Italy’s Election Brings Fears of Renewed Euro Turbulence

Recent political developments in Italy have renewed fears of turbulence for the European Union and global financial markets.  With the collapse of Prime Minister Mario Monti’s technocrat government, Silvio Berlusconi has returned to the country’s political scene asking Italians to vote for him once

Dr. Marco Airaudo, assistant professor of economics at Drexel's LeBow College of Business
Dr. Marco Airaudo, assistant professor of economics at Drexel’s LeBow College of Business

again. As the country heads to elections on Feb. 24-25, many are wondering how these developments will impact the European Union and affect global financial markets.

“Monti’s early resignation sent a clear signal to Europe and to financial markets that some of the parties that are running in the election will not pursue the long-term fiscal plans and structural reforms started under Monti,” says Dr. Marco Airaudo, a native of Italy and an assistant professor of economics at Drexel’s LeBow College of Business.

According to Airaudo, the advantage for Monti was that he was named prime minister after growing fiscal problems related to the European debt crisis and losing the majority in parliament forced Berlusconi to officially resign in Nov. 2011.  This “appointment” in some sense gave Monti more freedom to pursue austerity reforms and spending cuts that the EU had been asking for and that financial investors were requiring to keep buying bonds issued by the Italian Treasury.

To his credit, Monti attained credibility on a national level for Italy, and as a result, the interest rate spread went from about six percent to below three percent, says Airaudo.

Now, with the election just a month away, candidates are vying to get the majority of the votes, and austerity measures are becoming less of a priority, which will eventually bring new instability for the EU.

“This is another call for the European Union to put more effort in creating a political union—not only a trade and monetary one—with a clear vision about the future, with similar market structures, more mobility and more competition,” says Airaudo.  “For right now Europe remains a bunch of countries that go along quite well culturally and appreciate each other, but when it comes to making decisions each nation is reluctant to give up local interests.”

Airaudo has authored numerous articles on Italy’s economy. He graduated from the Universita’ degli Studi di Torino, Facolta’ di Economia Italy. He received a doctoral degree in economics from the University of Pennsylvania.  Members of the media interested in talking with him, can email me at ngianakaris@drexel.edu or send me a tweet @drexelniki

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