As the fiscal cliff cliffhanger continues to play out in the United States, there was a shot in the dark in Italy that may sink what looked like a steady improvement from its own economic crisis. Mario Monti is out because Silvio Berlusconi is in. Elections set for next year will be moved up as Monti, without the backing of Berlusconi's People of Freedom party doesn't have a large enough coalition to govern. Of course, Monti is a technocrat brought in to salvage the economy and image of the nation after the follies of Berlusconi.
Even with Monti's ideas and policies taking hold to some degree (all were watered down or mitigated but a step toward fiscal responsibility), Italy's climb from the fiscal abyss has been a gingerly move and is still not guaranteed. With Berlusconi back in the picture, odds will increase that Italy will see the worst case scenario for having a debt to GDP ratio of 123%. When Berlusconi bowed out, the Italian 10 year note was 7.48%; on Friday it closed at 4.50%, but is rising today. Berlusconi, who can evade prosecution as a member of parliament, says his return comes from a sense of "responsibility," but many in Italy and around the world, think it is completely the opposite.
In the meantime, it feels like Washington is closer to a deal on the Fiscal Cliff that probably gives President Obama most of the things he wants with a couple juicy plums held up with the continuing resolution and debt ceiling being leverage for Republicans. I don't get how the GOP caves now, but I think it will have more leverage, or a better image, holding up the debt ceiling. Yes, we need a debt ceiling, but at some point, we must live with that ceiling. That's not happening now as the narrative is Americans are ready to spend the nation into its European moment.
It will not be enlightening.
What we do see from the European debacle, is that the longer we go without smart sacrifice and fiscal responsibly, the tougher it becomes to get such religion down the road.
Tough choices will not be made in this round of fiscal negotiations in Washington. In fact, I'm at the point of hoping that we don't move even closer to a monarchy, which is exactly what it feels like given the scuttlebutt about what Boehner is prepared to concede.