Italy's Election and Europe's Fate

Europe’s fate hangs—more than it should—on Italy’s February 24 election. So does the stability of global financial markets.

If the vote goes the wrong way, toward former Prime Minister Silvio Berlusconi’s People of Freedom Party or the antiestablishment Five Star Movement, the strains on Europe’s common currency will stretch to the breaking point and the odds of financial panic will rise on both sides of the Atlantic.

Such a result will also raise the risks of a prolonged recession, both in Italy and in Europe generally.
Right now, the polls and the electoral maneuvering point to an acceptable, if not an especially encouraging election outcome, one that could avoid the worst of these risks. But, as ever with politics, most especially Italian politics, matters are far from certain.

At issue in this vote is Italy’s willingness to cooperate with the rest of Europe. During the last 13 months, Prime Minister Mario Monti has accepted as necessary the budget austerity demanded by Germany and the Eurozone in return for financial support. If the election brings in a government that rejects such cooperation, Italy would almost certainly lose the support of the European Stability Mechanism as well as that of the International Monetary Fund (IMF). With these monies withdrawn, Italian borrowing costs would rise immediately, so quickly, in all likelihood, and so high, that in short order the government in Rome would find itself unable to finance its own operations.

Read more: Commentary: Italy's Election and Europe's Fate | The National Interest