Berlusconi and Germany’s Nightmare Scenario

As I wrote two days ago, Beslusconi is an embarrassment to Italy. Fareed Zakaria writes that he is also a nightmare for Germany, and by default (pun completely intended), the rest of the Eurozone.

A few weeks ago, we got a glimpse of Germany’s nightmare scenario: Markets began focusing on Italy and its debt became expensive. The European Central Bank intervened, buying Italian bonds, which lowered rates at which Rome could borrow. As soon as the situation stabilized, Italy’s prime minister, Silvio Berlusconi, began watering down his commitments to enact economic reforms.

With such leadership, the future looks bleak for Europe.

Europe needs a crisis agenda to get out of its bind, but beyond that it needs a growth agenda, which involves radical reform. The fact is that Western economies — with high wages, generous middle-class and political subsidies, and complex regulations and taxes — have become sclerotic. Now they face pressures from three fronts: demography (an aging population), technology (which has allowed companies to do much more with fewer people) and globalization (which has allowed manufacturing and services to locate across the world). If Europe — and, for that matter, the United States — cannot adjust to this new landscape, it might escape this storm only to enter another.

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Filed under Economics, Europe

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