Any doubts that Italians were fed up with tax hikes and economic reform vanished in an election that awarded more than half of the votes to anti-austerity parties.
The question is whether the Italian-style uprising will ripple through the rest of Europe, especially in the countries deep in recession and saddled with high unemployment rates. Many economists, analysts and politicians think it will.
But they also think austerity cannot vanish as quickly as it landed in 2010, when sovereign bond yields surged in the suddenly distressed countries on Europe’s Mediterranean frontier and in Ireland.
“You cannot stop austerity outright because the markets would punish you if you did,” said Charles Wyplosz, the international economics professor at Geneva’s Graduate Institute, who has warned that “mindless austerity” is losing policy credibility.
There was no outright victor in Monday’s general election in Italy. The centre-left coalition took the lower house of parliament by less than 0.5 per cent of the votes, thanks to dazzling showings by former prime minister Silvio Berlusconi and his centre-right coalition and the upstart, anti-establishment Five Star Movement (M5S), led by the ferociously energetic comedian Beppe Grillo.
In the upper house, no coalition or party succeeded in nailing a clear majority even though Mr. Bersani’s group won the greatest number of seats, creating a political knot that will require another election to unravel.
We arrived first but we didn’t win,” he said in Rome Tuesday.
Both Mr. Berlusconi and Mr. Grillo campaigned against German-style austerity and the tax hikes that go with them, and European integration, which they equated with an attack on sovereignty.
Their messages resonated with Italian voters who collectively gave the two parties 55 per cent of the votes.
Gilles Moec, Deutsche Bank economist in London, said that the “harsh truth” is that most Italians embraced the two parties that “expressed doubts about European integration, fiscal reform and fiscal restraint.”
As Italian voters supported the anti-austerity parties, they also punished the centrist, pro-austerity alliance led by Mario Monti, the technocrat prime minister who replaced Mr. Berlusconi at the height of the Italian financial crisis in late 2011. Mr. Monti rolled out a series of tax hikes, including a hated property tax that Mr. Berlusconi vowed to kill, and attempted economic reforms that met with partial success. For that, his alliance got 10 per cent or less of the votes.
Mr. Monti’s near destruction, the remarkable rise of Mr. Grillo, whose party did not exist four years ago, and Mr. Berlusconi’s Lazarus-like rise from the political dead delivered a clear message that was not lost on Mr. Bersani’s coaltion. Speaking late Monday, after the polls had closed, Enrico Letta, vice-secretary of Mr. Bersani’s Democratic Party (PD), said one of the big election themes was an “electorate in rebellion against the cost of austerity.”
Mr. Wyplosz, the economics professor, always thought the deep austerity championed by German Chancellor Angela Merkel would backfire. A year ago he warned that “citizens rightly felt sacrifices do not deliver the promised results.” Indeed, the countries that took the strongest austerity measures – Greece, Italy and Spain – sank deeper into recession while their jobless rates soared.
He also noted investors cherished a double-win that was practically impossible: Fiscal discipline and growth. “The time to fix the fiscal discipline problem is not in the middle of a deep recession,” he said.
He thinks the success of Mr. Berlusconi and Mr. Grillo will inspire similar popular, anti-austerity uprisings in other countries, though the Greek anti-austerity movement has been vigorous, and often violent, for more than a year. “In countries with deep recessions, you get populist parties rising” he said. “Grillo will be an inspiration.”
Lesser uprisings are already in place. Last year, Francois Hollande won the French presidency partly because thought the austerity endorsed by his predecessor, Nicholas Sarkozy, had gone too far. He wanted austerity-lite. In Spain and Portugal mass anti-austerity protests and strikes crippled their main cities. In Spain, the region of Catalonia, weary of the financial clampdown imposed by Madrid, vowed to hold a referendum on secession.
But Mr. Wyplosz and others do not think austerity will be rolled back quickly anywhere in Europe, including Italy. Any government thinking of a killing austerity would be scared by the near panic in the Italian debt markets on Tuesday as investors feared that the political deadlock, combined with the rise of the anti-austerity parties, moved the country one step close to a bailout. The yields on 10-year bonds climbed 0.41 percentage points to 4.9 per cent.
Marshall Auerback, a director at New York’s Institute for New Economic Thinking, said Italy’s austerity programs, which include public sector wage freeze and massive spending cuts, are in place and “cannot be stopped.”
To kill or dilute programs, Italy would need a new government, new legislation and a new budget, none of which will happen soon, given the political gridlock. It could take a year before a new, stable government is put in place. Still, the rise of Mr. Berlusconi and Mr. Grillo likely means that the era of deep austerity is coming to an end, if not quite yet.