A year after the 5-Star Movement and La Lega won the political elections and a few weeks before the European Parliament elections, Italy is officially in a recession. The extreme right and extreme left coalition partners seem to disagree about everything except holding on to power. The balance of power is now shifting with Matteo Salvini’s party gaining rapidly while Luigi di Maio keeps losing ground.
Italy continues to be an export-oriented country. The global slowdown that has ripped through Europe has badly affected countries like Germany and Italy that depend so much on export. In the case of Italy, the situation is made worse by pre-electoral promises to give what may consider unaffordable handouts to the unemployed.
Public debt has risen to its highest levels since the time of Mussolini. The European Commission has issued some couched warnings about Italy’s unsustainable public finance and poor economic performance. But the coming elections in May have muted the tone of the message. The isolated Finance Minister Giovanni Tria tried to sound optimistic claiming that: “Restoring investor confidence is the biggest issue, but all the conditions to do it are there.”
The European Commission mildly criticised the Italian government saying that current political actions “imply risks with cross-border relevance”. The French Finance Minister Bruno Le Maire was more categorical when he said: “Don’t underestimate the impact of the Italian recession”. Contagion of the Italian economic illness to neighbouring EU countries is a real possibility.
Understandably, the gravity of Italy’s economic malaise is worrying industrialists. Corrado Alberto is the head of Turin’s entrepreneurs association API. He ominously said: “Those who talk about stagnation are way too optimistic, we are facing a real recession”.
Fiscal prudence should remain the hallmark of the EU’s governance
Most analysts agree that the outlook remains highly uncertain and Italian companies seem to be aware of this, according to Vincenzo Longo and analyst for IG markets in Milan. “The man risks remain linked to the international context and to the internal one, with the political uncertainty under the lens of investors”.
However, not everyone agrees that the economic situation in Italy is so bleak. Franceso Bonazzi is an economic journalist from Turin. He has just published a book Viva l’Italia: Perche non siamo il malato d’Europa. Bonazzi blames those who preach the ‘economy of fear’ especially German bankers who he claims gain from bashing Italy’s economy.
Bonazzi argues that Italy is rich because the property wealth of private individuals is greater than the public debt. Moreover, Italian families have liquidity and live a good lifestyle. What is wrong, he comments, is not that Italy does not respect the Maastricht fiscal criteria but that there is a growing gap between the rich and the poor and a widening secession between the North and the South of the country.
Bonazzi insists that following the next European Parliament elections things must change if the EU is to remain relevant. He urges Italian politicians to fight for three fundamental principles that will resolve Italy’s economic problems and make the EU stronger.
The first principle is to introduce tax harmonisation throughout the EU. Bonazzi believes that the present fiscal go-as-you-please is causing “social and fiscal dumbing”. A few EU member states will not be amused by this recommendation.
The second principle is that the EU should guarantee the public debt of individual member states. This would end speculative pressures on countries like Italy whenever their public finances are not quite in order.
The third Bonazzi principle is that the European Central Bank should be the lender of last resort whenever a country faced economic tragedies. Bonazzi like many others believe that the famous Draghi commitment to do “whatever it takes” to avoid economic depression in the EU should be an irreversible commitment of future ECB presidents.
Fiscal prudence should remain the hallmark of the EU’s governance. Admittedly, but austerity should never be the only way to achieve stability in countries that default in good fiscal governance. However, the EU needs to address the growing problem of inequality where the rich are becoming richer and the poor are more marginalised.
This time round change will not be instigated by political ideologies as both the centre left and the centre right of the political spectrum have lost most their moral strength. The change will come from individuals and groupings that really see politics as a means to make people’s lives better rather than a gravy train to enrich themselves.
Italians, like many other Europeans, wait anxiously for this political renaissance.