Europe, politically, received quite a shock this weekend in the vote for the new European parliament.
The one real high note is the vote in Italy which supported Italian Prime Minister Renzi and his reform efforts.
The future of the European Union and the Euro may hang on the success of Mr. Renzi in bringing Italy into the twenty-first century.
I just returned from Italy. I did not find it much different there from my trip there two years ago. Unemployment is still high. Lots of abandoned real estate projects…commercial and residential…the still standing there…just decaying. Lots of talk about corruption in the society…or, as several people put it…talk about "networks" that are an integral part of the Italian societal framework.
What are these "networks"?
Well, they are connections of people within the society, connections that are necessary to make the Italian business world and political community work. Like "connections" that help you get a job. "Connections" that help you get into the best universities. "Connections" between labor unions and government offices. "Connections" that help a business get the right approvals to go ahead on a project. "Connections" that help you do about anything important in life that you need to get done.
One question heard over and over again is why Silvio Berlusconi, the former Prime Minister of Italy, who has almost constantly been in the news over the years as much because of his parties and women and corrupt dealings, as for his politics, has continually played such a powerful role in the Italian government for such a long time.
You talk with people and they point out that Berlusconi has built up perhaps the largest "network" in the Italian society. Much of this network has been based on his control of newspapers and other parts of the press. But, a lot of people "owe" him for all that he has done for them within his "network."
Yet, things seem to be changing.
The other returns I want to discuss in this post are the election returns for the European Parliament that have just been announced. Whereas "populist" parties and groups achieved very disturbing advances in the four-day election, it was in Italy that another story was brewing…one much less reported on in the international press.
"In Italy, Prime Minister Matteo Renzi and his mainstream Democratic Party received over 40 percent of the vote, more than any other Italian party has won since 1958." This statement was buried far down in the article by Andrew Higgins in the New York Times.
Mr. Renzi, if you remember was the (very) young (he is 39 years old) prime minister elected on February 22, 2014. He was a "reform" candidate elected to bring on the many changes that needed to be introduced into the Italian way of doing things to help modernize the economy and improve productivity and efficiency in the country. Since he took office he has been trying to do exactly that…and has been off to a good start.
Mr. Higgins writes that because of the outcome of the election "The result was taken by analysts as a mandate for him to carry through an economic overhaul." That is, people seem to like him and like what he is doing.
This doesn't mean he will be successful. Many people I talked with in Italy made the forecast that over the longer-run Mr. Renzi will not really be able to succeed because the "networks" are so entrenched within the society. This is the way things are…it is the way things have been…and…it will be the way things are in the future.
Right now, however, he is riding high…and should get some credit for it!
And, the vote in Italy…we have Mr. Renzi's Democratic Party at 40.8 percent of the vote…and Mr. Berlusconi's Forza Italia party had 16.8 percent. The Italian populist party, the Five Star Movement, came in second with 21.2 percent of the Italian vote. There are plenty of people discontented in Italy and this vote for Mr. Beppe Grillo and the Five Star Movement show this disaffection. Other than being a popular activist, Mr. Grillo is a comedian and a blogger. But, if Mr. Renzi can perform, this "movement" should have very little impact on the Italian future.
The interesting thing to me in this vote is the continual slide of Mr. Berlusconi. This is, at least, the third time in a row that his fortunes have been diminished. This I believe is very important for the Italian future.
The importance of this outcome, I believe, is being underestimated at presence. To me, what this outcome has done is give Mr. Renzi a real opportunity to produce. And, if he does produce, he will provide the weaker, south of Europe with a role model…an example to emulate.
Ms. Merkel and the German north have dominated the development of the eurozone. Germany has the economic productivity, and, as I have written many times before, Ms. Merkel has used that "tool" as to guide the evolution of the EU is the direction Germany has wanted. Everyone else has been dragged along, crying and moaning.
The leadership in the "south" has been short of pitiful. Mr. Hollande in France is about as much of a disaster as it is possible to imagine. And, the "populists" in France have pummeled him for his gross incompetence. But, in this election, the major parties in Spain and Greece have also been given a thumbs down result by their nation as they have produced only mediocre outcomes from their leadership.
Tony Barber writes in the Financial Times "The most revealing result was in Spain, where the ruling center-right Popular party and the opposition Socialists - the two parties that have dominated the political stage since the end of Francoism in the 1970s - failed to win even a combined total of 50 per cent of the vote. Spain looks more and more like a democracy in need of profound institutional reform."
If Mr. Renzi could use the result of this election to solidify support for his reform efforts and if this support allows him to produce real results that brings Italy back from the "edge" then the south of Europe will have a real example that they can follow.
Think of what that would mean. The discontents being experienced in these nations would not have to resentfully be focused on the "German" strength. Those that are discontented could see that results that were being achieved by one of their own…a southern European nation, Italy…then they would have something to emulate, something to follow, something to cheer for.
Someone needs to show France, Spain, Portugal, Greece, and others, the way out of the doldrums that they are in. And, this is the time to do it…the can cannot continue to be kicked down the road forever. The "populists" are showing the laggards that something must be done…and not in the too distant future. Europe must move…and it must move together.
If Italy could do it, it would take some of the pressure off of Germany and it would provide a greater basis for working together. And, this would be to the benefit of all of the European Union and it would be to the benefit of the world.
Europe needs to consolidate its banking system and it also needs to achieve a greater political consolidation. Wouldn't it be ironic if this "shock" of the "populist" vote brought the center parties together to really achieve this banking consolidation and this political consolidation.
It is obvious that this consolidation will not take place under the old leadership. There needs to be a strong enough political leadership to bring the bankers into line on a European banking system. Christine Lagarde, Managing Director of the International Monetary Fund, is showing frustration that the European banks will not come into line in terms of banking consolidation without a stronger show of the political leadership in this area. The same is true for political consolidation. The world is now looking at Mr. Renzi and the Italian government to succeed and provide other European nations with the model of how all these things can be brought together.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.