Europe crisis makes pecking order clear: ‘Merkozy,’ then the rest

Reporting from Rome —  It was but a glance, a little smirk that the German and French leaders shared in public when asked about Italy’s prime minister, Silvio Berlusconi, and his country’s economic woes. But that moment at a recent crisis meeting made it very clear where Italy — and everyone else — stands in the Eurozone pecking order.

Many Europeans realize that their futures are being increasingly dictated by Germany and France — in that order of importance — personified by a mashup of German Chancellor Angela Merkel and French President Nicolas Sarkozy dubbed “Merkozy.” The two leaders are pressing financial remedies in lock-step with market forces and faceless officials from institutions such as the International Monetary Fund and the European Central Bank.

There is grumbling across the continent and an anti-German tone to street protests in Greece, reflections of a fear that millions are giving up some control over their lives. Even while they acknowledge that economic reforms are necessary, people in Europe’s financially strapped countries worry that the price is a loss of sovereignty.

“We were supposed to be partners on the same level, but we’re not,” said Armando Romangolo, a 50-year-old barista speaking above the din of a cappuccino machine at a cafe in central Rome. He then tapped on the marble counter before letting out some steam of his own. “Look, those bastards made a joke of Berlusconi,” he said, referring to mocking by Merkel and Sarkozy at a news conference last month. “We are not stupid, but what can we do?”

Susanna Camusso, secretary-general of the Italian General Confederation of Labor, which represents about 6 million workers and retirees, said Italy’s situation was humiliating.

“There’s a democratic problem because countries have parliaments and governments that are elected by the people,” she said.

On Wednesday, a team of about 20 European Union inspectors arrived in Italy to ask, among other things, that the Treasury Ministry produce a list of state-owned assets that could be sold. Next week the IMF will visit before it begins to monitor Italy’s finances and adherence to reforms demanded by the EU in return for help in financing the nation’s $2.6-trillion debt.

Camusso and Italians in all walks of life acknowledge the intrusions were at least partly brought on by Italy’s dysfunction — above all by Berlusconi, the 75-year-old billionaire. His sexual antics and failure to put Italy’s finances in order have eroded the patience of European leaders and, after Greece, put the country in the cross-hairs of financial markets.

This week, after another surge in interest rates on Italian bonds, demanded by those who question the country’s ability to pay back what it borrows, Berlusconi announced plans to step down. But even then, it wasn’t Italian citizens tossing him out at the polls.

The last year has seen the fall of governments or leaders in five EU countries. In Ireland and Portugal, voters ousted the parties that had to accept bailout funds and impose austerity plans. The prime ministers of Greece and now Italy are gone or going. In Slovakia, the government fell because it couldn’t initially muster enough votes to back the rescue plan formulated by the German- and French-dominated EU.

At the end of next week, a sixth European government, Spain’s ruling Socialists, faces an election rout.

Powerless as they feel, most Italians don’t hesitate to say their country should stick with the continent’s shared euro currency. Without it, many believe, Italy’s economy would be even worse.

But that leaves the world’s eighth-largest economy at the mercy of even richer partners.

“This crisis is profoundly transforming European integration,” said Nicolas Veron, a senior fellow at Bruegel, a think tank in Brussels. As a result, the Eurozone will either break up or establish a new central body with executive powers, he said.

Veron and others say the root of the problem is that Europeans agreed to a common currency and economic zone without designing an overarching political system that could ensure everyone adopted the budget and spending policies needed to make it work.

Germany is now pushing for greater European integration. Even the Netherlands, which has typified Northern Europe in its disapproval of its more free-spending southern neighbors, has proposed the idea of a Eurozone finance minister. But that’s not easy to create with 17 nations in the Eurozone, and another 10 in the European Union that still maintain their own currencies.

And thus far, the European leaders who are calling the shots — largely Merkel and Sarkozy — have been focused mostly on crisis management, telling Italy and other countries to impose fiscal discipline and make cuts in social spending without giving serious attention to the political side of the equation.

When Greek Prime Minister George Papandreou said he wanted to hold a referendum to try to build support from the public and the opposition for austerity policies, the response illustrated worry that such decisions could be entrusted to the Greek public. The Eurozone leaders threatened an instant cutoff of aid that would lead to an economic crash.

For the moment, Greece has been forced back into line. But unrest will probably continue because the financial prescription will impose years of slow growth.

Ritsa Koletta, an accountant in Thessaloniki, Greece’s second-largest city, said she quit her job two months ago after her employer slashed her pay by nearly 40%, even as her work hours increased. Her father’s pension has been cut too, she said.

“People are afraid,” said Koletta, 34. She is also seething with resentment toward Germany, Europe’s juggernaut economy, for balking at more aid to troubled Southern European countries, and dragged up wounds dating back to the Nazi years. “They destroyed our country in the war,” Koletta said.

An effort to heal those wounds was at the heart of the creation of the European Union. With the German economic engine anchored to its neighbors, the region broke down trade barriers, encouraged economic growth and put old political grudges behind it.

But the debt crisis has made it clear that huge economic and cultural differences remain.

Many analysts agree that one solution would be for the European Central Bank to act as the lender of last resort. In Italy’s case, that would mean acting as a guarantor of its bonds. But Germany, fearful from its past experience with hyperinflation, has nixed the idea.

And Italians, like many others across the continent, see little choice now but to do things Germany’s way.

Noemi Sernicoli, 31, the mother of a 2-year-old, said her personal finances as well as those of her country were a disaster. She lost her job at a tanning center near Rome’s airport in December when the entire shopping center shut down. On Thursday, after working three hours cleaning an apartment building for minimal pay, she waited at a Rome subway station for the two-hour trip back home.

Things seem to be going better in Germany and France, she said. “Maybe it’s worth listening to them.”

don.lee@latimes.com

Times staff writer Henry Chu in London contributed to this report.