Italy held an election on March 4 of this year. The results did not give a clear mandate to a single party or a coalition to govern. It is still uncertain as to what will happen next, but it is more than likely that another election will be held later this year.
This may seem as not unusual. Italy has a long history of coalition governments which are the result of negotiations between parties. It may also seem as not unusual because the German political parties also took a great deal of time to form a government after the last elections. Spain experienced a similar issue in the last couple of years as did other EU Member States.
However this latest Italian crisis is not a political crisis like any other but rather one which may be apparently political but is actually economic and financial in its essence. Up to last Sunday the two parties that got the most votes had agreed to form a coalition government, but President Sergio Mattarella (in respect of the right given to him by the Constitution) did not accept to nominate the person that had been proposed for the role of Minister of Finance. This shows clearly that the issue is not political in its essence but economic.
The reaction of the financial markets – decreases in the value of equities, a weakening of the euro, and an increase in the spread between yields on the German sovereign debt and yields on Italian sovereign debt – is also indicative of the economic nature of the crisis.
Financial markets operators do not act or react unless they see a threat to their investments. They could not be bothered about politics and politicians unless their investments are threatened. And their reaction to the Italian crisis showed that they are seeing such a threat.
We could link the Italian crisis to Brexit. The main challenges that are being faced by the UK and EU Brexit negotiators are economic. Should there be a customs union or not? Should there be a free trade area or not? Should there continue to be free movement of persons, goods, services and capital or not? These are economic questions that still need to find a reply and there seems to be an inability to negotiate a win-win situation.
We could even draw an analogy to the US President’s slogan ‘America First’. This is essentially a stance that reflects the requirements of the US economy, as perceived by Donald Trump. America First is translating itself into not allowing migrant workers and the imposition of import duties on certain products exported by China, the EU and other countries. The choice of products is very much targeted so that the US economy does not get hurt by the same import tariffs which are meant to provide it with protection.
The Italian crisis may look very political but it really has to do with the economy. In fact the main bones of contention are the commitments that Italy has with EU in relation to its fiscal deficit and public debt, the restrictions imposed on the production of agricultural goods, taxation, labour legislation. All these are economic issues.
Most of these issues are being faced by other countries as well, as while we have experienced the globalisation of the economy, we have not had the globalisation of society and political matters are still the remit of the nation-state. Countries have not always appreciated that the decisions they take, even if they are political or social in nature, will eventually impact on the economy.
What are the lessons for Malta? I have always believed that the economy is there to serve society and not the other way round. On the other hand, we should never ignore the economic impact of any social and political decisions that are taken. When faced with a crisis, we need to give economic considerations their due attention.