Vote reveals further instability in Europe

PARIS – Italy’s election exposed deep divisions. The French government buckled under street protests. And Germany is run by an awkward left-right coalition.

The sense of uncertainty in some of Europe’s biggest economies points to a continent afraid of change. Experts agree tough reforms are overdue – but the continent’s governing elite seem incapable of pushing them through.

“We’ve just had the worst 24 hours for the European reform outlook in a long, long time,” said Holger Schmieding, London-based head of European economics at Bank of America, referring to the razor-thin Italian vote and the French government’s recoil from jobs reform.

More and more Europeans are telling their leaders to stop, or at least slow down. Wariness of change is only part of the story. Europeans appear increasingly beset by confusion and division about where their countries and the European Union should be heading.

Early enthusiasm for the EU constitution fizzled after French and Dutch voters ditched it last year, leaving the European project hamstrung. German voters initially looked set to give reform-minded Angela Merkel’s center-right party a strong mandate in elections last fall, but then backed off, forcing the new chancellor into a cumbersome coalition that diluted her plans.

And this week, Italy’s voters retreated from five years under center-right leader Premier Silvio Berlusconi, handing a painfully slim victory to center-left economist Romano Prodi. But without a strong majority, his coalition has little chance of enacting any significant economic overhaul.

Italy, which is mired in economic stagnation, badly needs strong leadership to restore a competitive edge it is rapidly losing to red-hot Asian economies. Instead, the voters’ verdict is a recipe for paralysis in which factional infighting will likely take precedence over reform.

France’s recent student protests started as sparse gatherings in February against a relaxing of rigid labor laws. But the demonstrations built into rallies of more than 1 million last week – and drove President Jacques Chirac to retreat and abandon the measure Monday.

The stunning retreat showed how unlikely it will be for France to implement bigger changes that experts say are necessary to get the nation in shape for the 21st-century global economy.

Many European business leaders are sick of anemic growth and want their countries to become more competitive. But they are fast giving up hope about the prospects for a transformation at home and are seeking opportunities abroad.

A high-ranking French executive threw up his hands in disgust when talking about the protesters who brought down the job measure – and repeated the gesture when asked his opinion of the president and prime minister, who tossed out the jobs contract they had initially championed.

His multinational Paris-based energy company is focusing more and more of its activities abroad. That’s partly to escape France’s tough labor regulations, he admitted, but mostly to follow profits that he does not see growing as fast in France as elsewhere. The executive spoke on condition of anonymity because of his company’s ties to the government.

The example of the company executive points to one of the ironies of Europe’s economic doldrums: Many French and German companies have managed to remain trim, efficient and world-class even as the countries they call home go into decline.

A few optimists predict momentum for reforms could pick up once the new governments in Germany and Italy gain more experience and confidence, and after French presidential elections next year.

In the meantime, middle-aged Europeans are resisting reform because they fear facing old age without the social safety net built up over the past several decades, while young people worry about starting their careers in a climate of insecurity.

“It’s true, we have no war or famine. But we are afraid of not being able to be economically independent, of having to depend on our parents all the time,” said Herve Ratier, a 19-year-old student at the University of Paris at a recent protest. “How can you start a family in such a situation?”