Italy’s Political Mess: Why the Euro Debt Crisis Never Ended
Over the last few months, Europe seemed to be proving its doubters wrong. Thanks to a timely intervention by European Central Bank President Mario Draghi in mid-2012, yields on Spanish and Italian bonds, which had been spiking towards levels that threatened to topple them into costly bailouts, had receded to more tolerable levels and calm was restored to jittery financial markets. The European Union crept towards the greater integration that is the only true route out of the debt crisis by agreeing to form a banking union in December. The leaders of the euro zone and Greece managed to patch up their differences enough to keep the country in the monetary union. Reforms in troubled economies continued, albeit slowly. Spain is steadily repairing its banking sector, laid low by the country’s housing bust, with the help of E.U. aid. Yes, it looked like gloating time for the optimists who had insisted that those who predicted a much more dismal outcome of the euro zone’s debt crisis - the exit of one or more of members, or the collapse of the monetary union altogether - were gravely mistaken.
I have to admit that I was one of the naysayers. Many of us warned that without major structural changes to strengthen the monetary union, intensive reforms within euro zone countries and an entirely different approach to tackling the crisis (not just austerity, austerity and more austerity), the debt crisis was impossible to resolve. Had Europe really escaped the jaws of death, without the dramatic reforms so many economists thought were necessary? In recent weeks I was wondering if my analysis had gone badly awry.
Ah, but then, there’s Italy.