Italian voters are revolting

In yesterday’s elections in Italy, ‘voters defied a failing policy and a clapped-out political establishment‘, resulting in an indecisive outcome. Here is more evidence in the Eurozone of what the late Peter Mair called the conflict between ‘responsible’ and ‘responsive’ politics. The centre-left ‘responsible’ party of Pier Luigi Bersani won most votes, just about. But the über-‘responsible’ Mario Monti, the technocratic prime minister and Bersani’s most likely coalition partner, gained only half the support he had hoped for. Quelle surprise, one may be forgiven for thinking, since the mix of ‘austerity’-driven tax increases with no real structural reform, and with none of the stimulus that would enable reform to work, has proven highly unpopular with voters.

Once again, it seems to me, we see that it really is a mistake to leave the politics out of politics. I have some thoughts about why this is a bad idea in a recent talk (audio and slides here).

A technocratic fix will only ever be a patch job, and you need to give voters something positive to expect from austerity measures. Without this, about half the voters in Italy supported parties representing an anti-austerity position. Berlusconi, written off early, rebounded with extravagant promises of tax cuts. But the biggest surprise was the success of the raucously anti-establishment, anti-EU, all-round antic campaign of Beppe Grillo’s Five Star campaign, which gained about a quarter of the total vote. In principle, a grand coalition could yet be formed around a programme of structural reform and growth measures. But it’s hard to picture Bersani and Berlusconi even starting the talks, let alone reaching agreement.

De Grauwe and Ji have convincingly shown that markets respond well to effective political action – which came from Draghi and the ECB, since no-one else was supplying it – and not to ‘panic-driven austerity’. Mario Monti calmed the markets because he was not Berlusconi, not because he raised taxes. But Italy’s economy has been virtually stagnant for about fifteen years; it has a woefully compromised political class; and too many vested interests have their scoop firmly dug into the public purse. Monti’s government hardly touched any of this.

Market confidence is a function of political credibility, and this means a lot more than just cutting deficits. It means winning credibility among the voters. And voters need to see that this is not just a matter of all pain and no gain: growth, jobs, welfare security, having a life – these are what matter. As Wolfgang Münchau has pointed out, ‘political reform‘ used to mean prioritizing these things. Now it has been hijacked by the rhetoric of austerity.

But the EU has still not got the message. More and more economists, most recently in El Pais, are now saying that ‘Brussels was wrong to impose austerity measures’. But as late as yesterday, Olli Rehn, the European Commissioner for Economic and Monetary Affairs, said this on Irish radio (interview starts at 40′, this is at about 50′):

There are no easy choices, and if you take Italy: Italy was on the verge of an economic dead-end and political stagnation in the Fall of 2011, in September, October, November 2011, which then led to some changes in Italy, and the credibility of Italy was restored, and Italy avoided a complete economic dead-end. That was clearly a situation where the confidence effect dominated over only the quantifiable effect of fiscal consolidation, because structural reforms and fiscal consolidation were the essential elements why Italy could avoid an outright economic stagnation.

Too bad this was not broadcast on Italian radio, since clearly the Italian voters don’t understand their own country.