Eurozone: Austerity brings new political tremors

The new political stalemate in Portugal – after the President of the country send the 2013 government budget to the high court questioning its constitutionality – casts again doubts over Eurozone’s ability to manage the austerity policies needed, to secure a viable politico-economic path. In more detail, yesterday Wednesday 2 January, the Portuguese President Anibal Cavaco Silva, announced that he referred to the Constitutional Court, the third in a row austerity budget, that the government of Prime Minister, Pedro Passos Coelho, had a hard time passing it through Parliament. In this way Silva opens a new period of political confrontations and uncertainties in his country. It must be noted that the President and the Prime Minister belong to the same centre-right political party. Yet the former seems to adopt a more personal political agenda, differentiating himself from Passos, with the obvious aim to appear as champion of the people, in rejecting a highly unpopular government budget. In this way Portugal, until now a paradigm of compliance with the Brussels’ imposed draconian austerity programme, enters the category of the “unpredictable”, together with Greece and Italy. To be reminded that since 2011 three Eurozone countries Greece, Portugal and Ireland are under the “guidance” of a troika of auditors and lenders, which was formed by the European Union, the European Central Bank and the International Monetary Fund. The troika has undertaken the burden to refinance the sovereign debt of those EU Eurozone member states. The three countries in return have signed Memorandums of Understanding containing severe austerity programmes. Greece has failed twice to honour its obligations towards the troika, while Portugal and Ireland were considered as success stories in this respect. The problem is however that  Italy and Spain, over the last fourteen months have come very close to ask for Eurozone’s financial help, a prospect that could derail the entire European edifice, given that those last two countries are the third and the fourth largest economies of Eurozone. Towards the end of 2012 however the Eurozone authorities, guided mainly by Germany who pays the largest part of the bills, had managed to bring Greece’s financial woes to some manageable state. Athens however may present more problems in the future, due to its fragile political environment. In any case Eurozone appeared until yesterday as being on top of its credit crisis. With Portugal though, joining now the Greek club of uncertainty and Italy to hold a general election towards the end of February, the number of countries which may produce political stalemates is increasing dangerously. If this new political confrontation in Portugal between its two top politicians leads the country to a paralysis, the ability of the Eurozone to control its debt crisis and apply draconian austerity programs effectively will be in doubt once more. Add to that a possible negative result in the forthcoming Italian election, with the new Roman Parliament unable to give a viable government with Mario Monti in it, and the dark clouds will reach as north as Berlin. Greece was a problem for Brussels which took one more year and another €50.5 billion to solve. One can imagine what will happen, if Portugal and Italy imitate the dramatic Greek performance. It’s impossible, even for Berlin, to support all of them at the same time.