When comedy turns into tragedy

Italian electoral results were funny to me at first. I was entertained by the fact that  25% of Italians voted for an actual comedian lacking a serious political program, thus fully emphasizing the absurdity of the Italian political system. Usually these types of ridicule parties such as Mr Beppe Grillo's don't get more than a few percentage points of the total vote. They participate in public debates, make a few people laugh, but no one really takes them seriously. This time they did (ironic, isn't it?). To analyze the reasons of their electoral success would be beyond the point of the text and the blog itself (there is a variety of potential factors that can explain this, some also mention the frustration of young people expressing their anger against the political elites). 
I at first considered the results as a clear signal Italians sent to their vastly corrupt political elites incapable (and unwilling) of tackling corruption, special interests, the judicial system and the inefficient public sector.

However, then I realized that Berlusconi's coalition got even more votes than Grillo's Five Star Movement, and only slightly less than Bresani's coalition, thus once again enabling him to become a recognizable political force in Italy. It stopped being funny then. And it all turned into a potentially dangerous gridlock further crippling the country from continuing it's fragile recovery. 
Source: The Spectator
The reaction of the markets was swift both across Europe and on Wall Street (calling it the "worse possible outcome"), thus again stressing out the importance political will can have in solving or further extending the crisis, and how sensitive markets get on electoral results. This is both good an bad for the same reason - we still depend on politicians initiating the institutional reforms that will resolve the countries' accumulated systemic instabilities.

It's a shame for Italy to find itself in such a pickle just after things started to improve (at least on the bond markets). While Spain and Greece were falling deeper and deeper, Italy was seemingly offering hope that reforms would work. Even though they were incomplete they did work and started giving hope that Italy will pull itself out of the recession and initiate a new growth model sometime before the end of this decade. However, the voters obviously weren't prepared for this. As the Economist's Leading article said, just like in France last year, Italians ran away from reforms, and are following the path of economic and political decline that has characterized Japan in the past two decades. 

The electoral gridlock has other important consequences:
"In the meantime, the worry is of no progress with the reforms that are desperately needed to restore vitality to an asphyxiated economy. To do nothing, as Italy’s voters seem to wish, is not the answer to the country’s problems. Italian GDP per head has actually shrunk during the euro’s first 13 years of existence. This performance has little to do with a lack of demand caused by excessive fiscal austerity, as some euro critics loudly claim. It has everything to do with year after year of steadily rising labour costs and falling productivity, which have undermined Italian competitiveness and exports. If Italy’s government cannot regain lost competitiveness and reignite growth through greater liberalisation of its labour and product markets and reforms to the country’s legal and welfare systems, the economy will suffer, and youth unemployment will climb even higher than today’s 36%."
It is obvious that this is not a good solution. It's far from being sustainable and the longer Italy will choose to take this path, the longer will it take for them to achieve any kind of robust economic growth. But since Italy is not an isolated country (on the contrary, it's the third largest economy in the Eurozone), this draws serious implication to the rest of Europe. The Economist predicted a gloomy outlook for the Eurozone as a whole, where more and more electoral results are rejecting the current austerity plans
"But without growth, Italy will not be able to service its debts. The possible pattern is clear: a series of crisis meetings, a few half-hearted efforts at reform to buy off Germany’s Angela Merkel, not enough growth, too much austerity, and then another crisis. The euro survives, but at immense economic cost. The euro zone becomes Japan."
However, it's not that there are no positive examples out there. But in order to emulate them, political will is crucial. Which brings us back at the start.


  1. I thought that this was one of the best features of the parliamentary system. Now a coalition will have to be formed and divergent views will have to be considered. If this amounts to only a little being accomplished then that is a blessing for the Italians.

    Contrast that with we poor Americans. We have one party win by just a few votes and they can do whatever they want. Including a lot of bad things.

    1. That is true, but what happens if you constantly reach political deadlocks? The European Parliamentary system can sometimes be very inefficient.
      Btw, have a look at this Persson, Roland and Tabelini paper on Electoral rules and government spending in parliamentary democracies. They conclude of higher levels of government spending in democracies with proportional representation (the European voting system with lots of coalitions) than in a majoritarian system. The reason is simply that when you have coalitions than the stronger party must abide to satisfying the interests of other coalition parties, thereby necessarily increasing government spending towards those particular groups. This in effect could trigger higher misappropriation of budget funds as well.


Post a Comment

Popular posts from this blog

Short-selling explained (case study: movie "Trading Places")

Rent-seeking explained: Removing barriers to entry in the taxi market

Economic history: mercantilism and international trade

Graphs (images) of the week: Separated by a border