The old elite of European politics continues to self-implode (which may be no bad thing), as the Euro-crises blunders its way into November. I have not written about any of this before because, quite honestly, it’s boring and I don’t really understand it anyway. But when pressure from the EU fells two national leaders in a week, I have to say something, don’t I?
Let’s deal with Greece quickly – everyone knows the deal here; we’ve been hearing about it for months. But in case you’ve just returned from the Amazon rain forest: Greece has run out of money with which to pay its vast debts because the tax system is appalling and interest rates are sky high. Therefore, to prevent a nasty default that could bring down the Euro (maybe), the Euro-zone has been bailing the country out with sums of money that neither they nor we understand. Simple? No, the Euro-zone has taken this opportunity to force Greece to reform fiscally. The problem is that the Greeks don’t want to reform in the ways that they are being told to, so every loan deal takes an age to agree and then does not work. Great. By mid-October, however, we thought we’d had a breakthrough. A package of measures was agreed at the Euro-zone summit in Cannes that looked like it could finally save Greece and protect the Euro. Phew – even the markets (whoever they are, no one really knows) relaxed. And then, all hell broke loose. The then-Prime Minister of Greece, George Papandreou, called a referendum on whether or not to adopt the measures. Stunned silence resonated.
This little surprise may not have been as crazy as it appeared. The Greek people had been protesting all summer about EU-enforced austerity measures and Mr Papandreou must have known that harsher ones were not going to go down well. By asking the people to go to the polls, he was also making them accept what had to be done. This would have made the implementation of the measures much easier. But the Euro-zone and the markets did not see it that way. Panic resumed and reached such a pitch that Mr Papandreou had to cancel his referendum and not long after, having lost all credibility, resign his post. Over this weekend, the Greeks have been working to form a coalition government to help stabilise the country. During this palaver, the Euro-zone finally realised that a default, although by no means favourable, would not constitute Armageddon. Maybe this political mess had a silver lining after all?
When it began to be clear that Mr Papandreou would go and the austerity measures passed, the attention of the elusive market turned to Italy. Italy is bigger, more important to the Euro and more politically central to the EU than Greece – and therefore matters more. Italy could not default without bringing down the entire Euro (Angela Merkel also helpfully announced that a collapse of the single currency would soon lead to a European war, which was not really a necessary – or true – statement if you ask me). As panic spread across the Adriatic, Italy’s bond yields crossed the 7% threshold that had marked the beginning of bailouts for Ireland, Portugal and Greece. The problem, however, is that Italy is too big to be bailed out. There is not enough money. Full stop. And therefore Italy’s only option is to shrink its debts, or at least bring down its interest payments.
That is what Silvio Berlusconi, the Italian Prime Minister, tried to do. He tried again to get his Parliament to pass austerity measures, obviously smelling his own blood. When rumours circulated that he was going to resign, the yeilds on Italien bonds fell, such was the global view of Mr Berlusconi’s leadership abilities. He clung on for a while until Thursday, when he tendered his conditional resignation to the President Giorgio Napolitano. This may, in fact, have been the best thing he ever did; Parliament was so desperate to get rid of him that they complied with his conditions and passed the austerity measures in record time. What a relief. Only now, there was some uncertainty over whether Berlusconi would actually go.
But go he did. Last night he headed to the Presidential Palace in Rome and formally resigned. The Berlusconi era, so often characterised by sex and sleaze, is over. Italians will be partying tonight.