Austerity Strikes Reach Italy

The labor stoppages and strikes that have hit Greece and other southern EU nations, the results of austerity measures adopted by national governments, have reached Italy. It is another sign that citizens in these countries will not  agree with austerity measures and almost certainly will vote for politicians who support their views.

CGIL, the union that represents 6 million Italian workers, staged an eight-hour strike. Transportation and some businesses were closed for the entire time.

Italy has turned to austerity for two reasons. The first is that the government has discovered it cannot reach its deficit reduction goals. The other is that it can see that global capital markets will not support its sale of bonds if Italy cannot show its financial house is in order. Prime Minister Silvio Berlusconi’s coalition government has already started to unravel because of disagreements among its members about how best to handle the financial crisis.

The unrest has become part of the ritual that goes with budget cuts and tax increases in countries that seek bailouts or try to avoid them. Austerity is based, in part, on changes in the way that public employees are paid and when they can retire. Private employees face higher taxes, in the case of Italy an increase in the VAT from 20% to 21%. The unions do not care whether strikes make the economy worse as they drain GDP by lowering worker production. That is beside the point. Protests are meant to solve short-term compensation problems and not long-term financial ones, union leaders say.

The EU governments, particularly Germany, and the IMF must know that whatever money they loan troubled nations is at extreme risk because it is not supported by the citizens in these countries. Theses nations eventually will elect politicians who will repudiate austerity, either because it is convenient as a means to control the government, or because they believe that austerity cripples their countries by withdrawing government stimulus. It hardly matters what the reasons are. The repayment of loans to these nations becomes increasingly unlikely.

The IMF and Germany cannot negotiate directly with citizens in Europe’s financially troubled countries. If they could, they would find bailout loans would be too risky to make.

Douglas A. McIntyre