UPDATE 2-Swedish art gallery satire "The Square" wins Palme d'Or at Cannes
* Sofia Coppola the second woman to win best director at Cannes
NEW YORK Dec 13 Remember the euro crisis? For most of 2012, politicians, investors and business leaders were almost unanimous in their belief that the possible breakup of the euro would be a massive risk to the world economy. But today the euro is 5 percent higher against the dollar than it was six months ago, European stock markets have outperformed Wall Street by 11 percent in the same period, and Italian government bonds have been among the best investments of 2012.
The Nobel Peace Prize conferred this week to the European Union included three men who, under the EU's byzantine institutional structure, are all entitled to be called "President of Europe." With the award, it seemed as if the euro crisis might be almost over.
Silvio Berlusconi burst back onto the EU stage this month with his trademark chutzpah and slapstick timing, disparaging the technocratic government that has been given credit for putting Italy back on the road to financial prudence and thereby saving the euro.
By attacking Prime Minister Mario Monti's governance, Berlusconi reopened all the old arguments about the sustainability of a single currency in this quarrelsome club of 17 divergent nations. Italian shares, bonds and the euro all fell sharply. And in EU diplomatic circles, anxiety about another clash between Germany and the Mediterranean laggard nations reached a fever pitch.
Berlusconi, in the first major television broadcast of his new campaign, hinted at an anti-German campaign that may lie ahead. He attacked Monti for imposing "German-centric policies" and accused Germany of sabotaging the Italian government by manipulating bond market "spreads" (a word that may be now as familiar to most Italians as "ciao" or "pronto"). These spreads, Berlusconi said, were "con-tricks" and "inventions" designed by Germany to topple his elected government while German businesses and banks crushed their Italian competitors with artificially high borrowing costs.
Guido Westerwelle, Germany's foreign minister, retaliated immediately, which was perhaps unwise. Germany would not interfere in Italy's internal politics, he said, but there is "one thing we will not accept - that Germany should be made the target of a populist election campaign."
Westerwelle offered no clear example of how he would prevent Germany from becoming a "target" of Italian populism, a daunting challenge in a time when 83 percent of Italians believe that German influence in the EU is "too strong," according to a Financial Times/Harris poll. There are, however, two people who never hoped to achieve reconciliation: Monti and German Chancellor Angela Merkel. Given the political pressures facing both of them, such a rapprochement could be a surprising outcome of Italy's election campaign.
Berlusconi overplayed his hand by triggering an early election. His People of Freedom party is 20 points behind Pier-Luigi Bersani's socialists, who back Monti's reforms, and the smaller center parties also support Monti. This support is likely to weaken next year as new taxes kick in, but an election in February leaves little time for anti-tax resentment to intensify or for Berlusconi to rebuild his creaking political machine and restore his image as a plausible leader rather than a priapic buffoon.
The upshot is that Monti's reforms now have a good chance of winning a proper democratic mandate. If this were to happen, Monti could make way for Bersani as prime minister and get himself elected president of the republic, replacing the 87-year-old Giorgio Napolitano. The Italian presidency is mostly ceremonial, but it becomes powerful during constitutional crises, which occur in Italy roughly once a month. Monti's elevation to the presidency would be welcomed by the German and European establishments, which would see it as a guarantee of political stability and commitment to reform.
There is an even more important question than who rules Italy, which is: What does Europe really mean by "economic reform?" If reform means never-ending austerity and tax hikes, which is essentially what Berlusconi contends, then the Italian people will probably vote against it. If, on the other hand, it means opening the economy to competition, reducing oppressive bureaucracies and confronting vested interests, then voters are likely to support it. Monti's centrist supporters should insist that Italy's financial credibility has been restored to the point where austerity is no longer needed. In the next stage of the reform process, tax cuts and fiscal easing should accompany growth-promoting structural reforms.
It is probable that the International Monetary Fund, the European Commission and the European Central Bank would support a pro-growth reform program for Italy that combines deregulation with some moderate fiscal stimulus. The only real obstacle is the German government, which often confuses reforms such as deregulation of competition with the need for austerity. Monti has done more than any other EU politician to persuade Merkel that competitiveness and austerity are not the same thing. His quiet diplomacy, which created a united front against excessive austerity with France and Spain, has been far more successful in shifting the European debate than Berlusconi's grandstanding.
While Monti's efforts to soften German-inspired austerity have not yet succeeded, Merkel faces an election of her own next year. This will make her more vulnerable to diplomatic pressure, since the last thing Germany wants is another outbreak of the euro crisis. Next year will be the ideal time for a sensible Italian leader to ease Europe's austerity bias by uniting with France and Spain, something Berlusconi could never manage with his farcical anti-German antics. If overtaxed Italian voters feel that austerity has gone too far, they should elect a leader who simply says "basta." There is no need for "bunga-bunga."
* Sofia Coppola the second woman to win best director at Cannes
WASHINGTON, May 28 The United States might ban laptops from aircraft cabins on all flights into and out of the country as part of a ramped-up effort to protect against potential security threats, U.S. Homeland Security Secretary John Kelly said on Sunday.
* Unannounced, Russia stages test flight of new passenger plane