It’s déjà EU… all over again
natalie hamill, 10 November 2011
By Scott Benson
On 10th October, a vote of no confidence, which was tied to plans to enhance the European Financial Stability Facility, forced Slovakian Prime Minister Iveta Radičová to step down. Exactly a month later, the Greek and Italian Parliaments have put similar pressure on their respective leaders to resign.
The situation for Italian Prime Minister Silvio Berlusconi, the latest victim of the sovereign debt crisis, was tenuous even before the current round of financial reforms was on the table. A series of accusations, including false accounting and consorting with minors, were levelled against the PM and his infamous ‘Bunga Bunga’ parties have raised serious concerns about who had access to the Prime Minister’s residence. Despite these allegations, Berlusconi remained resilient.
However, the newest financial reforms have proved too much even for this resourceful PM. Faced with increasing pressure from his allies in the Northern League (who have called for his resignation), Berlusconi has been unable to forge the cross-party deal which he desperately needs for his premiership to survive. Meanwhile, opponents from across the political divide have threatened to hold a vote of no confidence and, dismissing claims the Prime Minister could remain in office, Democratic Party leader, Dario Franceschini, declared “Berlusconi is bluffing in a last desperate attempt to save himself. He no longer has a majority in the Chamber”.
Markets have also shown a lack of confidence in his leadership reflected by the record high cost of borrowing. This has not necessarily been a problem in the past but as growth has faltered, Italy’s debt, which stands at 120% of GDP, has become unsustainable. A Reuters report continued to intensify the pressure on the Italian Prime Minister suggesting that Italian bond prices would recover and the yield spread would fall by a percentage point if the current government stepped down. Berlusconi has subsequently agreed to resign but could stay on in a caretaker capacity unless the President appoints a technical government.
The key challenge for Greek politicians, also facing a change in leadership, has been slightly different. After Prime Minister George Papandreou agreed to resign, leaders of the three main parties have had difficulties forming a national unity government. Frustrated with the political bargaining taking place between the Pasok Party and New Democracy, Giorgios Karantzaferis, the leader of the nationalist party, walked out of Wednesday’s talks causing negotiations to break down.
After much anticipation, Lucas Papedemos was finally announced as the new interim PM. He will face a confidence vote on Monday and, although details of the new coalition have yet to be confirmed, his new government seems set to accept the conditions of the EU bailout and will likely enact further austerity measures.
This is unlikely to be the end of Greece’s problems. New terms demanded by Mr. Papedemos, could postpone the provisional elections scheduled for 19th February and cause further difficulties. A ‘technocratic’ government of national unity may be necessary to tackle the financial crisis but it will lack popular legitimacy and attempts to extend its mandate without a general election could spark strong public resistance.
The Eurozone rescue package has, therefore, proven disastrous for EU leaders propped up by fragile coalitions or lacking a loyal support base. Opposition parties in Greece, Slovakia and Italy have ruthlessly exploited the Eurozone crisis to weaken national governments or force them to collapse entirely. Eurozone leaders must hope that, once appointed, the new Greek and Italian Prime Ministers hold enough political capital to implement the latest round of austerity measures; otherwise they will be facing a political vacuum which will exacerbate the current crisis.