Europe should be really happy that March is over. It was a disastrous month.
There were three main stories; all of them bad.
Italy can't form a government. Italy's parliamentary election took place at the end of February, and it was immediately clear that no single party won enough seats in both houses of Parliament to be able to form a government. Center-left candidate Pier Luigi Bersani had the best shot of establishing a coalition, but he was unable to come to any deals with Berlusconi's party, and he was unable to pick away any support from Beppe Grillo's Five-Star party, and bring them over to his side.
That all came to a head at the end of this past week. The ball has now been thrown into the court of Italian President Napolitano (a separate position than PM, who serves a seven-year term, and whose job it is to facilitate the establishment of a government). Another election this year looks very likely.
Since the February election, there have been polls in Italy showing strength for Berlusconi and Beppe Grillo, so if there were another election there's a good shot that the winner would be someone who doesn't have the same inclination to play nice with the rest of the Eurozone.
Cyprus. This was a fiasco on so many levels. The amount of money involved was almost totally irrelevant — couch change for Germany. But because of how the situation was handled, Eurozone leaders managed to reignite fears of a euro breakup, create uncertainty over the safety of retail bank deposits all over Europe, violate the notion of insured deposits, anger the Russians, anger the Greeks, create dissent between the IMF and the EU, and make it look like Germany is a huge bully that creates the policy for all Eurozone members. And in the wake of Cyprus, Europe can not get its story straight about whether the Cyprus model of resolving banks is a precedent, a template, a blueprint, or none of the above. Complete disaster.
The economy is a trainwreck. This is really the big one. The European economy is really going to crap again. We'll find out more soon, as we get PMI numbers for March on Monday, but we already know how bad the month was. Flash PMI numbers for France and Germany were awful.
So the economy just got completely taken to the woodshed in March in the Eurozone.
And that's going to make everything else worse. Deficit targets will be missed. Voters will be more radicalized, and so on.
March was a truly horrible month for Europe.
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