What does the election in Italy tell us about the impact of failed austerity policies on the political and economic stability of Europe?:
Austerity, Italian Style, by Paul Krugman, Commentary, NY Times: Two months ago, when Mario Monti stepped down as Italy’s prime minister, The Economist opined that “The coming election campaign will be, above all, a test of the maturity and realism of Italian voters.” The mature, realistic action, presumably, would have been to return Mr. Monti — who was essentially imposed on Italy by its creditors — to office, this time with an actual democratic mandate.
Well, it’s not looking good. Mr. Monti’s party appears likely to come in fourth; not only is he running well behind the essentially comical Silvio Berlusconi, he’s running behind an actual comedian, Beppe Grillo, whose lack of a coherent platform hasn’t stopped him from becoming a powerful political force.
It’s an extraordinary prospect... But without trying to defend the politics of bunga bunga, let me ask the obvious question: What good, exactly, has what currently passes for mature realism done in Italy or for that matter Europe as a whole?
For Mr. Monti was, in effect, the proconsul installed by Germany to enforce fiscal austerity on an already ailing economy... This would be fine if austerity policies actually worked — but they don’t. And far from seeming either mature or realistic, the advocates of austerity are sounding increasingly petulant and delusional..., austerity hasn’t even achieved the minimal goal of reducing debt burdens. And because austerity policies haven’t been offset by expansionary policies elsewhere, the European economy as a whole ... is back in recession...
Given all of this, one might have expected some reconsideration and soul-searching on the part of European officials, some hints of flexibility. Instead, however, top officials have become even more insistent that austerity is the one true path. ...
Which brings me back to Italy, a nation that for all its dysfunction has in fact dutifully imposed substantial austerity — and seen its economy shrink rapidly as a result.
Outside observers are terrified about Italy’s election, and rightly so: even if the nightmare of a Berlusconi return to power fails to materialize, a strong showing by Mr. Berlusconi, Mr. Grillo, or both would destabilize not just Italy but Europe as a whole. But remember, Italy isn’t unique: disreputable politicians are on the rise all across Southern Europe. And the reason this is happening is that respectable Europeans won’t admit that the policies they have imposed on debtors are a disastrous failure. If that doesn’t change, the Italian election will be just a foretaste of the dangerous radicalization to come.