The Eurozone's Political Challenge (Agenda)
Video Transcript:
Editor’s Note: Transcripts are generated using speech-recognition technology. Therefore, Stratfor cannot guarantee their complete accuracy.
Video Transcript:
Colin Chapman: As Europe continues to explore deep budget cuts and further bandages to its damaged economy, some observers are sounding more cheerful. After all, the eurozone, and with it the euro, is still here and the bond markets have been looking up. Tell that to young people in Spain, where more than half of them are without a job, or Italians who face unenviable choices at a general election in a couple of weeks time.
Welcome to Agenda. And joining me to discuss the problems in two of Europe's most problematic countries is Stratfor Europe analyst Adriano Bosoni. Adriano, how long can Spain live with 27 percent unemployment and what is this situation doing to both the economy and Spanish society?
Adriano Bosoni: Well you know that Spain is facing record levels of unemployment these days and the situation is particularly serious among the young population; you know that whereas the general unemployment is around 26-27 percent; in the case of people between 15 and 25, it's around 56 or 57 percent, which is incredibly high. That being said, we at Stratfor have identified that there are a few safety nets going on. Young people in Spain are still getting some degree of unemployment benefits. And some young people in Spain are going back to live with their parents, where they can have access to their savings or to their pensions. But that being said, the unemployment crisis is really worrying in Spain and it's probably the most important impact of the European crisis, especially on the periphery of Europe.
Colin: What has been the root cause of Spain's problems?
Adriano: Well this this is directly linked to the beginning of the economic crisis in Europe. For most of the first decade after the creation of the euro, Spain was able to borrow at really low interest rates because it's currency was linked to Germany and that created first a public debt bubble in Spain -- you know you've heard about the real estate bubble in Spain. And that in turn created the sovereign debt problem, which is the current phase of the European crisis. And now, everywhere in Europe and particularly in countries such as Greece, Spain or Portugal, we are in this vicious circle in which governments don't invest and don't spend; banks don't lend because they are worried about the economic situation; and people don't consume because either they have lost their jobs or they are afraid of losing their jobs. So this is a vicious cycle in which most countries in the European periphery are trapped.
Colin: Is the price of staying in the eurozone just too high?
Adriano: Well that's a key question and that's a question that the governments of all of these countries are making to themselves right now. The basic assessment of most of these countries is that they would rather stay within the European Union and the common currency. Just keep in mind that this crisis could have a solution from the economic point of view but the crisis is fundamentally political. Europe has the tools to mitigate the crisis. The big question is who's going to bear the burden of solving the crisis.
Colin: That's indeed the questions still being asked, and I'll come back to it later. But let's move across to another Mediterranean country in trouble -- Italy. And while the economy is better than that of Spain, because Italy still produces a lot of luxury goods that many markets want, there are other issues all coming up to a head in the forthcoming election.
Adriano: Well, you know that the Italian economy has been growing at very low rates even before the crisis so what the European crisis is currently doing is highlighting some structural problems there were already there before the crisis. The Italian economy has been losing competitiveness for a long time, labor costs have been going up for a long time, the Italian state has been largely inefficient for a long time and what we are seeing right now is an exacerbation of trends that were already there before the crisis. And regarding your question about the elections, what we see right now is a center-left being the most likely winner but that will not be enough and the center-left will probably have to reach an agreement -- a coalition agreement -- with outgoing Prime Minister Mario Monti. That being said, we can expect very strong and very vocal opposition from Berlusconi and especially from this anti-system party known as the Five-Star Movement, which is going to be one of the main actors in the coming political scene in Italy.
Colin: Berlusconi seems to be running a campaign based on anti-German sentiment. Will that wash? Do people want him back despite his past history?
Adriano: Well you know that euroskeptic and anti-establishment rhetoric is very popular right now in Europe. We are seeing that in Italy and we are seeing that everywhere on the Continent. This narrative criticizing the European Union, criticizing the common currency and criticizing the German leadership of the crisis is very in vogue these days. And this has certainly helped Berlusconi to make gains in opinion polls. We have seen his support growing substantially for the past month. But I don't think that will be enough for him to be able to return to the government again.
Colin: What about Mario Monti? He was seen more as the technocrat rather than a politician.
Adriano: Well he came into power as a technocrat and during the first half of his mandate, he had a high levels of popularity because he was perceived by the Italians as being a serious and irrational leader that had returned Italy to a certain sense of normalcy. But now, he has become a normal politician; he's about to compete in the elections like any other professional politician, so we have seen his levels of support falling in the recent months.
Colin: Looking at these two countries, there's more than a whiff of political scandal in Spain and the Berlusconi story is not exactly palatable. Are the voters getting sick of their political leaders?
Adriano: Yes, what these scandals highlight is a deep crisis that's taking place in Europe right now and that's a crisis of representation. We are seeing everywhere in Europe the rise of anti-system, anti-establishment parties that benefit from the crisis and benefit from the fact that their traditional European elite -- the mainstream parties -- are unable to find alternative responses or solutions to the crisis. These parties are still not strong enough to create governments on their own but they are growing in opinion polls.
Colin: Right now, the country that is successful in Europe of course is Germany. But Berlin and Angela Merkel are just not willing to pick up the whole bill.
Adriano: This is related to what we were discussing earlier about who is going to share the burden. Countries in the core of the European Union particularly Germany but to a certain extent the Netherlands, Finland, Austria and other key countries in Europe, consider that most of the burden has to be carried by the periphery through austerity measures, through economic reforms, through labor reforms. While countries in the periphery, such as Spain, Italy, Greece, concede there that because they are the strongest economies in Europe, the countries in the core should be doing more, and should be investing more, and should be spending more, and should be importing more and should be financing more policies towards growth.
Colin: Stratfor Europe analyst Adriano Bosoni. Ane that's it from Agenda for this week. See you next time.
