No parliament, no government, no president of the republic. And now not even a pope. The situation in Italy resembles a house of cards in a perfect storm.
It’s not just a matter of politicians, scenarios and furniture flying all over the place until the storm subsides. The problem is deeper than that. The new Italian Parliament has three minorities that are unable to form a majority. It is a power game in which Pier Luigi Bersani, the electoral winner, is the political loser, and the electoral losers, former Prime Minister Silvio Berlusconi and ex-comic Beppe Grillo, are the political winners.
Consider this. Almost half of those Italians who cast their ballots for one of the traditional parties switched their vote this time. You think Americans are fed up with Congress? In Italy, trust in the government stands at 5 percent, and trust in Parliament at 8 percent. The rate of abstentions is high. The party holding the majority of seats in the Chamber of Deputies -- 54 percent, as required by law -- won the support of just 20 percent of the electorate.
On top of all this, the timeline to form a new government is tight. The Parliament convenes for the first time March 15. Amid all the confusion, the parties must agree within 10 days on the leaders of the Chamber of Deputies and the Senate. Then they have to nominate a prime minister, who must form a government and take an oath in front of the president of the republic. All this before April 15, when the Parliament meets to elect a new president of the republic.
So I can sympathize with those who despair and say Italy has chosen nihilism, or who say, in effect, that Italians voted against everything -- including Europe and austerity, which they had come to believe in before the debt crisis. I understand why people are saying Italy could bring down the whole euro project. But I disagree with them.
Italians remain pro-European, and fewer people than you would suppose are seriously thinking of relinquishing either the euro or the economic-policy commitments that come with it.
Discontent is focused, above all, on taxes. They are among the highest in the euro area. Taxes on business are the highest of any euro member, and they are severely hurting a weakened economy. Italians see excessive taxes mainly as the consequence of bad political management. It’s not that they object to Europe and austerity. Rather, they are angry about the tax increases introduced under the banner of Europe and austerity.
If austerity means fiscal discipline, Italians actually want more of it. This is why New York Times columnist Paul Krugman is wrong to say Italians shunned an intelligent and credible man such as Prime Minister Mario Monti because he was “the proconsul installed by Germany to enforce fiscal austerity on an already ailing economy.”
In Italy’s case, however, the argument about fiscal stimulus just misses the point. A bigger budget deficit wouldn’t do much to stimulate demand, because the real problem is the breakdown in Italy’s supply of credit. From the beginning of the euro crisis three years ago, Italy has seen a faster shrinkage in total credit supply than most euro-area countries, as foreign banks have repatriated their loans. This widespread lack of credit has crushed the private economy. Businesses and households can’t get loans and are cutting investments and consumption at an unprecedented rate.
Reviving the market for credit is the first job. This would be far more effective than delivering a new fiscal stimulus. In fact, continued budget discipline is vital in ending the credit crunch. The new government must negotiate a deal with the European Union and with the European Central Bank, so that the ECB can support the Italian banks. But this can’t happen unless the ECB is sure that it has a reliable partner in the Italian state and that Italy will remain as fiscally stable as possible.
Italians understand this, and so the political crisis may be a little easier to resolve than many think. Under the pressure of markets, Italian parties are likely to close ranks behind another technical prime minister, just as they did in November 2011 behind Monti. They will nominate someone familiar with financial issues -- some high official at the Bank of Italy, or maybe even Monti himself. They will call it an “institutional government” and ask it to make the political system more honest and functional, reining in the anger and recrimination of the citizens.
It’s a strange way to run a country -- but don’t write off Italy.