World and Nation

Political turmoil further sinks Greece and Italy

ROME — With political turmoil still plaguing Greece and descending upon the much larger economy of Italy on Monday, the fate of the euro and market stability worldwide hinged on whether two of Europe’s most tangled and unresponsive political cultures could deal with their tightening fiscal gridlock.

The prospect of a new transitional, technocratic government in Greece, and signs that Silvio Berlusconi’s resilient hold on power in Italy was weakening, did little to reassure investors that either country was prepared to grapple with the deep structural changes that investors are demanding to restore growth and reduce deficits. In both places, it is not only the economy that is on trial, but also the ability of democratic government to make highly unpopular choices.

The crisis gripping Berlusconi’s government deepened as interest rates on the country’s debt rose Monday to more than 6.6 percent, the highest since the introduction of the euro more than a decade ago and nearing levels that have led to bailouts elsewhere. Financial markets advanced early in the day on word that the prime minister was negotiating his exit, but lost ground after he denied the reports.

In Greece, where political chaos last week threatened to plunge the eurozone into crisis, doubts remained about the capacity of the political class to form a coalition government to push through reforms it has agreed to in return for a financial lifeline. So strong is the distrust that Europe’s finance ministers refused to release the next $11 billion in aid for Greece until the two leading political parties signed a letter affirming their commitment to meeting the conditions of the loan deal reached last month with European lenders.

Greece and Italy have famously complex political cultures, but today they are both driven by a simple dynamic: No established parties want to assume the full political cost of pushing through unpopular austerity measures and changes to the labor market. And they are jockeying for positions in a new political constellation after eventual elections — as well as for greater bargaining power with the European Union.

“It’s a big mess,” said Roberto D’Alimonte, a political science professor at Luiss Guido Carli University in Rome. “I don’t think it’s that the markets are too strong, but that democracy is weak.”

Forceful leadership also now seems to be in short supply. In Greece, Prime Minister George A. Papandreou agreed to step down to make way for a new unity government after his proposal for a referendum on the debt deal cost him support within his own Socialist coalition (and with European leaders).