Austerity in Italy and Rise of the Five Star Movement

Austerity's destructiveness is brightly illuminated in today's story, "On the Brink in Italy," by Liz Alderman; usually a faithful apologist for neoliberalism, her devotion is beginning to fray at the edges. Alderman looks at Temeca, a woodworking factory in Guidonia owned by the Tedeschi family, to see how austerity, implemented by Mario Monti (trounced in the recent elections), is working for the Italian people. The answer? It's not:

Since a government austerity plan designed to shield Italy from Europe’s debt crisis took hold last year, the economy has tumbled into one of worst recessions of any euro zone country, and Mr. Tedeschi’s orders have all but dried up. His company, Temeca, is still in business. For now. 

But among Italy’s estimated six million companies, businesses of all sizes have been going belly up at the rate of 1,000 a day over the last year, especially among the small and midsize companies that represent the backbone of Italy’s 1.5 trillion euro, or $2 trillion, economy.

One in two small companies cannot pay its employees on time, according to CGIA di Mestre, a research institute. With layoffs surging, unemployment rose to 11.7 percent in January. Youth unemployment has jumped to 38.7 percent. 

The austerity program was intended to reduce the risk of a debt crisis and ensure the backing of the European Central Bank, but instead it left the country with no growth. And without growth, Italy will have a harder time paying down its 2 trillion euros ($2.6 trillion) in debt, one of the largest debt burdens in the euro zone.

Tedeschi was forced to lay off workers:

“When I had to fire those people, I cried,” he said, sitting in his small office under a picture of Mother Teresa as his wife, Annarita Neroni, and his son, Lorenzo, looked on. Mr. Tedeschi said several members of a local trade group took their own lives last year when they could no longer maintain their business. 

“This is a moment where if you stay alone in this situation,” he said, “you will wind up by shooting yourself.” 

Mr. Tedeschi’s wife said the family stopped drawing salaries more than a year ago to make payroll for the remaining workers. Disillusioned with the economy’s rapid erosion under Mr. Monti, the family voted for the anti-establishment Five Star movement, led by the comedian turned activist Beppe Grillo, in the February elections, even though they knew it might lead to chaos. 

“It’s a form of protest,” Lorenzo Tedeschi said, adding that he had been drawn by Mr. Grillo’s plan to cut billions of euros in corruption and wasteful spending. “We need to start from scratch in this country, and he gives us hope that there is a chance to make things equal.”

It's been a great story so far. Alderman has marshaled the facts and woven them in a compelling way with the real-life story of the Tedeschi family business. But with the mention of Grillo she can't contain herself. Responding to Lorenzo Tedeschi's sentiment that a vote for the Five Star Movement is a vote for a chance at equality, Alderman replies,

That may be tough, given that the discord Mr. Grillo created is likely to delay a recovery. Few people believe that official forecasts of a return to mild growth this year will materialize.

As if Grillo created the discord; as if things were proceeding smoothly until he arrived on the scene; and now, well, there goes the recovery that the heroic Monti steadfastly engineered. Why can't people accept destitution and marginalization if, as European Union president Jose Manuel Barroso asserts in a letter to EU leaders, "Steadfast implementation of reforms is beginning to deliver results in terms of current accounts and regaining competitiveness." Can't they see that a sense of self-worth and a modicum of personal security are tangential to the great god Competitiveness?

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.