Commentary: Europe mood darkens

01 March 2013 09:06  [Source: ICB]

Italy's inconclusive elections have rattled the markets and the result may signal the beginnings of a wider change of attitude among the region's populations. Fed up with steep austerity measures imposed by the Democratic Party led by technocrat Mario Monti, voters instead turned to others delivering a strong anti-austerity message.

Grillo

 Rex Features

Italy's Beppe Grillo rules out a coalition with other parties

Discredited former prime minister, Silvio Berlusconi, got a good result, as did comedian Beppe Grillo with his anti-establishment message. The end result is that no single party has sufficient voting power to command a majority. Grillo has made it clear he will not cooperate with other parties and it is quite likely that a functioning coalition government will not be formed. Political paralysis and fresh elections would be necessary, so the country may lack the strong leadership needed to tackle its economic problems.

There has been relative calm in the eurozone since July 2012 when European Central Bank president Mario Draghi said the ECB would do "whatever it takes" to save the euro. However, he then made it clear that the bank's new unlimited bond-buying programme would be dependent on national governments committing to structural reform and fiscal discipline measures.

If voters in Italy and other troubled eurozone countries elect governments that reject austerity, where does that leave Draghi's rescue plan? Italy is not the only eurozone country in political turmoil. Less high profile, but indicative of the same feeling of popular opposition to cutbacks are recent events in eastern Europe. Last week, Slovenia's prime minister, Janez Jansa, was voted out of office after members of his coalition government withdrew support. This follows public anger about anti-austerity measures and allegations of corruption. Meanwhile, in Bulgaria the centre-right government resigned in February after protests against deficit-reduction measures and alleged corruption. There are almost weekly protests in Spain, where youth unemployment is still over 50%.

For the global chemical industry, and especially for those with heavily Europe-oriented businesses, any move away from recent signs of stability will be a worry. German chemical giant BASF, in its 2012 annual report published last week declared: "A new global economic crisis could develop if market uncertainty continues or demand is impaired more strongly than anticipated by extensive fiscal austerity measures." It predicts very poor growth in European Union GDP of 0.3% for 2013, and 1.8% for the US.


By: Will Beacham
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