Opinion: The sick man is Europe

NEW YORK — Something other than leaves will fall in Europe this autumn.

American attention, no doubt, will focus on Barack Obama’s date with an angry electorate this November. Yet across the pond, governments of the right, left and center in Europe appear ready to crumble, their positions eroded by a wave of austerity, high unemployment and government debt, plus a smattering of nasty corruption scandals.

Consider the situation in Europe’s five most important countries:

• In Germany, one of the costs of bailing out the Greeks appears to be the career of Chancellor Angela Merkel. It’s too early to write her off, but voters sharply rebuked her Christian Democrat-led coalition in local elections in July, depriving her government of control of the upper house of parliament. Since the election, Merkel’s own poll numbers have slipped, and trouble has emerged inside her coalition.

• In Britain, the election that ended 12 years of Labour rule in May brought not the Tories but rather a Tory-Liberal Democratic coalition to power, an uncomfortable and somewhat unprecedented situation for the British. The deal each man cut with the other has a one-year shelf life — basically, until the referendum on electoral reforms that the Lib Dems insisted on can be held next May. After that, watch how quickly the coalition unravels.

• In Italy last week, Prime Minister Silvio Berlusconi, in power since 2008 (and who led Italy 1994-95, 2001-06), lost his parliamentary majority due to the defection of a 30-strong faction from his People of Freedom party over a junior minister accused of corruption. Berlusconi likely will face a vote of confidence in September, and as of right now, new elections in Italy seem more likely than not.

• In France, meanwhile, another mercurial continental leader, President Nicholas Sarkozy, finds himself embroiled in a campaign finance scandal that could threaten his job. Sarkozy came into office declaring that a new era of probity had dawned. But French police have opened investigations into whether Sarkozy solicited large political donations from 87-year-old Liliane Bettencourt, the wealthiest woman in France and heiress to the L'Oreal cosmetics fortune.

• In Spain, the European economy staring most intently into the economic abyss, Prime Minister Jose Luis Rodriguez Zapatero’s coalition is dependent on two nationalist parties that know they have him in a spot. Ahead of the Catalan regional elections in October and November, both the Catalan Party and the Basque Nationalist Party want concessions on regional autonomy opposed by the rank-and-file of Zapatero’s Socialist Party. The Catalan nationalists also want to see more and deeper reforms of labor and social programs and could be tempted by a coalition with Zapatero’s rival, People’s Party leader Mariano Rajoy, who now leads Zapatero in opinion polls.

These five economies represent nearly three-fourths of the GDP of the European Union. Put another way, combined they produce as much economic activity every year as the United States did in 2004. Their crushing national debts aside, having this degree of political instability in an economic pillar that large has to make you wonder about the future of “The West.”

Merkel’s shrinking circle

While her next scheduled date with the electorate is not until 2013, Merkel’s dwindling base of support within the CDU and among the public could lead to a no confidence vote — or the defection of the Free Democrats. That appears unlikely in the next few months, though the emergence of another Greek-style sovereign debt crisis — requiring Germans to step up again — could provide an opening her rivals would find hard to resist.

In the meantime, an increasing debate over Germany’s sizeable contribution to the Afghan War (5,500 troops) simmers away. As in America, the economy overshadows public discontent over German casualties (47 deaths), but one bad night in Kunduz could change that reality.

Whatever Merkel’s fate, her troubles have prevented Germany from stepping into the leadership role Europe so badly needs right now. The consensus muddles along, meanwhile, and the really difficult restructuring of EU finances (and political arrangements) gets kicked down the road again.

Best Before May 2011

Whatever relief Britons feel in seeing the increasingly impotent Labour government replaced, the fact is new British Prime Minister David Cameron and his Liberal Democrat deputy prime minister, Nicholas Clegg, disagree on basic tenets of government, particularly on social welfare spending (where Lib Dems would spend more) and defense and foreign policy (where Lib Dems would spend far less).

Nonetheless, Lib Dems have agreed to go along with much of the austerity Cameron has prescribed in exchange for a scheduled referendum on electoral reform to be held in May 2011. This long sought Lib-Dem dream aims to disentangle the way parliamentary seats are apportioned, which results in the third party never getting a proportionate share of seats. For Lib-Dems, this is the point of the coalition.

Whether the electorate accepts or rejects the reforms is uncertain. More safe to say is that Lib-Dems probably will countenance many things that run against their beliefs to stay in power long enough for the referendum to be held in 2011. After that, the Conservative-Lib-Dem partnership may prove difficult to sustain. Britain could see a new election next year, if the Tories work against Lib-Dem interests in the referendum, or even renewed talk about a Lib-Dem-Labour partnership.

Scent of a woman

Nothing if not entertaining, Sarkozy’s troubles with the perfume heiress may carry the seeds of his destruction. Secretly taped conversations allegedly suggest Sarkozy’s labor minister, Eric Woerth, may have moved to block a legal action filed against the woman in exchange for political donations.

The opposition Socialists have demanded the resignation of Woerth, the architect of France’s vital pension reforms, an outcome that would raise questions about the ability of a weakened government to press forward with structural reform.

But the Bettencourt affair shone a light on other inside dealings between Sarkozy’s center-right UMP and political donors, all in contradiction of his advertised intention to halt such practices. Sarkozy likely will survive as Charles de Gaulle’s presidential form of government would require impeachment to remove him. Since a French president is elected independent of parliament and effectively immune from prosecution during his term, impeachment seems unlikely, but his party’s hold on government appears seriously threatened.

So, there is a strong prospect of early French elections: Sarkozy’s poll numbers hover near record lows for a French president, and his party took a beating at the March provincial elections. New elections could well bring a period of “cohabitation” in which Sarkozy must work with a socialist government or socialist-led coalition.

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.

Editor's note: This story has been updated to reflect that the U.K. elections took place in May, not April.