“Revenge,” it is said, “is a dish best served cold”. The creation of the euro, it is said, was the triumph of politics over economics. The eurozone crisis a decade or so later, it is said, was the revenge of economics.
Well, economics has returned for another helping.
Accepting Italy as one of the eurozone’s founding members was a decision only made possible by ignoring common sense, by twisting statistics, and by making a mockery of the rules. But it was a Pyrrhic victory: Italy was allowed to trick its way onto a voyage that damned it. The euro simply did not fit the realities of Italy’s economy or its politics. By dramatically cutting the country’s financing costs (borrowing lire would have carried a significantly higher nominal cost) adopting the single currency allowed Rome to avoid tackling the country’s high debt load, a debt load that was made all the more dangerous now that it was all denominated in a ‘foreign’ currency. Italy could no longer print lire to pay off its creditors.
When the eurozone crisis hit, Italy was one of the victims, and so, in some respects was its democracy. In something that came uncomfortably close to a coup, the eurozone leadership essentially used Italy’s financial fragility as a lever to secure the replacement in 2011 of Prime Minister Berlusconi by a Brussels man, Mario Monti, a pliable, unelected proconsul. Next time you hear Brussels lecturing Eastern Europeans on democracy remember that.
Italy weathered the crisis in a ‘just a flesh wound’ sort of way. Its problems became chronic, rather than acute, if that’s the correct adjective to describe the consequences of staying stuck in the euro’s deflationary trap: High rates of unemployment and anemic economic growth.
Per capita GDP in Italy is still more than 8 per cent lower than it was when Lehman Brothers went bust in 2008. Quite incredibly, it is even lower than it was when the country joined the eurozone back at the turn of the millennium. Unemployment stands at 11 per cent, down from a peak of 13.1 per cent in 2014, but still double the 5.8 per cent low seen in 2007.
The figures for the young are still worse. For the under-25s unemployment stood at 31.5 percent in January.
Growing rates of illegal immigration, accelerated by Angela Merkel’s decision to throw open Germany’s doors in 2015, only fueled popular discontent with Rome—and Brussels— still further.
Italy’s March elections generated a result that was confusing except in one clear respect: Italians had had enough. A potentially chaotic coalition government has been formed between populist (that word will have to do) parties of the right and (sort of – it’s complicated) left, united mainly by euroskepticism and frustration with the status quo. The tensions inherent within such a pairing, not to speak of an economic program that currently seems set—over Brussels’ protests— to send Italy’s government debt (already some 130 percent of GDP) soaring, could well mean that this government proves short-lived. That (and the ‘interesting’ question of what would come next) is a topic for another time, as is (given Italy’s size, the amount of its debt and who holds it) the potential threat to the eurozone (not existential, I reckon, but it could be a very rough ride).
For now, the more interesting question is how free Italians really are to choose and keep their own government. Italian sovereign yields remain far below their crisis levels, but the bond vigilantes are gathering, Moody’s has threatened to downgrade the country’s debt, there are mutterings in Brussels and Rome’s europhile establishment is pushing back.
A couple of weeks back, Italy’s eurofundamentalist President Mattarella stated (Politico reports) that “irreversible unity” at the European level is “urgent.” He has, it seems, learnt nothing from the mistakes of the past. It’s worth adding that “irreversible” is not a very democratic term, and the insistence on urgency is an old, old demagogic trick, as was Mattarella’s (ludicrous) claim that the “wind of war is blowing”: The Verdun card, played again.
Mattarella has balked (so far) at the coalition’s pick for finance minister, Paolo Savona, a veteran economist who has made the mistake of being right (despite some stupidly anti-German rhetoric) about the euro for decades. That, it seems, will not do.
Readers with long memories will recall that the euro was going to bring stability. Central planners with short memories even believed it. I’m not convinced it’s working out.