Fears that deadlock will lengthen Italy’s two year recession and spill over into the rest of the eurozone hit markets across Europe
Italians have rejected spending cuts and tax rises and have opened up the possibility of chaos in the Eurozone. After three years of German led austerity measures aimed at saving the Eurozone the Italians have spoken by voting against the current Prime Minister, Mario Monti. This rejection of austerity highlights the possibility of the reemergence of the euro crisis after six months of relative stability. Despite the overwhelming verdict on the rejection of austerity measures, Brussels and Berlin insisted the austerity program had to be continued in Italy. France and others have seized on the Italian outcome for their own purposes, arguing for a relaxation of spending cuts and greater emphasis on policies to boost growth and job creation. The Italian stalemate comes at the same time as on-going tough negotiations for a Cyprus bailout continue. This bailout is being resisted by Germany, mainly over money laundering allegations. There are also increased worries over the French economy, an unresolved debt crisis in Spain and David Cameron’s decision to question the UK’s role in Europe. All of these factors combine to make this a very difficult time in which to take any decisions over the future of the EU. The European Commission echoed the calls for sticking with the austerity measures. Italy has the highest debt level in the Eurozone after Greece, although its budget deficit is in better shape than many other EU members such as France or the Netherlands. Spain, in the meantime, waits anxiously to see what impact the Italian leap in the dark would have on its debt crisis. ‘ This is a jump to nowhere that does not bode well either for Italy or for Europe’ said the foreign minister, Jose Manuel Garcia-Margallo, adding he was ‘extremely concerned’ about the effect on Spain’s borrowing costs. Both Berlusconi and Grillo have been harshly critical of the Germans, decried Monti’s austerity packages, and have raised questions as to whether Italy, the Eurozone’s third biggest economy, should remain in the single currency. Grillo has called for a referendum on the matter. Berlusconi accused the German government and the European Central Bank of conspiring to push up the cost of Italian borrowing in 2011 in order to topple Berlusconi and bring in Monti, the technocratic darling of the Eurozone elite. The turmoil saw Italian bond yields also jump, indicating that any new government will be forced to pay a higher interest rate on its debts.