a rejection of the spending cuts and economic reforms pursued by Mario Monti, the former European commissioner, who was installed as caretaker prime minister in November 2011.

Parties arguing against a continuation of spending cuts won 57% of the vote in the election.

The election produced a political stalemate that has spooked the financial markets, weakening the euro and increasing the cost of eurozone borrowing.

Beppe Grillo, the leader of the anti-establishment Five Star Movement that won 25% of the votes for the lower house, yesterday (27 February) ruled out entering into a coalition with Pier Luigi Bersani, the leader of the centre-left Democratic Party, which won most votes in elections to both houses of parliament but not enough for a majority in the upper house. He also ruled out a deal with the centre-right led by Silvio Berlusconi.

Roberto Gualtieri, a centre-left MEP and member of the Democratic Party’s national leadership council, said that the result was “a signal to the eurozone and to the EU”. “This kind of policy is politically unsustainable,” he said.

Hannes Swoboda, leader of the centre-left group in the European Parliament, called on the EU to “reassess” its position on economic reform. “Harsh austerity and worsening living standards and opportunities for people played a key role in this election and continue to have an impact on people across Europe,” he said.

Guy Verhofstadt, a Belgian MEP and the leader of the Liberal group in the Parliament, said that while fiscal discipline in Italy was “absolutely necessary”, the EU should share some of the blame for what he described as “the competing populisms” of Berlusconi and Grillo, because it had not agreed to take measures to lower the country’s debt burden.

The EU’s leadership appeared to rule out any change of tack. Herman Van Rompuy, the president of the European Council, said on Twitter on Tuesday that there was not “a real alternative to continuing fiscal consolidation and reforms for Italy”, while Guido Westerwelle, the foreign minister of Germany, which has led the EU’s push for austerity-led economic reform, was also unwavering.

The future could depend on whether the EU’s leadership considers the outcome in Italy merely to be a vote against the country’s political system or against the EU’s austerity policies.

“From a European perspective, it all depends on which of the motivations you think is the most important,” said Riccardo Perissich, who has headed the private office of four European commissioners. “If, as I think, the political motivation is the most important, what Europe has to do is to hold its nerve and hope that the situation can stabilise in due time.”

However, he said that Europe had much to worry about if the motivation turned out to be a rejection of “overwhelmingly European policies”.

Andrea Mammone, a lecturer at the University of London, said that Monti, who will be in Brussels today meeting the presidents of the European Commission and European Council, was seen as a “loser” in the eyes of the public and that the EU would in future have to “play a better game when sponsoring a candidate”.

In explicitly or implicitly backing Monti, other national leaders in the EU had misunderstood the mood in Italy, he said.

With the prospects of political deadlock dragging on for months, John Wyles, a European Voice columnist and a former Financial Times correspondent in Italy, said that Italy was “closer to being ungovernable than ever”, something that Nicholas Spiro, managing director of Spiro Sovereign Strategy, which analyses sovereign credit risk, said was the financial markets’ chief concern. “For the markets, it’s not a question of who governs Italy but, rather like Greece, whether it’s governable at all,” Spiro said.

Among increasing signs of market jitters, Italy, the eurozone’s third-biggest economy, sold €6.5 billion in long-term sovereign bonds yesterday, with yields at their highest since October, indicating a rise in borrowing costs. Portuguese and Spanish bond markets were also hit, raising fears that instability might spread.

“We’re not back in the dark days of 2011, but the Italian election result is a reality check,” Spiro said.

He said that the election fall-out was “the biggest threat to the new-found calm” of bond markets since last summer, when the European Central Bank doused the flames with its announcement that it would buy sovereign bonds in unlimited amounts.

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