Italy’s government is inherently unstable. ‘The nation has elected prime ministers 38 times since World War II. Several men have served more than once. Silvio Berlusconi, about to depart, has held the job three times since 1994. Experts say he will not hold the office again, but history suggests he could be back. No wonder global capital markets are wary about the future of Italy’s finances and its government.
Investors are appropriately concerned that those in power in the eurozone’s most financially besieged countries come and go. But also of concern are that the basic philosophies of how these countries should be run come and go as well. This issue is particularly difficult now. Eurozone leaders, the European Central Bank and the International Monetary Fund have to guess which governments will rise and fall. Will new prime ministers and their cabinets favor current austerity plans? Or, will they reject them because voters believe that their incomes and taxes have been unreasonably affected by the pressure from countries that bail them out?
Italy is not the only country with its political stability in question. Greece has been unable to name a new government for the better part of a week. Prime ministers of the beleaguered southern European nation change as often as once a year. The new prime minister will feel pressure from hundreds of thousand of voters who believe that George Papandreou made a bad deal to gain a bailout. It will hurt the level of their wages, their retirements and the amount of taxes they pay.
At the core of the high interest rates that Italy and Greece have had to pay to finance their sovereign debt is the matter of deficits and collapses in GDP growth. Also at the core though is a concern about who will govern these nations and for how long.
Douglas A. McIntyre
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