Germany's Quest for Austerity - English

It's Politics, Stupid

By Stefano Casertano14.03.2013Economics, Global Policy

Germany continues to push for austerity abroad – and has helped to spark a populist reaction in Italy. Maybe Europeans can learn a lesson from the US about failed interventionism.

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MARCELLO PATERNOSTRO/AFP/Getty Images

A widespread opinion in Germany between January and February – ahead of the Italian elections – went roughly like this: “Well, Berlusconi has had his Bunga Bunga scandal, so Italians should not vote for him.” Great, thanks for letting us know. Italians should not vote for Berlusconi. It’s hard to disagree.

But what if Italians did? What if Italian voters selected not one, not two, but three possible leaders for their country? And what if – according to German opinion leaders – only one of the three is presentable: Pierluigi Bersani, the leader of the Italian Left?

It seems that Italians got it wrong, again. According to some, the strong electoral performance of populists like Berlusconi and the comedian-turned-politician Beppe Grillo is a “normal relation to austerity measures imposed by Germany’s chancellor Angela Merkel.” But according to some Germans, the election results are nevertheless a sign of Italian victimhood. As one German journalist put it to me in an email, “it is time that Italian voters understand that they have been following populists for decades. They are not financeable.” Italians deserve austerity, the logic goes, because they did not reform before. So stop complaining about it.

The same argument has been made more blatantly by one of Germany’s most prominent politicians, the Social-Democratic candidate for the chancellory Peer Steinbrück. “Italians voted for two clowns,” he said after the election. Or take Alexander Graf Lambsdorff, a parliamentarian from the Liberal Democrats, who argued that “it is hard to recognize any intelligence of the electors in these results.” The refrain that Italians must be stupid is a commonly held belief among policy-makers, journalists, and the digital commentariat (in response to a previous article, one commentator wrote to me to say that only “the most stupid calves choose their own slaughter”).

Still, there is a moderate side to Germany’s public debate. Steinbrück had to face opposition within his own party for his criticism, and it seems that he had a passion to position himself as Germany’s version of Prince Phillip, the British royal _gaffeur_. Most German politicians preferred to exercise more restraint when they talked about the political resurrection of Silvio Berlusconi. Their argument: “We do not comment on the election results of other countries.” They might privately share Peer Steinbrück’s beliefs, but style also matters – especially for Italians.

The people matter

Generally speaking, Germany is trying very hard to fail to recognize the real lesson of the Italian elections. In democratic politics, “the people” is all that matters. And if “the people” don’t react to policies as they should, then we have to blame the policies and not the electorate. It might be entertaining and a source of personal amusement to judge “the people,” but it often prevents a thorough understanding of the situation. If the answer to the question “why did Italians vote for Berlusconi and Grillo?” is a straightforward “because they are stupid” policy-making and political scholarship surely won’t advance.

Since the Italian people cannot be changed, Germany has been entertaining two broad options: Play along, or leave the game. Don’t worry, this isn’t soccer: Germany and Italy can still play. The former option would include broader political integration (and would result in some German sacrifices) while the latter option would result either in a German exit from the Eurozone or in the forced exclusion of countries like Italy (Germany would have to make some sacrifices, too).

The first situation has been egregiously described by Mark Mazower of Columbia University in the “Financial Times” on March 2nd: Mocking Bill Clinton’s 1992 campaign slogan, he wrote, “It’s the politics, stupid.” Populism is a normal reaction of the people to policies they perceive as unfair. I’m not saying that austerity _is_ unfair, but I’m merely arguing that it is _perceived_ as such.

Mazower is a scholar who specializes in the study of dictatorships and nationalism and who knows very well the sort of impact that the Young Plan (a debt repayment plan) imposed on Weimar Germany exerted on public opinion. An extreme interpretation goes like this: It might have been right to demand that Germany must pay for war damages after World War I, but the German people did not perceive it as fair, and hence clustered around populist and nationalist rhetoric.

To solve the problem, a real solution to the equilibrium between austerity and reforms must be proposed. Reforms come at a price. It’s not by chance that Germany’s Social-Democratic reforms in 2004 were financed by four years of budget deficits above the Maastricht limit. Those who were fired because of the reforms could rely on the state to pay for rent, food, and child support. Moreover, many factories avoided closure (and thus preserved precious professional knowledge) because instead of firing employees, they could “freeze” them in welfare programs.

State aid prevented Germans from taking to the streets armed with clubs and Molotov cocktails (except for the traditional May 1st riots, when autonomous groups often clash with police). When they got the opportunity to take revenge at the election booth, Germans jumped at the opportunity and kicked the Social Democrats out of the Chancellery.

So how can we assume that Italians will be able to institute reforms without financing these reforms at the same time? The German experience shows it to be impossible. Economic conditions in Italy are much worse today than they were in Germany in 2004, so the consequences of a “dry reform” (a reform without adequate financial support) would be devastating. In Germany, a well-lubricated reform still resulted in a change of government. In Italy, a dry reform attempt may well result in revolution – and as we all know, revolutions are populist.

Flexible German leadership

The big problem is how to finance Italy’s reforms. So far, Italy hasn’t asked for money, but a national corporate restructuring may need some additional investment. I have not heard any leading politician in Germany saying that as soon as Italy has a reliable government, Germany would commit to invest in Italy to help finance the country’s reforms. The talk was solely about how reliable and moderate Mario Monti was – a prime minister whom Italians perceived as a “German puppet” and who won a miserable ten percent of the vote in the election.

The Italian perception of Germany’s stance was that Germans wanted an Italian leader who would be willing to push for more austerity measures. In that sense, Italians made a smart choice: They have chosen leaders who will not play along. Try asking Beppe Grillo or Silvio “Bunga Zombie” Berlusconi about austerity and see what they answer. They might not be clowns, but the answers could really be quite funny.

The point here is that sticking to an unfeasible solution (“dry reforms”) may bring about a political collapse of such magnitude that it would impact the whole Eurozone. It would be detrimental not only to Southern Europe but also to Germany – not only economically, but also in terms of security and politics.

But what about the second solution? Germany may recognize that political incompatibilities cannot be reconciled, and that divorce may be the best solution. Breaking up the euro would take years and cost money. Indeed, a “dry breakage” without funding would mean that the cash-strapped Mediterranean area would become an economic black hole and a geopolitical nightmare: add Italy, Spain and Greece to the chaos in the Maghreb, in Egypt and in the Mashriq. Contrary to popular opinion, Germany is not an island and cannot afford the disruptions that would result from a breakup.

The idea that “the German spirit will heal the world” should be a thing of the past. Real leadership now calls for adaptation, flexibility, mutual understanding, and a lot of patience. It also calls for short-term sacrifice in order to enjoy long-term benefits. Take the US: Although the imperial strategy of the US empire has remained the same (free markets and democracy), it has always been tailored to specific countries. The US relied on a wide range of solutions that includes full-fledged liberal democracies, state-interventionist democracies, Arab presidential republics, dysfunctional democracies, enlightened kings and, well, Italy. The American decline only began when Washington embraced the idea that everyone should behave just and exactly like Americans. Germans should not make the same mistake – even before starting to assume leadership in Europe.

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