Italy leaves Europe in suspended animation

What many had feared, though hoped against hope would not happen, has, unfortunately, occurred. The election held on Saturday and Sunday has thrown Italy into uncertainty.

It now faces the prospect of ungovernability and, as a result, the omen of more economic distress and, possibly, social turmoil.

What’s more, the deadlock has justifiably raised concern across Europe that the fallout from the Italian peninsula could shake the continent’s economy, especially the eurozone’s, at its roots. No wonder stock markets and southern European government bonds reacted so badly yesterday.

The tricky situation prevailing in Italy is, of course, of direct concern to us not only because of proximity but, more so, because it is one of this country’s main trading partners and political allies.

If the political stalemate in Italy is not solved soonest, uncertainty will increase exponentially. Markets do not like that, which means borrowing costs will shoot up, Italy will be unable to pay its debts and it could be forced to ask for a bailout.

Such a scenario can hardly benefit anybody, certainly not the eurozone members states and that, of course, includes Italy itself.

Hence, Italy – which is experiencing its fourth recession since 2001 – needs all the help it can get to get over the bad patch it is going through and have a government in place that is able to handle its sluggish economy.

Rather than uncertainty, what the Italian people need is to find a way out to boost confidence in the financial markets and so have the country’s credibility restored.

To do that, Italy must implement radical reforms, which can only happen if there is a strong government willing and able to take the bull by the horn and focus on the real task at hand rather than having to waste its energy grappling with domestic politicking.

Given the outcome of this weekend’s inconclusive election, that is much easier said than done. Outgoing Prime Minister Mario Monti did try and see what he ended up with.

The disenchanted Italian electorate voted against a political system and politicians they felt let them down miserably. Although it is hard to reconcile that with the unexpected gains that Silvio Berlusconi made even if many of the problems faced by Italy are of his own doing.

It is possible, even probable, that the media magnate ‘bought’ his way back to popularity through his pledge not only to remove but even to refund property tax money.

His announcement that he would not run for Prime Minister this time round may have also helped.

Pier Luigi Bersani’s centre-left Democratic Party has the largest number of seats in the Lower House and Mr Berlusconi is poised to muster a majority in the Senate through his centre-right People of Freedom party. This is what will make the peninsula ungovernable because what Mr Bersani may propose, Mr Berlusconi might decide to dispose of.

In the lower House, Mr Bersani should be able to work. It will be in the Senate that he will encounter problems and he is going to need the backing of either the inexperienced Mr Grillo’s candidates or that of his traditional rival, Mr Berlusconi – who has already declared that he would be interested in a coalition.

The way ahead is far from straight and smooth. But it is imperative that a sound economic reform programme is devised by a strong Italian government as soon as possible.