Italy And The Disintegration Of The European Union

CollignonAt the beginning of Europe, there was Italy. Ancient Rome copied Greek culture, but politically the Roman Empire dominated the Mediterranean universe and set the agenda for future empires.[1] Later, the Renaissance in Florence invented modernity and from there “Western” values took over the world. Italy was also a founding member of the Treaty of Rome. However, the recent elections have now sounded the death knell of the European Union as we know it. Once considered as the most pro-European country in the Union, nearly two thirds of Italian voters have chosen anti-European parties. It is a lesson for the rest of Europe.

Coming just a few weeks after Britain announced that it will have a referendum about leaving the EU, and after repeated failures over the years to ratify European treaties, the message is clear: fewer and fewer people still think that the European Union serves them well. For over four years, more than two thirds of Europeans have thought that their national economy is in “bad” shape, and Europe has not helped them. In Italy, their percentage is even 93%. Only 33% of Europeans trust their common institutions and only 30% have “a good image of the EU”.[2] In Italy the proportions are similar, but still marginally better for Europe than for national institutions. This dramatic shift in public opinion is not an isolated case in Italy. It reflects the European Union’s incapacity to implement coherent anti-crisis policies. Every member state is supposed to do its “homework” in isolation, but in reality the common welfare is becoming hostage to partial interests.

One may blame Italians for making the wrong choices and causing a crisis. After all, do they not elect criminals to high office, live with the Mafia in their backyard and avoid making necessary reforms? Silvio Berlusconi has been sentenced to jail for tax fraud; his right-hand man Dell’Utri has been found guilty of tax fraud, false accounting, and complicity in conspiracy with the Sicilian Mafia.[3] In fact, organized crime has tightened its grip on the Italian economy during the economic crisis, yielding a turnover equal to 10% of GDP and making the Mafia the country’s biggest “bank”, thereby squeezing the life out of thousands of small firms.[4] But who is putting up with the Mafia? Even the Democratic Party (PD) is enmeshed in the local politico-economic-financial complex: the financial scandal of Tuscany’s bank Monte Paschi di Siena has been one of the causes why the PD has lost its initial lead in the recent election. Ordinary people suffer from governments which are unable to deliver public services efficiently and they lack equality of opportunity in their own country. They are invaded by a feeling of helplessness and they try to escape the oppressive system of bureaucracy, church and social hierarchy by finding their own little “arrangements” outside the official rules. As Acemoglu and Robinson have shown, nations fail because they are ruled by narrow elites that organise society for their own benefit at the expense of the vast mass of people.[5]

Yet, those who are standing up against this system of corruption are hardly much better. In 2007, the professional “clown” Beppo Grillo claimed, that even Scampia, the most dangerous suburb of Naples and one of the areas with the highest crime rates in Europe, actually had a lower crime rate than the Italian parliament’s membership. Chosen by Time Magazine in October 2005 as one of the “European Heroes ” for his constant battle against corruption and financial scandals,[6] Grillo now presides over the strongest party in both chambers of parliament, although he did not even run for office himself because he has been convicted for manslaughter. At least he is consistent with his own standards, having previously declared that members of the Italian Parliament ought not to represent citizens if they have ever been convicted in a court of law. But simply opposing the establishment and calling for more transparency and an end to corruption is not a coherent policy program. When Grillo declared that “Euro exit can’t be taboo in indebted Italy”[7], he was ignoring the enormous advantages Italy has obtained from the euro. While the state paid over 13% of GDP in interest on its public debt (which is, by the way, a redistribution from low-income tax payers to high-income investors) in the early 1990s, this burden has been lowered to less than 4.5% since the country joined the euro. Follow Grillo, and this advantage melts away like snow in the Mediterranean sun. Social injustice would increase and sooner or later Italy would default on its sovereign debt with far-reaching consequences for the global financial system. Grillo’s ignorance and electoral victory have simply made the consolidation of Italy’s public debt more difficult.

Instead of assuming responsibility in Italy, it is easier to blame Europe, Merkel and Monti. This simplistic strategy has resurrected Berlusconi from the dead. But is there truth in it?

The Italian economy is the worst performing in the Euro Area. Figure 1 shows that its productive capacities have grown by only 8.6% in 14 years, less than in other Euro Area member state.

Figure 1.

p1

Since European monetary union started in 1999, productivity has fallen by -3.9% in Italy, while it has risen by +8.3% in the Euro Area as a whole. Inflation has been above the Euro average and real wages have increased less (5.7%) than in the Euro Area (8.5%). However, given the negative productivity growth, rising real wages have reduced profit margins by 9.6%, which explains the right-wing rebellion against taxes and Europe. Thus, there are clearly structural handicaps from which the Italian economy suffers and they are not the fault of the euro.

Could it be Merkel’s fault? I have a lot of sympathy with those who think that the German government’s insistence on austerity has made the Euro crisis worse.[8] Yet, in Italy the argument is weaker than anywhere else, because the economy got worse during the “Second Republic” (essentially the Berlusconi years) instead of making use of the opportunities generated by the euro (see Figure 1 above). Figure 2 shows that Italy has had a positive output gap (i.e. demand was in excess of supply capacities) from the mid-1990s until the Global Financial Crisis in 2008. Yet, Italian companies did not invest like those in other southern member states and improve its productive potential. Excess demand only pushed prices above the Euro-average. Although the economy bounced back after the crisis in 2010, as it did in all member states, the Euro crisis has pulled Italy down again partly because the debt consolidation in the previous decade had been insufficient. The Monti government had to tackle this credibility problem, and it is true that the austerity drive reassured financial markets, but, given the fragile background of Italy’s economy, the social consequences were devastating. The election results reflect this dilemma, but no government could have solved Italy’s problems in one or two years. Thus, blaming Germany or Merkel for Italy’s calamities can only prolong the crisis because it prevents dealing with the real issues.

Figure 2.

 p2

What will come next in the unfolding drama is hardly palatable. There will be no reliable government able to act for a long time. Markets will panic, spreads go up and Italian debt could creep to the point where it will be unsustainable. The famous ECB program of buying government debt (OMT), which has saved the euro last year, will not be applicable, because there is no government that can commit to responsible policies. Germany will persist with austerity for Europe at least until the general elections in September. This is an explosive cocktail. Political, financial and economic instability will affect the rest of the Euro Area. Greece, Ireland and Portugal are small member states and the Union had the capacity to bail them out, but Italy is too big and too incompetent for Europe to do the same. Hence, Italy has become dangerous. It risks bringing down the whole European edifice.

What can be done? It is possible – Italy is always good for a surprise – that the Italian elites find an arrangement that would prevent the worst. But even if that happened, the political crisis in Italy, which follows a similar crisis in Greece a year ago, shows that the unanimous policy consensus by European elites (often called la pensée unique) is increasingly contested and may not hold much longer. One may regret it, but it is a fact. Europe has to draw the conclusion. A deep and rapid change in the governance of the Euro Area is needed: with a common currency, the welfare of all European citizens requires to protect them against the partial interests of national elites or the emotional frustration of citizens whose voices are never heard. The common good of European citizens must be governed by a democratically controlled European government that responds to universal suffrage. European-wide elections must decide whether to implement austerity or demand stimulating policies. National elections cannot do that, as member states claim to be sovereign, which gives them the right to implement policies that can damage the Union as a whole. It is time to remember the fundamental idea of the French Revolution, namely that citizens are the sovereign, not states. In the summer of last year, a short debate emerged about Europe making “a federal leap”. It has quickly vanished after the ECB had calmed financial markets. And yet, the issue is not dead. National elites organise Europe for their own benefits, and political power remains concentrated narrowly in the intergovernmental institutions of the Union. To refer back to Acemoglu and Robinson, politics is why Europe fails.

Here is the European paradox: the exclusive reliance on national democracies in a deeply integrated European market has become a threat to the survival of the Union and to the welfare of people in all member states; but only democracy can ultimately save the European project. What is needed is a genuine democracy at the European level, with power and authority to implement policies in the interest of all citizens. Nothing else will do.



[1] See Gary Marks, 2012. Europe and Its Empires: From Rome to the European Union; JCMS 2012 Vol. 50.1: 1–20

[2] Standard Eurobarometer 78, Autumn 2012.

[5] Daron Acemoglu and James Robinson,  2012. Why Nations Fail. The Origins of Power, Prosperity, and Poverty.  Crown Business, Random House, New York.

  • http://twitter.com/SocialLore Lorenza Antonucci (@SocialLore)

    Another pro-Monti piece. Forget about the fact that he ‘failed to shine’ during the elections. Politics matters – not only economic performances – It’s the politics, stupid!

    • http://Www.stefancollignon.eu Stefan Collignon

      Lorenza
      If you read carefully, you would find exactly that I argue that politics matter. In fact this is the problem: national politics destroys European welfare. There is little that I would praise in Monti’s policies – other than that he allowed getting rid of Berlusconi. But closing the eyes to the devastation Berlusconi has caused and believing that all will be well once we finish with austerity is irresponsible to say the least.
      Stefan

  • Anna Syngellakis

    Genuine democracy etc. Yes, but what does this exactly mean? how wili it be achieved, given that there is no political will or popular support for a federal Europe?

    • http://Www.stefancollignon.eu Stefan Collignon

      Why should there be political will if there is nothing to decide? If the grandi decide everything? People do not care for the abstract principles of a federal Europe, but they would seize the opportunity to change policies that harm them.

  • http://noneatpresent A W G Toone

    A weak article from such an astute person.

    I cannot agree that the Italians contributed much to the betterment of the world although the Roman empire showed us how to utilise infrastructure and military precision. We owe our modern culture, ethics and law to the Greeks.

    Coming back to the present whether politicians are controlled by the mafia, bankers, or market manipulators or are just plain corrupt makes little difference. Maybe we need more real clowns in politics rather than just plain clowns.

  • Kiro

    European citizens need first,to be protected from politics like Merkel.They need social protection,over 80% from the Greek people can not pay their loans,over 60% can not pay even their bill for heating…and tell me even one reason why people need EU government.To feel the pain from the “clever” decisions of Germans…even the donkeys in Europe see and agree that these measures just don’t work,they worsening the situation in the peripheral Europe…and in the same time all these “clever” Germans still demand these measures.
    26-27% unemployed people in Spain and Greece,over 60% youth unemployment …what more need these German fools?

    • http://Www.stefancollignon.eu Stefan Collignon

      Let’s be clear: the “German fools” are a majority in Germany and a minority in Europe. With today’s intergovernmentalism, German ordoliberals can impose their preferences against the majority in Europe and against the red-green minority in Germany. Of course, we can hope for a bettergovernmentin Germany . But then Cameron or some “Italian clown” may block the policies we may wish for. The best way is to get a democratic majority to back policies that citizens prefer and for that you need a European government.

      • Anna Syngellakis

        ” The best way is to get a democratic majority to back policies that citizens prefer and for that you need a European government.” This is my point in my comment about the lack of political will for a federal Europe. We agree that we need policies that citizens support; for that we need a European federal government. This is not going to happen any time soon. German imposed austerity is not going to be abandoned, since the German voters and therefore the German government which is the de facto European federal government, have no reason tou listen to the European citizens in Italy, Spain, Greece ….Unless the German elections in September bring a surpise.

  • Julian Dixon

    Don’t believe that the outcome of the French revolution was that citizens are sovereign.
    Robespierre himself said that “liberty” meant liberty of the state and not of the individual and that remains true today. “Liberty” means the right of the state to do as it wishes, “fraternite” means the brotherhood that run the state (Enarcs) egalite means the rest of the population who are all in the mire together,

  • TC

    First European to resurrect Alexander Hamilton wins the prize! Fascist austerity ain’t even in the same league. National politics have not corrupted the EMU. London’s offshore, unregulated derivatives casino has. The European banking system was stuffed to the gills with garbage London’s shysters enabled its junior partners on Wall Street to sell. A great gig, no doubt, until the bid evaporated, as was destined to happen. Only a fool would believe any banker who claims, “No one saw it coming!” Please. Now, for the sake of a fantastic illusion this crap can be saved sovereigns have been coerced to provide a deep and endless backstop. As this “rescue” in fact proves impossible (and rather is shown a TRAP, as was known from the very beginning) now the game is collapse the EMU so the shysters in London and New York can pick up the pieces for pennies on the dollar. For this cause proto-fascists like Grillo are elevated. One can understand why German authorities are rather upset right now. Yet if there were any wisdom among Germany’s financial elite these would be moving with their EMU partners to transform the ECB into a credit bank buying up sovereign bonds solely dedicated to providing finance funding development projects sure to raise the productive powers of the European labor force. No more bailout of hopelessly insolvent garbage peddled by London and New York. Germany is 100% correct on this account. Transformation of the ECB into a physical economy development credit bank would occur in parallel with reorganization of the continent’s banking system, separating commercial from investment banking and letting the derivatives trash currently polluting it be washed out into the Atlantic, straight back to London and New York. Oh, but what about all the pensions that would be washed away were such a scheme implemented, today’s silly monetarist buffoons surely will squeal! These, too, could the ECB cover until such time as Europe’s physical economy, decimated by London’s imperial globalization scam, is back up and running full throttle. God help us if Germany does not step up here and say “Never again” to being duped by intrigues for centuries now originating from Venice on the Thames.

  • amercasa

    “What is needed is a genuine democracy at the European level, with power and authority to implement policies in the interest of all citizens. Nothing else will do”???? 27 years of living here has shown me you will need lot’s of luck attaining that goal.

  • Proquci

    The evils of the EU is apparent and vividly clear and the tool used to enslave the people called the euro must be crushed at all costs. Nothing kills more people than vile socialism, communism, marxist ideologies which will be fought and beaten these coming years. All this bollocks about multicultural this and multi that is actually destroying the very thing it attempts to create. Nothing is more beautiful than different cultures, different languages, different economies, geography, history and the list is endless. Mixing it all together into this nice little field of buttercups kills it all stone dead.. Get your heads out of your rectums. I cant wait until the EU is crushed and gone forever and take the enslavement tool the EURO with you.

  • tiziana de simone

    This article would be an economic and policy analysis of the Italian situation, but it`s only a long article offensive towards` Italy and the Italians….mr stefan

    • Stefan Collignon

      Tiziana
      I am sorry to hear you are offended. Please tell me where I go astray…..
      Stefan

      • tiziana de simone

        Lei offende gli italiani nel momento in cui utilizza il termine “clown”,termine che ribadisce anche in risposta ad un commento …. siamo un popolo incompetente e allo sbando che come ultima spiaggia, dopo che per anni ha votato mafiosi o gente collegata alla mafia,ha scelto un clown…
        la gente ha bisogno di ritrovare un po di moralita`nella politica(due parole -moralita` e politica- che troppo spesso si da` per scontato debbano percorrere due strade diverse)….ha bisogno di ripartire da chi e` piu vicino a loro e molti hanno trovato la loro risposta in questo clown ignorante….