PARIS -- There is a celebrated observation of the 1920s Italian radical, Antonio Gramsci, that perfectly fits the economic paralysis of today's Europe: "The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear."
A week before the final round of the French presidential election, which is very likely to propel the Socialist, Francois Hollande, to the Elysee Palace, it is hard to see how even a left government in a single European nation can defy the austerity consensus.
In France, as elsewhere, there is a pervasive popular backlash against the austerity policies being inflicted by Europe's financial and political elites. The more that European nations cut their budget deficits to reassure bankers and financial speculators, the more their economies shrink -- leading the same financiers to keep betting against their bonds.
With this medicine, Spain and Portugal have followed Greece into deep recession. In Britain, the Conservative-led government has idiotically embraced an austerity budget not because money markets have demanded it but because the Tories think it's necessary medicine. Britain has been rewarded with a double dip recession.
The European Central Bank has kept Europe's commercial banks afloat by advancing them over a trillion Euros in very cheap money -- which the banks turn around and invest mostly in government bonds. This produces a quick profit for the banks. But it only kicks the proverbial can down the road, since speculative money markets continue betting against the very same bonds.
The Maastricht Treaty of 1993, which created the Euro and the modern European Union, requires member nations to keep their deficits at no more than 3 percent of GDP. In a recession, when reduced tax revenues cause deficits to widen, that requirement is a straitjacket.
The new conservative Spanish government, which has ordered painful budget cuts, is presiding over a worsening economy and is under pressure from Brussels and Frankfurt to cut further. With unemployment at 23 percent and rising, Prime Minister Mariano Rajoy recently told the leaders of the European Union to take a flying leap.
As a perfect example of the perversity of the conventional wisdom, Standard and Poor's, the ratings agency whose complicity in subprime fakery helped bring us the crisis, acted Thursday to downgrade Spanish government bonds to a BBB+ rating. S&P said that Spain's goal, responding to EU pressure to cut its budget deficit to 5.3 percent of gross domestic product in 2012, is considered unlikely to succeed, because of Spain's deteriorating economy.
In other words, "markets," which allegedly are demanding austerity, then punish nations that pursue austerity because economic conditions (surprise!) worsen. Spain's borrowing costs have doubled in a month, and will now rise further because of the reduced credit rating.
Maybe the answer is: Let's stop trusting the verdicts of private financial markets and their corrupted rating agencies.
German Chancellor Angela Merkel, whose economy has benefited from the rest of Europe's pain, continues to insist that any debt restructuring be accompanied by perverse fiscal retrenchment. Germany profits because the more that financial markets flee from the bonds of other nations, the more money pours into German government bunds, reducing German costs of borrowing.
So, what is to be done?
If Hollande is elected President of France next week and attempts to pursue a growth policy in one country, as President Francois Mitterrand tried in the 1980s, he will be punished both by money markets and by other leaders.
When Mitterrand tried expansion in one country, the result was capital flight and pressure against the franc. In those years, currencies were vulnerable to conservative financial pressures. Today, with a single European currency, it's government bonds that are under attack. But it's the same story.
A French expansionary program of deficits and public investment would bring instant retribution from the vigilantes of the bond market. It would also put France in violation of the Maastricht Treaty -- even though France at various periods in her history has had much larger public deficits. If ever larger anti-recession spending were justified it is now. Hollande has pledged to renegotiate those limits, but even if he succeeds the bond market will punish France.
With the constraints of the European Union which acts as enforcer for the banks, far-reaching anti-recession policies are literally impossible for a single country. Despite a Europe-wide "government" -- the E.U -- the economic power of democratic states to temper markets has been weakened, while that of bankers has been strengthened.
Thus, Gramsci: "The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear."
Morbid symptom number one: The voters will reject austerity, but their democratically elected leaders will be precluded from devising alternatives.
In fact, it is not difficult to imagine a growth agenda.
Some European countries have very large deficits, mostly the consequence of the recession itself. But the Euro zone as a whole has plenty of room for fiscal expansion.
The EU as a whole needs to launch a massive development program in the spirit of the Marshall Plan -- the Spanish newspaper EL PAÍS writes that senior leaders in Brussels are talking of such a plan in the range of 200 billion Euros -- a step in the right direction but not nearly enough.
The debts of the weaker economies need to be converted into Euro bonds and refinanced, so that small countries are not punished for the sins of banks.
But how to bring this about politically? At the very least, it will take left governments in more than one country.
Frank-Walter Steinmeier, likely to be the Social-Democratic challenger to Angela Merkel in the German elections next year, has warned that austerity is the wrong path for Europe. But with Germany responsible in effect for guaranteeing Europe's debt, it would take a truly far-sighted act of statesmanship for any mainstream German leader to put Europe on a different road.
More than anything else, rejecting austerity will require dramatic limits on the economic and political power of finance. In the end, austerity is less result of the architecture of the EU per se and more a reflection of the sheer influence of the banks.
The whole crisis of sovereign debt would be far easier to solve if we taxed away or regulated away the ability of banks, hedge funds, and other financial players to speculate in sovereign debt.
It's not as if banks have had a good track record of making the right decisions throughout the crisis. On the contrary, their recklessness brought us the crisis.
Absent radical reforms to contain the power of finance, we can expect a Europe of frustrated citizens and elected leaders unable to change course -- a prolonged and morbid interregnum.
Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His latest book is "A Presidency in Peril."