Ben Wray – All of the Eurozone’s deep contradictions are now exposed in Italy
If Italy was a light, it would be red and flashing.
Ben Wray is a freelance journalist leading BRAVE NEW EUROPE’S Gig Economy Project
Photo: World Economic Forum licensed under the Creative Commons Attribution-Share Alike 2.0 Generic
Wage-busting inflation. Rising interest rates. Recession signals. Higher and more expensive public debt. Significant energy reliance on Russia. The fall of a technocratic Prime Minister. The potential for a far-right coalition to take power. If Italy was a light, it would be red and flashing.
All the warning signs of a crisis that could quickly spiral out of control are there, in a country that has suffered economic stagnation for over a decade and has already politically exhausted austerity as a policy. Germany’s foreign minister Annalena Baerbock has said that energy shortages in Europe this winter “could spark popular uprisings”; for Italians, the lights going off is just one of many possible straws that could break the camel’s back.
Draghi’s demise
The downfall of Mario Draghi last month was remarkable partly because what preceded it revealed how hollowed out Italian democracy has become. Even for a country that has experienced years of Berlusconi rule and massive political corruption for many years before that, Draghi’s demise was a sight to behold.
No one had ever voted for Draghi, the former head of the European Central Bank, but a mass campaign broke out to save his reign, starting with the Italian President Sergio Mattarella who pleaded with him to stay who was then backed up by wealthy business figures, hundreds of Mayors, NGOs, academics, and a leading trade union. Draghi said he would respond to their wishes only if the Italian parliament totally submitted to his agenda, a move that would have in effect rendered Italian MPs as political duds. The bid for total supremacy failed.
One of the reasons Draghi wanted to consolidate his power was to push through a series of reforms required by the European Commission in return for Italy getting its hands on the nearly €200 billion (€68.9 billion in grants and €122.6 billion in loans) of the EU’s ‘Next Gen’ pandemic recovery funds (further evidence of democratic decline). Suffice to say, these reforms were primarily about the liberalisation of industry sectors like the taxis, which, as we reported on Brave New Europe, led taxi drivers to start a spontaneous, bottom-up revolt across the country to defeat the government’s ‘Uberisation’ law. Some of them chained themselves to Draghi’s office, chanting “Fuck Uber, the EU and Mario Draghi”. The wildcat strike only stopped when Draghi announced he was planning on resigning.
This sort of discontent has deep roots. The Eurozone’s lopsided design – unified monetary policy and divided fiscal policy – has benefited Germany in particular by providing a cheap export market for its more competitive manufacturing sector. The less competitive southern European economies have had an artificially inflated currency, denting exports, and no European wide fiscal redistribution to redress the monetary imbalance. The result has been a decline in Italy’s manufacturing base, a growth in the already huge gap between the north and south of Italy, and, as Thomas Fazi has pointed out, a general impoverishment of low-income Italians.
“5.6 million Italians — almost 10% of the population, including 1.4 million minors — currently live in absolute poverty, the highest level on record,” Fazi writes. “Many of these are in work, and that number is bound to increase as real wages in Italy continue to fall at the highest pace in the bloc.”
Far-right on the brink of power
What will a September election bring? The post-fascist Brothers of Italy, led by Giorgia Meloni, Matteo Salvini’s League and Forza Italia, led by the former prime minister Silvio Berlusconi, are currently favourites to form a coalition government, with Meloni as Prime Minister.
The Brothers of Italy have benefited hugely in the polls from being the only party to stay out of the Draghi coalition.
“For a year and a half, whatever discontent Italians have had, it’s had only one outlet: Brothers of Italy,” Marc Lazar, an Italian politics expert at Sciences Po University in Paris, says.
Meloni refuses to speak ill of Mussolini’s fascist regime, but that does not mean she has plans to try to recreate his ‘march on Rome’. Brothers of Italy supports staying in the EU and the Eurozone, following a trend on the European far-right over the past decade, and Meloni has recently been surrounding herself with more mainstream intellectual and business figures on the right.
“Meloni has been an activist in post-fascist politics since her youth,” Piero Ignazi, a professor emeritus at the University of Bologna, says. “The party’s identity is, for the most part, linked to post-fascist traditions. But its platform mixes this tradition with some mainstream conservative ideas and neoliberal elements such as free enterprise.”
It’s likely any far-right coalition government which enters power now will have few answers other than to ramp up hostility to refugees, who face the the terrifying prospect of even greater hostility than the sickening treatment they have had up until now. But how such a government would respond to a genuine sovereign debt crisis, for instance, is not at all clear.
Italian debt to GDP is over 150% and rising, up from 127% a decade ago (despite all those years of austerity). If it goes up another 20 to 30%, it will be in Greece 2010 territory, at a time when the interest rate on Italian government bonds is rising rapidly. Italy is one of the largest economies in Europe, a repetition of the same humiliation and defenestration as the Greeks is unlikely, but the European Central Bank has not given itself many options by embracing the madness of raising interest rates when the Eurozone is on the verge, or possibly in, a recession.
How could a winter energy shortage play out? Meloni has backed Draghi’s line on Russian sanctions, at least until now, but the energy supply situation grows more tenuous by the day. Gas prices grew 20% last week after Gazprom again cut supply. The EU has a plan to reduce gas consumption by 15%, but there’s lots of exemptions within that which were demanded by countries which saw no solidarity from Germany, which is most exposed to a Russian gas cut-off, in the austerity era and don’t see why they should show some in return now.
Italy is not one of those countries which can afford to give Berlin a poke in the eye, given 25% of its energy needs are still met by Putin’s regime. However, that vulnerability will only worry the EU powers-that-be even more, especially given Meloni is close to Hungarian far-right prime minister Viktor Orban, the leader of an EU member-state who has been most willing to hold out a hand to Moscow in recent months.
All of this will be giving Berlin and Brussels headaches, but these are the predictable consequences of the order they have built: a horribly imbalanced Eurozone, a catastrophic austerity regime, a massively complacent energy policy, a foolish monetary response to inflation, and an anti-democratic desire to impose technocratic misrule on the countries of Europe’s periphery. All of the contradictions of this (dis)order are now being exposed in Italy.
There’s still a long way to go until 26 September, but even if the far-right are somehow kept out of power, whoever does take office will likely have few answers for the multi-pronged crisis Italy faces. We should expect the unexpected.