I think one of the topics for next years election in Italy is just being decided. Romano Prodi (former President of the EU Commission) has just spoken out against Sinascalco. He is in favour of making cuts. Prodi is quoted as saying that:

"Credit downgrades will follow if there is not quick action in fixing the situation, and I do hope Finance Minister Siniscalco makes some decision......The government lost control of current expenditure. The situation is very serious.''

Prodi is about to become the whipping boy, having to go into an election with the 'popular' policy of making widespread spending cuts.

Incidentally,

Anatole Kaletsky has some very harsh words to say about the Brussels leadership and all this. I don't entirely agree with his general economic analysis (I don't think eg devaluation is a quick solve all policy in the way he seems to) but he certainly makes some strong points:

"The idea that the euro is mainly responsible for the breakdown of Europe has recently been floated by so many Italian politicians allied to Silvio Berlusconi that it is losing what Richard Nixon used to call ?deniability?. The anti-euro claims are partly designed to shift blame for Italy?s problems on to Romano Prodi, the former Commission President who is now Berlusconi?s main political opponent. But more importantly, the anti-euro rhetoric is weakening the euro on the foreign exchanges and may well force a change in policy regime at the European Central Bank. These are exactly the right objectives for Europe?s politicians ? and they bring me back to the comparison between Britain after Black Wednesday and Europe today."

"The first lesson of White Wednesday (as I have always perversely called this day of national salvation) was that a country that gives up its currency loses control of its economic destiny. The second lesson was that interest rates, used boldly, are a uniquely powerful tool for stimulating job creation and growth."

"These lessons are hugely relevant to Europe today. The euro is the essential cause of Europe?s ?democratic deficit? because it prevents different countries adopting the variety of social and business models that voters demand. A currency is to national economic management what a border is to political sovereignty: with floating currencies each country can choose its own style of economic and social organisation; with fixed currencies they can?t."

"If France or Italy wants a generous social safety net, it can keep its business costs down by devaluing its currency. Of course, devaluation may lower living standards for consumers, but if people want to pay this price to preserve their social traditions, that is what democracy is for. It is only when a country with high social costs loses control of its currency that the burden becomes intolerable, destroying jobs and decimating investment. "