Austerity Suffers Defeat at the Polls in Italy

It's hard to believe that the results of Italy's election yesterday caused a 200-point drop in the Dow, as is being reported in a story today by Rachel Donadio, "Split Vote in Italy Brings Political Deadlock." This outcome, underperformance by the Democratic Party of Pier Luigi Bersani along with continuing support for Berlusconi's People of Liberty Party, has been predicted for months. The wild card was the Five Star Movement of comedian (and blogger!) Beppe Grillo. And, as Donadio writes,

The outstanding success of the elections was the Five-Star Movement of comedian Beppe Grillo, which led a grass-roots and Web-based campaign and won more votes than any other party, with about 25 percent of the ballot. The group drew support from a powerful protest vote as Italians from both right and left — and the wealthier north and poorer south — were drawn to Mr. Grillo’s opposition to austerity measures and appeal to oust the existing political order. It has indicated that it is not inclined to form a governing alliance with Mr. Bersani or Mr. Berlusconi.

The big loser? Mario Monti, who Paul Krugman referred to in his column yesterday, "Austerity, Italian-Style," as "the proconsul installed by Germany to enforce fiscal austerity on an already ailing economy." According to Donadio,

The election offered a stinging defeat for Mr. Monti, the caretaker prime minister, a newly minted politician whose lackluster civic movement appeared to win around 10 percent in both houses. “Grillo had a devastating success; the rest of the situation is very unclear,” said Stefano Folli, a political columnist for the daily business newspaper Il Sole 24 Ore. 

“No doubt Italy has an imperfect political culture, but this election, I think, is the logical consequence of pursuing policies that have dramatically worsened the economic and social picture in Italy,” said Simon Tilford, the chief economist of the Center for European Reform, a London research institute. 

“People have been warning that if they adhere to this policy there will be a political cost, there will be backlash,” he added. “It couldn’t have taken place in a more pivotal country.”

We don't often get an outbreak of democracy. And without a doubt the grand coalition of Bersani and Berlusconi will be a disappointment. But Beppe Grillo's political movement is a hopeful development. Austerity will not be beaten back with one election, but it lost a battle yesterday in Italy.