Political Crisis Puts the US and Italy to the Wall

After the victory against the intransigent Republicans, the first leader President Obama met at the White House was Enrico Letta. Letta did not want to raise the public debt rate. Like President Obama, Italian Prime Minister Letta won a confidence vote in Parliament after a challenge by former Prime Minister Silvio Berlusconi and his supporters. But neither of the two is naive enough to think that the war has been won.

In January the Republicans are going to make things very hard for President Obama; in fact, the American Congress only gave him a few months [until the next projected debt ceiling]. The substantive issue, however, is still not being solved. Soon enough the country will find itself short of money and since it will not be able to handle the government expenditure, it will be obliged to raise the debt ceiling.

Letta, likewise, is governing Italy in an atmosphere of insecurity, where the next government crisis could explode at any time and for any reason. While Prime Minister Letta was with President Obama in the Oval Office, unions and workers were striking and demonstrating in Rome against the fiscal review and his government.

The precarious nature of the current political situation is, in fact, profoundly linked to the obsolescence of the globalized system of our democracies, created in a social and economic context completely different to the one in which now we live. In other words, we need to update the system. This might not be as easy as it is risky; for instance, in Italy the “porcellum” election law gave the power to a bunch of “individuals” to decide the composition of the entire Parliament.

To the members of the tea party, the main instrument to avoid inadequate tax policies is the nation’s debt ceiling. In other words, they believe in placing a limit on the debt in order to limit spending, as was the attitude of the founding fathers when they imposed a limit on the debt. Introducing a break-even budget rule has always been advocated by the tea party members and by the founding fathers themselves.

But today, according to this week’s Financial Times, getting rid of the U.S. deficit, on par with 4.2 percent of GDP, would be senseless, as the GDP would contract by 10 percent and would bring a drastic reduction in expenditures and aggregate demand. Considering the fact that that the world economy is only now recovering from the shock of the 2008 bankruptcy of Lehman Brothers it is easy to imagine how a contraction of U.S. GDP by 10 percentage points would open economic doomsday scenarios, not just for the U.S., but also for the whole world.

Much the same applies to Italy, which is trying to recoup public finances within the parameters imposed by the European Union through tighter fiscal policies, such as the valued added tax increase. But that is counterproductive for economic recovery, which still shows no signs of improvement.

The political system that the founding fathers created is a trade-off. In the 18th century the founding fathers thought that in that way they could have prevented the political system from being manipulated by the elite or the majority. With this strategy everything came up roses then, but what about now?

Like today, in the past all the major clashes between the two biggest American parties were based in ideology. In fact, at the center of the dispute between the Republicans, or supporters of the tea party, and the president is the current health care reform legislation, also known as Obamacare. But today, Republicans can use the debt ceiling as a bargaining chip to postpone and sabotage health care reform. The debt, fiscal policy and even the economy are now being held hostage in the political and ideological battle being fought in Washington.

We are facing a situation the founding fathers could not have foreseen and which certainly creates a series of surreal scenarios, such as the bankruptcy of the richest nation in the world.

By now, most Western democracies are being forced to survive with big coalitions intervening in a system built for majority-ruled governments, therefore putting at risk what is really the true spirit of politics. Only countries like Germany and Britain, that have stable coalitions, are able to govern in a climate of instability. All the others have to keep up with Joneses while the citizens, as always, have to pay for it.