The last days of Pompeii?
In Rome, in August, nothing gets settled except tourists' hotel bills. But come September, the defection that weakened Berlusconi's hold on power will be put to the test. This bodes ill for Italy's fiscal and labor market reforms. Should it come to new elections, Berlusconi's ability to win a new stint in power is questionable: Polls show his public support at about 39 percent.
Italian economic reforms, meanwhile, continue to lag. Berlusconi pushed through a €25 billion austerity package earlier this year, but the political climate in Italy leaves little hope for aggressive moves to tackle the eurozone's largest national debt as a percentage of GDP (115 percent in 2009). Meanwhile, Italy has barely begun to wrestle with the labor market and other structural issues that have doomed it to the lowest growth in the G7 over the past decade.
Homage to Catalonia
For Spain, the EU's most troubled large economy, the threat of a sudden downgrade in the country's credit rating hangs like a noose over the Socialist government. Zapatero has moved cautiously, often telling his Socialist Party constituents one thing and international investors another.
Yet, prodded by both markets and surging conservative opposition in Mariano Rajoy's People's Party (which held a 10 percent lead in July polls), Zapatero has moved legislation to raise Spain's retirement age and liberalize important areas of the labor market and passed a two-year austerity package that eliminates €15 billion in social spending.
Zapatero also has the electoral cycle on his side: He's not technically required to go to the polls until 2012.
Still, Spain's complicated regional politics may do him in. The Catalan region around Barcelona, along with the Basque lands in the country's northeast, want more autonomy from Madrid. Zapatero's majority in parliament depends on these nationalists and that puts him between a rock and a hard place.
The Catalans, in particular, want Spain's books put in order and its restrictive labor rules reformed - understandably so, since they are the economic engine of the country. Memories of anti-Catalan repression during the Franco dictatorship still come up in conversation, and these two dynamics - reform-minded economics and Catalan nationalism - have Zapatero's long-term survival in question.
