By Elizabeth Pond
The euro zone is in its second recession since 2009 and isn’t likely to pick up growth until next year. Unemployment is over 26 percent and youth employment over 55 percent in Greece and Spain. Protests have erupted in the streets of Athens and Rome against the austerity required by Germany as its price for rescuing weaker economies from bankruptcy.
That sounds like a recipe for xenophobic populists to topple centrist governments in a rerun of the 1930s, right?
Wrong—or at best, ambiguous—in the case of the two elections in euro zone countries this past weekend, Cyprus and Italy.
In Cyprus it was the populist Communist presidential incumbent who was defeated in a landslide.
In Italy, while the populist ex-premier Silvio Berlusconi made a partial comeback, he did not again become premier. Half of his earlier voters defected to upstart Beppe Grillo, a cabarettist who made his career by mocking all the country's political institutions from outside and will presumably now continue doing so from inside with his Five Star Movement. And while Grillo is anti-establishment in what is widely regarded as a dysfunctional political system that richly deserves satire, he is no Mussolini.
The bad news ("catastrope" and "disaster" were the words bandied about in Europe as global stock markets instantly fell and yields on Italian bonds rose) is that Italian voters totally rejected the German and European paymasters' financial precept of austerity first, growth later. They also rejected outgoing technocrat prime minister Mario Monti, the rescuer of Italy's credit rating, reducing him to a showing of only 11 percent and making a center-left governing coalition impossible.
A new scenario of crisis management will now have to be found as the euro zone's half year of tranquility erupts into turbulence for another round. A breakup of the common European currency is once again a real prospect.
The good news, possibly, is that on the political side a new adage may be edging out the old 1930s paradigm wherein economic hardship slides into fascism. The more hopeful adage, famously voiced by Chicago mayor Rahm Emanuel, reads: "never let a serious crisis go to waste."
Take the example of Cyprus. Center-right president-elect Nicos Anastasiades faces two serious crises. The urgent one is financial; the chronic one is ethnic.
Economically, the almost Connecticut-sized east Mediterranean island of Cyprus is plagued by 14.7 percent unemployment, but blessed by an average per capita income of $26,900, just below Italian levels. The island's relatively high standard of living comes in part from a banking sector that is ten times GDP, swelled by Russian oligarchs' deposits and, it is said, mafia money laundering. Moscow tided Cyprus over last year with a soft €2.5 billion loan, but that money is running out and Nicosia is seeking €17 billion from the European Central Bank (ECB), the European Commission, and the International Monetary Fund to stave off the bankruptcy threatened by sovereign assumption of the banks' debts as the euro crisis drags on.
Already president-elect Anastasiades has promised to end his predecessor's ideological eight-month standoff with potential European and IMF saviors, to implement the tough budget cuts and economic transformation they demand—and, implicitly, to take on vested interests and break up the cozy domestic relationship between Cypriot banks and politicians. It is now up to Berlin and Brussels to rescue the euro yet again by recapitalizing ailing Cypriot banks—and to do this somehow without rewarding money launderers by reimbursing their personal losses.
More remarkably, Anastasiades even inspires at least a faint hope that he could turn crisis into opportunity by thawing the half-century-long frozen conflict between the southern (Greek) Republic of Cyprus and the Turkish Republic of Northern Cyprus. In a move unusual for a Greek Cypriot politician, he supported the United Nations proposal for a federated union on the island a decade ago, at a time when the Cypriot Turks approved the deal in referendum. The Greeks rejected it overwhelmingly.
If Anastasiades does move in this direction, this could well repay politically any financial bailout by the European Union. Nine years ago, the EU overrode its own ban on admitting any candidate with outstanding border quarrels to let Cyprus into the club. (EU member Greece threatened to veto Poland's entry if Cyprus was not admitted at the same time.) The EU has regretted this lapse ever since, due to Cyprus's subsequent veto over any improvement in relations between the EU and Turkey, an associate member from 1963 that in the interim has never gotten any closer to membership.
Now there is at least an outside chance that any breakthrough toward an ethnic modus vivendi in Cyprus could renew French and German interest in reviving negotiations on eventual Turkish membership in the EU.
Optimists are also applying Emanuel's adage in trying to turn Rome's new political crisis into an opportunity to reform the dysfunctional Italian establishment. Tony Barber argues in the Financial Times that politics worked "in Europe's favor" over the past two years in helping voters in Ireland, Portugal, Greece, and now Cyprus to dump "governments whose mismanagement prompted European-led rescues"—and replace them with fiscally responsible administrations.
In this scenario, voters' rejection this week of "the thicket of [corporate] vested interests" that has entangled Italy ever since 1945 must be turned into something positive. The election, Barber concludes, "exposed discontent with austerity but also illustrated the road to economic salvation must pass through a decontamination and renovation of politics."
This week's political crisis won't bring fascism back to Italy. But it could paralyze Italy for a long time if all it does is make a new Italian vote unavoidable this year, which would likely lead to another deadlock that would then lead to yet another vote—or even to the exit of Europe's third-largest economy from the euro zone.
Or it could turn crisis into opportunity—perhaps by rallying Beppe Grillo's neophyte parliamentarians to amend Italy's archaic election laws—on the pattern of Ireland, Portugal, and perhaps even Greece and Cyprus.
Elizabeth Pond is a Berlin-based journalist and the author of The Rebirth of Europe.
[Photo courtesy of Shutterstock.]