The Italians are angry. Being in the Euro means big cuts in public spending to get their budget deficit down and keep it down. It means cuts in pay and spending power across the board, as they suffer an “internal devaluation” to make themselves more competitive again. The election results were a cry of anguish about the impact all this is having on families and living standards.
The pay cuts are correcting the balance of payments. People can afford fewer imports, cutting the deficit on trade account. The Italian budget deficit is under better control than many. The worry the establishment shares in Italy is the need to refinance a very large debt inherited from former governments and decades. The establishment parties and personnel in the Italian government are keen to keep the squeeze on so the markets will not take fright at future borrowing requirements. The EU establishment is even keener, as the last thing they want is Italy to need special loans and support from the rest of the Eurozeone.
Mr Monti was parachuted in as Prime Minister by the EU although he had not been elected. He replaced Mr Berlusconi, who was making Eurosceptic noises and beginning to represent the dislike of EU austerity policies felt by many voters. Mr Monti calmed the markets and started to make some progress. Soon he discovered that without his own party and his own MPs in parliament he not get much done. They decided on an election.
The European establishment threw its weight behind the centre left mainstream party, expecting them to win easily. They hoped Mr Monti too would poll well, and be able to assist the new centre left government. Instead Mr Berlusconi, mildly Eurosceptic, and the 5 Star party of Mr Grillo polled more than half the votes. Mr Grillo campaigned against politicians, and in favour of a referendum on withdrawal from the Euro.
The political establishment sees this as irresponsible and damaging behaviour by the voters of Italy. It is surely predictable? If people feel their living standards have been pushed down too much, and are offered no immediate hope of a better tomorrow, they are quite likely to complain and refuse office to those who have been the architects of the single currency led policy. Mr Monti’s desultory showing in the elections demonstrates just what a huge chasm there is between the political establishment in Euroland and the voters.
Markets and commentators are shaking their heads in disbelief. They are telling the Italian people they just have to knuckle down and do as the EU and Euro authorities say. The public may not have an immediate and better answer, but is not surprising they are demanding that their politicians find one. Permament austerity, locked into the single currency, is not palatable to many voters.