A substantial mutualisation of debt would greatly diminish the incentives of member states to put their public finances in order. Political classes are short-termist almost by definition, and it will take tremendous leadership and commitment to restore public finances without the spur of market discipline.
German voters are sceptical of European “solidarity” because they sense that they will be handed the bill. However, a perhaps more substantial — and less subjective — worry on mutualisation is that it will lull the system into a false sense of security. Moral hazard is an important component of the current crisis.
However, what Italy most needs is political capital. It is one of those moments in history when a society can be amazingly honest in the diagnosis of its own ills but lacks the doctor to administer the cure.The eurocrisis may stoke populist extremism in Italy simply because the country seems unable to offer a different political response. Beppe Grillo, a comedian-turned-politician, has around 20 per cent of votes. Silvio Berlusconi, after a few months of benevolent silence, is now returning to the political arena and aiming to capitalise on uncertainty by promising a quick Italian exit from the euro.
The technocratic government led by Mario Monti was good at diagnosis but bad at treatment. Reforms were too slow and Italian taxpayers were squeezed like lemons in the belief that fiscal consolidation via tax increases was the quickest and the most practical avenue in the emergency.
The old Italian political class lacks legitimacy because of the scandals around Berlusconi and also because it navigated through the past 20 years without addressing structural problems. The technocrats in government lack legitimacy too — nobody elected them and they did not prove to be particularly efficient, or fair, in their government action.
Thus, Italians may vote for improbable, populist options even though they have a clearer view of the crisis than their voting preferences may suggest.