September 7, 2011
There's a growing tide of opposition to the seemingly endless European bailout. Each time politicians declare the problem solved, another country – this time Italy – goes into crisis. According to Erik Jones, professor of European studies at the John Hopkins School of Advanced International Studies’ Bologna Center, the culmination of these events show that Europe is nearing the brink of disaster.
“We are reaching the point where we’re almost at the ‘screw you’ phase,” Jones said, referring to the attitude of European economic powers toward their fiscally weak counterparts. “Populist politics is going to make it almost impossible to change the frame of the debate that makes people think it’s a good idea.”
Roiling the Markets
In European trading yesterday, Greek borrowing costs reached record highs over concerns that the country would miss its 2011 budget deficit targets and that plans to privatize Greek assets were well behind schedule. Both are a condition of the $154 billion International Monetary Fund/European Union bailout plan, which Athens has been receiving in increments over the last year.
Meanwhile, across the Aegean Sea, three million Italians took to the streets to protest austerity plans being drafted by the government. Prime Minister Silvio Berlusconi’s attempt to put together a political coalition that would back steep cuts in public spending is being undermined by political infighting within his own party. At issue is whether to post all salary information online in an effort to allow citizens to police tax evasion, a job the Italian government has failed at miserably.
While Italians protested, a few hours north in Berlin, German Finance Minister Wolfgang Schaeuble warned that without dramatic action in Italy, Greece and other financially shaken European nations, Germany – the main funder of the European bailout fund – would not continue to contribute. “Without energetic reforms, every form of assistance would be aimless,” Schaeuble said.
Opposition parties in German parliament have held mock votes to warn German Chancellor Angela Merkel that their support of the bailout plan was not assured. Her party lost its fifth regional election this year, this time in Merkel’s home state of Mecklenburg-Western Pomerania. And today, the German constitutional court will rule on the legality of the initial bailout to Greece last year. If it rules the bailout was illegal, it would only add to the growing populist and political anger over the bailout.
These events, combined with similar ones in Finland and France are fueling a crisis that's spiraling out of control.
Shifting to the Extreme Right
Last spring, after months of negotiations, Merkel agreed to a Greek bailout. As the crisis spread, Merkel and other European leaders took small steps that they hoped would calm markets. But nothing has worked and finding a solution has proven elusive.
In what many thought was a last ditch effort, Merkel and French President Nicolas Sarkozy announced a poorly received plan to form a new European economic government. In the weeks following their announcement, the full extent of Italy’s financial problems emerged, and questions about France’s economic health were raised. Concerns about the solvency of European banks persist. Growth in Germany, whose economy had been the one positive indicator in Europe, has ground to a halt.
As a result, the European public has grown increasingly frustrated and angry. In southern Europe, where austerity is needed most, opposition to planned cuts is on the rise. In northern Europe, which is shouldering most of the bailout burden, the public has grown tired of playing savior.
The bailout has spurned a wave of right-wing nationalism. Anders Breivik, the man responsible for the killing of 85 in Oslo, Norway, earlier this summer, held extreme right wing views. In Finland and Sweden, support for right wing political parties, who campaigned against the bailout and the European Union, surged in recent parliamentary elections.
Edging Closer to Disaster
SAIS’ Jones said all of these factors indicate that Europe is nearing a “too big to fail moment,” which would send the European and American economies reeling. The negative repercussions of a country like Italy failing could have catastrophic consequences.
“Populist politics is surrounding the sovereign debt dynamic,” Jones said. “The people who trade sovereign debt are saying governments here have no credibility. Even with the best intentions in the world, events are moving at a pace beyond which politicians can deal. It’s looking like 2008 all over again.”