Italians Vow To Challenge German Austerity

In early August I wrote a post about the end of austerity, noting Hillary Clinton’s specifically ignoring any talk about the debt or budget deficits, the end of the Cameron/Osborne regime in Britain and Theresa May’s call for stimulus after the disastrous Brexit decision, and the reluctant recognition of economists and even the IMF of how destructive austerity had been. I also noted that the last remaining holdouts for austerity were the Germans. Well it looks like the Italians have finally decided to take the Germans on. Last month, the Italian Prime Minister Paolo Renzi bluntly criticized the German fixation on austerity, saying, “Stressing austerity means destroying Europe. Which is the only country which receives an advantage from this strategy? The one which exports the most: Germany.” The Italian Finance Minister, Pier Carlo Padoan, supported that criticism recently when he said, “Austerity is out of the discussion in a way. We need to bring more growth and more jobs to Europe.” Germany has been absolutely fixated on adherence to the 3% rule on deficits to the detriment of all else. The result has been enormous and unnecessary economic pain in Southern Europe, especially Spain, Portugal, Greece, and even to some extent Italy. Even in announcing their challenge to German austerity, the Italians are still trying to stay within the confines of that rule. As the Italian Minister of Economic Development put it, “If you want to close this divide and you want to persuade your citizens that there is opportunity in the internationalization of the economy and innovation, you need to invest a lot. The question is whether you do it within the European rule or whether you break the European rule. What we are trying to do is to stay within the European rule.” Somehow, I sense a veiled threat in that statement that, if the rules aren’t relaxed, perhaps they will be broken. As the article notes, the truly remarkable thing is that these countries had plenty of opportunity to challenge the Germans on austerity but none did, with the exception of Greece. As one economist said, “On the merits, Spain, Italy and France should be ganging up on the Germans and outvoting them and strong-arming them. For whatever reason, they don’t get there, and I genuinely don’t understand it.” Neither do the citizens of those countries and that is reflected in the unpopularity of their governments.  The Germans are unlikely to change their position – it almost seems as if it’s in their DNA. But Angela Merkel has been seriously weakened at home over her immigration stance and if she does not stand for re-election or runs again and loses, perhaps their is a sliver of a chance for a more sane policy from the new government. On the other hand, the rise of the right wing in both Germany and France may allow for even less room for the Southern European countries to maneuver and the resulting economic fight may spell even more trouble for the embattled European project.