ROME — The political gridlock in Italy revives a question that hasn’t been heard lately: Is the euro zone crisis really over?
Judging by the panic that seized financial markets on Monday, and carried over into European stock and bond trading Tuesday, the answer seems to be no.
After months of calm, investors are jittery not only because Italy, once again, seems to have once again become ungovernable after an inconclusive political election. It is also because voters in the euro zone’s third-largest economy — after Germany and France — soundly repudiated government austerity policies that the region’s leaders have long embraced but that have hampered growth in Italy and elsewhere in the euro currency union.
By supporting a protest-vote candidate, the comedian Beppe Grillo, and backing the return of former prime minister Silvio Berlusconi, who has vowed to reject austerity, Italians appear to be embracing a return to nationalism, experts say.
Swept aside by the Italian elections was the technocratic government led for the past 13 months by Mario Monti, who has been crucial to an unwritten accord: The European Central Bank promised to help contain the financial contagion that was threatening the euro zone as long as political leaders like him made headway in improving their economies.
The upheaval in Italy means that other euro zone leaders may no longer have a reliable partner in the drive to create a more durable currency union, and that Rome’s voice in European policy making will be diminished, for now at least.
“This brings back all the political risk issues” that had seemed to fade from the euro zone, said Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington.
To be sure, Europe’s debt crisis is not nearly as dire as it once was. Even though Italy’s borrowing costs, as measured by its 10-year bond yield, hit a three-month high on Tuesday of nearly 4.9 percent, that is still nowhere near the 6.5 percent danger zone of last summer.
And despite renewed fears of instability, no one is talking about a breakup of the euro zone — as might have happened last year if such political uncertainty had beset one of Europe’s most crucial economies. The newfound stability follows a shift in sentiment that took hold last autumn after European politicians, led by Chancellor Angela Merkel of Germany, made clear that the euro union is here to stay — no matter what.
Experts said the vote served as a warning shot that a new round of political instability could be coming in the neighboring large economies of Spain and France, whose leaders have also adopted austerity programs to keep the euro debt crisis from engulfing their economies — despite concerns that the programs are impeding the economic rebound that might help them grow their way out of financial distress.
With Italy sidelined and France and Spain weakened, Germany will very likely be even more dominant in European policy forums. Ms. Merkel may be tempted to talk even tougher with weaker euro zone members. And facing elections herself in the fall, she may be less willing to commit German taxpayer money to holding together the currency union.
“We are going to have six or nine months of Italy being absent, which leaves Germany as dominant as ever,” Mr. Kirkegaard said. “For the rest of the year Germany is primus inter pares.”
Perhaps more significant is the role of the European Central Bank, in this period of renewed euro zone uncertainty. The E.C.B. rode in as a white knight last September by agreeing to buy large amounts of bonds from countries with shaky finances, including Italy, to calm a contagion of fear then sweeping the euro zone. The E.C.B., run by Italy’s former central banker, Mario Draghi, vowed to do “whatever it takes” to hold the euro union together.
The issue now, experts say, is that Mr. Draghi’s promise was based on a quid pro quo with euro zone governments. If countries agreed to conditions designed to make their economies perform better, the E.C.B. would buy their bonds to hold down market interest rates.
So far, the E.C.B. has not bought any bonds. The mere commitment to do so has been enough to reassure international markets. But Italy’s new political turmoil might now prompt investors to test the E.C.B.’s resolve. If so, many experts doubt whether the bond-buying program is workable — for Italy at least.
