On his swan song tour of Europe, President Barack Obama said in Athens last Tuesday (November 15) that "austerity cannot be the formula for growth," and vowed to carry that message to the rest of the continent that is now being rescued by ECB's cheap and abundant credit flows.
By the time he flew to Berlin, I thought that Mr. Obama's spin doctors would say that this was just an ex tempore slip taken out of context by malicious media. I simply could not believe that he would take such a swipe at his German hosts and the country's leader who directed and presided over devastating euro area austerity policies.
The fact that Mr. Obama did not do that may be that he cared more about the victims. He was probably feeling for the poor Greeks who will be working in perpetuity to pay back their debt (185.3 percent of GDP) to fellow Europeans, or the French and Italian leaders he was meeting in Berlin, and who were also facing the final curtain in virtually stagnating economies crushed by unemployment rates of 10 percent and 12 percent.
Austerity's festering wounds
Whatever the motivation, some European media warmly greeted Mr. Obama in an ostensible spite at America's president-elect Donald Trump, while some widely read papers in Germany dismissed his visit as an irrelevant "nostalgia tour."
Most French and Italians, to say nothing of the Greeks, will probably think otherwise. As they head for the polls, or count their losses, they could well take Mr. Obama's statement in Athens as a fitting reminder of the huge damage the austerity diktat did to them at the time when their economies were already sinking into sharp recessions.
Italians, in particular, are facing a firestorm of a referendum on constitutional issues scheduled for December 4, 2016. An overwhelmingly negative vote is expected to vent people's discontent with a recessionary and stagnating economy over the last five years, high and rising unemployment (11.7 percent), nearly 40 percent of the country's youth without work and a meaningful future, and a debilitating public debt of 160 percent of GDP.
As things now stand, Italy could soon be in the middle of a general election on platforms that will seek some sort of fiscal stimulus to spur growth and employment. That will be met with a strong opposition from the EU Commission and euro area countries demanding strict adherence to euro area budget rules. An ugly, destabilizing and divisive European showdown lies ahead.
That looming conflict will play out in a crisis where the anti-EU political forces like the Five Star Movement, the Northern League, Forza Italia and the factions of the splintering Democratic Party continue to vie for power. A replay of a recent Spanish scenario is very likely, because none of these parties seems capable of getting a parliamentary majority or coalition partners to form a government.