Italian stockmarkets slumped yesterday on the news that Silvio Berlusconi's party had withdrawn its support from the country's governing coalition, prompting the resignation of stand-in PM Mario Monti and early elections next year. Berlusconi has pledged to stand for a fourth term in office.
In a small way this is a good thing.
Why? A year or so ago I wrote a post suggesting that Greece would probably be out of the Eurozone by the end of 2012. I was wrong. A large debt write down following by billions in the way of EZ hand outs has contrived to keep Greece in the game. I underestimated the ruthlessness and resourcefulness of EZ leaders. Of course this has only been possible because draconian austerity policies have been forced on ordinary Greeks (and not just the Greeks - the Portuguese and Spanish too).
Although there have been riots and protests, no EZ country has a major political party with a policy of withdrawal from the Eurozone. Even the Greek Anti-Austerity party doesn't want to withdraw. It's easy to understand why this should be. The current generation of European leaders have been brought up on the idea of European integration. It was in their mothers' milk. They're not going to turn round and admit that the Euro has been a gigantic mistake.
And so the Eurozone slips backwards towards recession, as the deficit countries (just about everyone) tighten their belts and the surplus countries (mostly Germany) look smug and refuse to spend any more.
If it's very difficult to see how this will play out, it's also very hard to see it ending anything other than badly. Growth is going to be in short supply in Europe generally; economies that aren't growing will struggle to reduce their deficits; as economies shrink the pressure applied to the populations will grow and grow. How long will people put up with it? And what will happen when they've had enough? In the mainstream parties there is a vacuum of leadership tailor-made for the extreme Right.
That's why Silvio Berlusconi's assertion that Sgr Monti's policies have dragged Italy "to the edge of the abyss" strikes a chord. It's not that Berlusconi has explicitly called for Italy's exit from the Euro. He hasn't. But any EZ leader willing to stand up and say, "Hang on, this isn't working" is swimming refreshingly against the tide. Hold your nose. Viva Berlusconi.
