Italy: The bad boy of Euro politics?

Italy should leave the euro. But if it is really insistent that it cannot, it should at least be a bad euro-citizen

Just be bad
Tim Hedges
On 26 October 2013 08:26

On they came, along the via Merulana, bright red flags waving in the autumn sunshine; a moving hub of noise, with whistles, drums, even a trumpet announcing their presence. A man with a megaphone kept their spirits up, kept them chanting.

So it must have been with the Roman Triumphs, when successful generals, Pompey, Scipio, Caesar were invited to enter the city in their glory.

But this was not a celebration, it was a protest by the trade unions against austerity. Rome is used to demonstrations of course (and this one was accompanied by a four hour strike) but this, strangely, was a protest against their own party.

The Prime Minister, Enrico Letta, is of the Democratic Party, formed from the old communist rump, and his grouping is the largest in parliament. The unions, theoretically, support him.

But the unions are powerful in Italy, and they are not happy with Mr Letta’s budget. They don’t want any more cuts and they don’t want the public sector pay freeze.

Small, specialist groups are springing up, focussing not on what is being taken away, but on what they never had: proper social housing, unemployment benefit (there is only a small social fund in Italy which might tide you over for 6 months). They are paying the taxes, they say, amongst the highest in Europe, and getting nothing for it. They too joined the march.

Nothing could better highlight Letta’s surely impossible task, to unite in a cabinet the hard left, the centre and the Berlusconi boys and girls. He is getting it from all sides.

Naturally Prime Ministers do not address angry demonstrators, but I think Letta would have answered that to get the economy going and reduce unemployment they have to reduce employment taxes and thus they have to make savings elsewhere. In fact the reduction in employment taxes is tiny: Wolfgang Munchau, writing in the Financial Times, thinks the cut would have to be twenty times as much in order for Italy to be competitive with Germany.

But it is a start and it just fits the deficit target. The Government can’t run any more of a deficit because the European Union has put a limit of 3 percent as to what is permissible. And to be good Europeans, Italy must obey and keep within this 3 percent limit.

In this the unions don’t seem to disagree. They were not marching against Italy’s membership of the euro or the Commission’s budget limits. They, too, think it important to be seen as good Europeans. The political centre and the dovish half of Berlusconi’s PdL grouping think the same. But why?

Brussels has a measure as to who are good Europeans and who are the bad boys of the class. It is what percentage of Brussels directives are passed into the law of a nation. For those not versed in this bizarre political science, Europe’s nod to democracy is that it doesn’t pass laws over the European peoples: civil servants issue decrees and then prosecute and fine those countries which do not, freely and of their own volition of course, pass them, democratically, into law.

If you asked most people who were the bad boys in Europe they would have their answers ready. You can think of the names: Anglo Saxons and East Europeans bad, core Europe good. But you would be wrong. On the measure of judgments of countries that broke or refused to implement EU rules, Britain came 12th, behind the olive belt; behind France and even Germany.

On the measure of pending legal cases, where the Commission believes a country has broken the rules, Italy, with 99 cases, is the worst behaved boy in class; the worst European country, for the ninth year in a row.

Italy, it would appear, is reluctant to obey any rules imposed on it except the 3 percent deficit ceiling – the one rule it really ought to be breaking. For let’s be clear: Italy has not made the reforms it ought to, such as clamping down on organised crime, collecting the taxes, reforming the legal system and so on, and without these reforms, if it wants to stay in the euro the 3 percent ceiling has to go.

For myself, I believe Italy should leave the euro. But if it stays it must borrow to fund tax cuts and the deficit must rise to 4 percent or 5 percent, temporarily. Enrico Letta must become as bad a Euro-citizen on this as he is on everything else. 

Tim Hedges had a career in corporate finance before moving to Rome where he works as a freelance writer, novelist, and farmer

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