Italy on the rack of a failed Europeanist ideology
Italy will not return to 2007 output levels until the mid-2020s. It is saddled with multiple problems. But being tied down and held on the rack of the Euro is its biggest obstacle to recovery. No-one has the courage to state the obvious. Easier to blame Brexit
Matteo Renzi has a problem, they are saying. In the recent mayoral elections his Democratic Party lost Rome and Turin to the 5-Star Movement (M5S) and now has fallen behind M5S in recent opinion polls.
No election is due before 2018, but Renzi has called a referendum on his recent constitutional changes, to be held in October. He says he will resign if he loses.
In fact, things could be a fair bit worse for Italy’s youthful Prime Minister (twenty years younger than the leaders of Britain, France and Germany). There is a vacuum on the centre-right as it wrestles with the post-Berlusconi era, although this assumes the old street fighter won’t re-emerge with a new heart valve, facelift, girlfriend and political philosophy. You can never be quite sure with Silvio.
The problem, seemingly intangible to the political mind, can however be readily understood by listening in any bar, any household or on any street corner in the country. Things don’t seem to be getting any better.
The recent IMF report on Italy will come as no surprise to anyone outside the European governing ėlite. It says that Italy will not return to 2007 output levels until the mid-2020s. Given that there was only cautious growth before the banking crisis, Italy will have gone through a quarter of a century’s stagnation, whilst its European competitors will have grown by a still modest 25 percent.
The people of Italy are not stupid. They are aware of the corruption, of the absurd delays in the justice system, of the incompetent governing class which looks after itself (what the Financial Times politely calls a ‘misallocation of resources’). But they also know what happened at the turn of the century to mark the start of this disaster. Italy joined the euro.
Renzi will almost certainly survive his referendum -- there really is no one else, and he will have a mandate for further change in the 18 months he has remaining. What, though, will he do? Much of his time will be taken up with the banking system.
At the end of July the EU will give its latest report on the stress tests of banks. These, to remind you, are less strenuous than the British and American ones, but they are not going to be good reading. Without wishing to prejudge the outcome, nobody will be terribly surprised if Monte dei Paschi di Siena (MPS), said to be the oldest bank in the world and Italy’s third largest lender, fails.
MPS is owned and run by a Tuscan socialist committee attached to a charity. In the past, employees have been taken on and promoted in accordance with their socialist credentials. Sound like a good idea?
Anyway, back in 2011, the European ėlites led by Angela Merkel ousted Italy’s elected Prime Minister, Silvio Berlusconi, and replaced him with Mario Monti. The new gauleiter -- he never got elected to any office -- just followed orders. He failed to do anything about Italy’s banking system, as Spain and Portugal had. Germany’s banks, of course, had been rescued in the first Greek bailout.
Now, as Italy needs to act, EU law forbids a country bailing out its banks. Investors must take losses, but in Italy, a nation of savers, ordinary people invest, as well as save, in banks. The losses to ordinary families would be catastrophic. But Renzi, and the European powers, must do something. Italy’s banks have over €300 billion of non-performing loans.
There will be a crisis; either now, at the end of the year, or next year. But there will be a crisis. They will try to blame it on Brexit, but Brexit is just one exogenous shock. There are and will be others: the euro is a weak patient on life support and the next shock, or the one after that, could kill it.
Italy’s lack of growth means there are insufficient taxes to pay for the government, which means the national debt rising from already astronomic levels. Italy must leave the euro, but few have the courage to say so.
Meanwhile we Brexiteers are receiving criticism for letting down our young people, while across the channel countries suffer 40 percent or 50 percent youth unemployment, destroying the life chances of a generation, through adhering to a currency, to a political ideology, they know has failed.
And they say Europeans don’t do irony.
Tim Hedges, The Commentator's Italy Correspondent, had a career in corporate finance before moving to Rome where he works as a freelancewriter, novelist, and farmer. You can read more of his articles about Italy here
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