Venice and the Greek earthquake

A week before the elections of June 17, industrialists, government officials and academics from Europe (mainly Italy) and the United States, met in Venice for discussions on the euro crisis and on what can be done to promote economic growth. The city which is in a constant dialogue with the sea, which has to keep finding ways to stay afloat, is perhaps the most fitting place on earth to debate another audacious, over-optimistic project — Europe’s single currency.

During those days, as so often over the past two years, everyone’s attention was turned to Greece and the fear of what would come out of the elections. But while the most direct problem focused on Greece, it was clear that everyone was afraid that the whole eurozone — and the European Union — was built on foundations that could not withstand the waves of any further trouble.

?We keep on hearing drastic messages? from southern European countries. ?I think someone had better do something before we get to the point of no return,? said Sergio Marchionne. The CEO of Fiat and Chrysler is also president of the Italian section of the Council for the United States and Italy, which hosted the annual workshop, and is credited with returning both motor companies to profit. He strongly supports Prime Minister Mario Monti’s efforts to reform Italy’s economy.

Monti’s first task, though, is to protect his country from the shock waves from Greece and Spain. ?There is a permanent risk of contagion. That is why strengthening the eurozone is of collective interest,? Monti told the meeting in a telephone conference. Earlier, he had spoken with President Barack Obama, who is pressing the Europeans to solve the eurozone crisis, fearing that failure to do so will harm the global economy. Everyone wants to see growth, and the big question is how this can be achieved. Monti spoke of two models — the ?Anglo-Saxon? one, in which the economy is stimulated by higher taxes or borrowing, and the ?German? one, in which obstacles to business are removed. Monti suggested a middle ground between the two.

The Italian prime minister finds himself between three fires: the Greek crisis and the tardy effort to manage it undermined confidence in the euro and allowed the trouble to spread to Spain and to cast doubts on the Italian economy; the parties that support his government of technocrats are afraid of the political cost of reform (especially in the labor sector); Germany, mainly, insists on harsh austerity, which Monti sees leading to deeper recession. (What we in Greece can add to this is that austerity leads not only to an economic impasse but to a political one as well).

Today Europe is trying to find a way to promote growth. The same issue will determine whether the American voters in November will grant Obama a second term or whether they will elect Mitt Romney instead. That is why Obama is afraid of a Greek collapse: no one can predict the fallout, when the water is up to our chins, no one wants even the slightest waves. In Venice, no one had any answers as to what would happen if the party that would be elected in the elections might annul Greece’s bailout agreement with the country’s creditors and so open the way to leaving the euro. The talks focused on the need for further unification of Europe, and not on the fear of dismemberment.

?Uncertainty is very great. With the political deadlock in Greece and severe difficulties in the Spanish banking sector, tensions have re-emerged and sovereign spreads widened once again,? Italy’s central bank governor, Ignazio Visco, said in a keynote speech in Venice. ?The signs of faltering growth have intensified outside Europe as well, both in the advanced and the emerging economies. A new global economic slowdown would post additional risks to already fragile financial systems and threaten the sustainability of public debts, in Europe and elsewhere.?

In the end, the Greeks voted as they did, giving the conservative New Democracy party the opportunity to lead a coalition which aims at keeping the country in the eurozone. Our partners are trying to save their own economies and bolster the Union. At present, the difficulties appear insurmountable — like trying to build with stone on water and mud. Time is running out. As Monti warned a few days ago, before failing to make much progress in talks with the leaders of Germany, France and Spain: if a solution is not found at this week’s Summit in Brussels, Europe’s economic problems will grow and people will turn against the idea of closer political union. In that case, the euro will not be saved.

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