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Political Consequences of Euro Crisis Are Spreading

The euro zone debt crisis could claim more political scalps across the euro zone, according to analysts.

This week has already seen Italian Prime Minister Silvio Berlusconi and his Greek counterpart George Papandreou announce that they will soon resign.

"Governments are falling one by one in the peripheral countries," Tina Fordham, MD and senior political analyst at Citi, told CNBC Wednesday. "In the mature democracies, there is political paralysis, but the answer is going to be new elections every time."

"If you take what economists are saying about 10 years of slow to flat growth in developed economies, that's going to have an impact on the political choices," she added.

After months of summits and meeting which failed to deliver, the markets are punishing European leaders for the lack of a definitive solution.

The euro was on track for its biggest one-day loss against the dollar since October 31 Wednesday as nerves about the future of the euro zone increased.

"Two years in, we are all finding a degree of fatigue about the confusion going back and forth in the European debt crisis," Jim McCaughan, chief executive of Principal Global Investors, told CNBC Wednesday.

"We are only half way through yet. The problem is excessive debt levels, and we haven't deleveraged. We need a combination of paying down debt and debt forgiveness, and that process needs multiple years."

There have already been regime changes in Ireland and Portugal, with elections in Spain due later this month.

The less dramatic political changes in Ireland, Spain and Portugal have happened because these countries had "responsible" opposition parties who have been able to "win a mandate from the public," according to Fordham.

"That's really important because it means difficult decisions can be taken. When that option isn't on the table and you have a lot of parties, there's this option of a technocratic government."

A government of technocrats has been mooted as an option for Greece and Italy, where ex-European Competition Commissioner Mario Monti has been suggested as a possible leader.

"You have the EU to force parties on both sides to stick with the program," Fordham pointed out.

"There isn’t a compelling alternative whether you are on the left or the right."

"We see declining trust in politicians and institutions, but when push comes to shove, mature democracies will make decisions through the ballot box, albeit with strikes and demonstrations to show their views."

One of the problems for politicians in the less troubled countries is criticism of the bailouts.

"There is rising euroscepticism in Northern European creditor countries," Fordham said.

"In the peripheral countries, there are demonstrations but nobody's talking about coming out of the euro and that's very, very important."

She believes that the euro will survive, but under different legislation.

"There will almost certainly be a round of treaty changes which could involve referenda," she said.

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