European crisis no laughing matter

The economic and political landscape in Europe is developing some disturbing fault lines.

The long-suffering Italian public must be wondering when a stable government will be formed to oversee the process of guiding their nation out of the mire of its sovereign debt crisis.

Italy does not have a long tradition of single party majority government, with a succession of volatile coalition governments that have struggled to serve full terms, and 39 Prime Ministers elected since World War II (some serving more than once). Instability has become the hallmark.

One of the longest serving Prime Ministers, Silvio Berlusconi served from 1994-95, 2001-06 and 2008-11 and it took a series of scandals in his personal and professional life for Berlusconi to be replaced by Mario Monti in late 2011.

Monti was described as a "technocrat" who would use his authority to drive through the reforms that the paralysed Berlusconi government was unable to achieve.

In practical terms, this largely meant agreeing to the austerity measures demanded by the European Union and in particular the German government of Angela Merkel.

Similar measures have been deeply unpopular in Italy, Greece, Spain, Portugal and other parts of the Europe Union.

Opponents of the measures argue that austerity increases unemployment and depresses economic activity.

Conversely, proponents of austerity argue that unsustainable levels of government debt will not be cured by even more debt and that radical steps are required.

Italians are facing the deepest recession in decades, with unemployment of more than 11%.

The spectre of more austerity threw a cloud over the recent elections, where inconclusive results have plunged the nation into a political crisis.

Berlusconi failed to achieve the necessary votes to return to the Prime Ministership, yet no other candidate appears likely to be able to form government.

The person who has emerged from the electoral carnage to hold the greatest leverage in the post-election period is comedian and TV star Beppe Grillo, well known for his anti-establishment views.

Grillo leads the Five Star Movement which attracted about 25% of the primary vote and vaulted his party into political prominence.

It was estimated that his final campaign rally in Rome attracted 800,000 people.

While it appears unlikely that Grillo's party of protest, as the single largest party in the lower house, will support either of the competing coalitions to form government, it raises the prospect of further elections with no guarantee of a break to the deadlock.

This situation could easily be dismissed as business as usual for Italian politics, if the stakes were not so high.

There are concerns that the political instability could spread from Italy to other parts of Europe, including Germany.

The rise of protest parties such as the Five Star Movement could encourage other parties to adopt similar stances in other European nations.

At a recent political rally of the German Social Democratic Party, a candidate for Chancellor, Peer Steinbrueck pointed to the political situation in Italy as a challenge for all of Europe.

Nervous German politicians have observed the rise of the protest party SYRIZA in Greece which advocates the tearing up of any agreements for austerity measures imposed by the European Union.

The fear of European leaders more generally is that protest parties will steadily increase in popularity to the point of forming government, leading to the risk of radical responses and the abandonment of any budgetary restraints.

Austerity will be last year's story. If the measures advocated by these protest parties are taken to taken to their ultimate conclusion, there would be a default in some countries on the sovereign debt incurred by former governments.

The Eurozone would be in crisis, as nations faced the spiraling costs of borrowing, leading to economic collapse.

Ministers in the Gillard government often claim that Australia's sovereign debt position is in a better position that the crisis levels of some European nations, however the recent analysis of the Business Council of Australia shows that Labor has taken our nation down a dangerous path of debt and deficit.

With looming pressures from an ageing population it is hard to think of a more reckless act than for the Rudd/Gillard government to plunge Australia's federal government into record levels of debt.

It is true that Australia has debt levels lower than that of European nations in crisis, but that should not be Australia's benchmark.

The previous Coalition government lived within its means, by paying off debt, delivering successive budget surpluses and not borrowing.

That should be the aim of all Australian governments. The lessons of Europe are there to be learned.