In 2012, the Eurozone crisis has begun to follow a
predictable script. First, a member state begins to show signs of financial
stress, with a growing public deficit and debt burden alarming markets. The
spike in borrowing costs sparks a policy response by the member state
government, raising taxes and cutting public spending, which depresses economic
activity further. The resulting poor growth data leads to further increases in
borrowing costs. When these costs hit an unsustainable level, the European
Union institutions intervene by lending the struggling country bailout money,
in return for further commitments to reduce the deficit. A further fiscal squeeze follows, sending
the debtor nation into what economist Paul Krugman describes as a ‘death
spiral’.
By July 2012, Greece, Portugal, Ireland and Spain had all
reached the final stage of this process. The three smaller countries were the
first to be bailed out, and although the sums involved appear staggering, the EU
had little trouble raising funds to sustain public borrowing in countries whose
GDP amounted to less than a tenth of the Eurozone total. But the financial
troubles of Italy and Spain, the third and fourth largest economies in the
Eurozone, are of an entirely different order. Like the large investment banks
at the centre of the financial meltdown of 2007-8, Italy and Spain are widely
seen as ‘too big to fail’, since their national debts are so large that default
would likely trigger a financial collapse of incalculable scale. At the same
time, they are also ‘too big to bail’, since covering their borrowing costs for
any significant period of time would require vastly greater resources than
those provided for the smaller periphery economies.
This uncomfortable dilemma is at the heart of the Euro
crisis, and explains why it is taking so long to resolve. Bailing out the
periphery countries would be enormously expensive, and countries such as
Germany, Netherlands and Finland fear that a bailout would create a lasting
relationship of dependency of the debtor nations on their more creditworthy
neighbours. Not bailing them out, however, would risk bankrupting financial
institutions not only in the Eurozone periphery, but also in the creditor
countries of Northern Europe: after all, the debts run up by the periphery
correspond to the financial surpluses built up over the past decade by the Eurozone
core. Faced with a choice between such unpalatable courses of action, European
summits have chosen to patch together short-term measures which stave off the
inevitable reckoning without providing any definitive solution, a technique
observers have christened ‘kicking the can down the road’.
For Italy and the other Southern European countries, this
impasse has vast economic and political costs, which cannot but have profound
consequences not only for the periphery countries themselves, but for the
Eurozone and the European Union as a whole. This article will discuss the
economic and political implications of the Southern European crisis with
particular focus on Italy, the largest debtor nation. It proceeds as follows:
the first section examines the roots of the crisis in the design of the Euro
and Italy’s efforts to join it, the second section examines the way in which
monetary union paved the way for the debt crisis in Italy and the rest of
Southern Europe, the third assesses the response to the crisis, and the final
section discusses the political sources of Italy’s economic problems.
The Roots of
Austerity: Maastricht, the Euro and the Convergence Criteria
The global financial crisis which began in 2007 has been the
subject of a vast amount of analysis and discussion, in the traditional media,
in business circles, in academia and, most fascinatingly, in the emerging new
social media which have provided an innovative channel for popular input into
the debate. Unlike the previous major crisis affecting western economies in the
1930s, today we benefit not only from decades of research in economics and the
other social sciences, but also an unprecedented amount of information and
analysis available to not only policy-makers, but also to any interested
citizen possessing a networked computer. The experience of the 1930s, the
Keynesian revolution in economics that resulted from it, and the more recent
examples of financial crises and their consequences in countries as diverse as
Argentina, Russia, Japan and Sweden, should have made governments more prepared
than ever to deal with this kind of situation. Yet the advanced countries are still
in the grip of a deep recession, five years on, and the policies followed in
the Eurozone seem almost designed to make things worse.
Although there is legitimate debate to be had on the
different remedies to our economic problems, it is difficult not to see the
current mess in the Eurozone as a political, rather than a policy, crisis. The
policy response of delay and denial followed by conditional bailouts which
obstruct economic recovery certainly corresponds to the economic thinking of
influential figures in the financial community and in key institutions like the
European Central Bank. However, the inability of European policy makers to move
beyond these policies, even when their failures become evident, is a direct
consequence of the way the Euro was constructed. In order to understand the
policy response, we need to briefly revisit the policy dilemmas addressed at
the very beginning of the process of monetary integration, over two decades
ago.
The creation of the Euro was the culmination of two decades
of attempts to revive the kind of exchange rate stability that had underpinned
the Golden Age of European growth in the 1950s and 1960s, the so-called Bretton
Woods system. The collapse of Bretton Woods, formalized by the United States’
decision to float the dollar in 1973, left the European nations facing an
increasingly unstable monetary environment, with currency parities increasingly
impossible to maintain. Germany, with its independent Bundesbank tasked with
the job of ensuring price stability, was able to keep inflation under control,
reinforcing the Deutschmark. Italy, along with other European countries
including the United Kingdom and France, found it impossible to put a lid on
inflation, as oil price rises fed through into higher wages and yet further
price rises. The result was a series of devaluations of the weaker currencies,
disrupting trade between European nations and undermining governments’ attempts
to stabilize prices.
The idea of monetary union was a response to this turbulent
period, but the differences in the inflation rates of different European
countries were a serious obstacle to a single currency. German policymakers,
and in particular the Bundesbank, were reluctant to compromise the
anti-inflationary credentials they had carefully built up through the post-war
period. Pooling their monetary credibility with other weak currency nations
would inevitably put it at risk, and Italy, as the most inflation-prone of the
largest European economies, was the most obvious threat. Concerns about Italy
and the other Southern European member states were a key reason for the
Maastricht Treaty establishing strict convergence criteria which countries had
to meet to be admitted to the Euro. As well as achieving inflation rates close
to those of the other participating countries, qualification for Euro entry
also required a fiscal deficit below 3% of GDP, and total government debt no
higher than 60% of GDP. The usefulness of the criteria in preparing countries
for monetary union was contested by many economists, but these tough
requirements were crucial in overcoming resistance to the Euro in Germany, and
particularly in the Bundesbank.
At the time of the Maastricht summit, Italy was a long way
from meeting any of the convergence criteria. Inflation, interest rates, budget
deficits and public debt were all far higher than the Maastricht limits. But in
just a few short years, Italy had qualified for participation in the first wave
of monetary union. How was this possible? In the 1970s and 1980s Italy had
managed its economic problems through a combination of frequent currency
devaluations, to maintain competitiveness when wages rose more quickly than
productivity, and deficit spending, which allowed government to buy social
peace. By the 1990s, the essential unsustainability of this model had become
clear, and Italy experienced a deep economic crisis which brought sweeping
changes to its political system, but also paved the way to its successful bid
to enter the Euro.
The trigger for the crisis of the early 1990s was the
reunification of Germany, which disrupted the system of adjustable exchange
rate pegs adopted by most EU countries, the European Monetary System (EMS).
Italy had participated in the EMS ever since 1979, but after 1990 the lira came
under heavy pressure because of the Bundesbank’s concerns about inflationary
pressures building in the newly reunified German economy. German interest rates
were ramped up to keep prices under control, forcing other EMS member countries
to either match this tough contractionary policy – which would bring an
economic slump – or allow their currencies to devalue against the Deutschmark,
jeopardizing their membership of the system. Italy’s high inflation and
budgetary weakness placed it under particular pressure and it, like Britain,
left the Exchange Rate Mechanism of the EMS in September 1992.
The Italian economic crisis of 1992 coincided with a
dramatic political crisis which brought about the wholesale replacement of the
political class that had governed the country for decades. The Christian
Democratic-Socialist coalition, led by such historical figures as Andreotti and
Craxi, collapsed in the wake of the economic slump, the rise of the populist
Northern League, and a determined anti-corruption campaign waged by reformist
magistrates in Milan, Palermo and elsewhere. This political crisis brought to
the fore a new political elite: on the right, new populist forces led by Silvio
Berlusconi replaced the Christian Democrats and Socialists, whilst on the centre-left,
the former Communists in the ‘Left Democrat’ (DS) party formed an alliance with
reformist Christian Democrats and technocrats associated with prominent Italian
exporters and the Bank of Italy. This centre-left grouping, under figures such
as Giuliano Amato, Carlo Azeglio Ciampi and Romano Prodi, spearheaded Italy’s
push to reform its economy in preparation for Euro membership.
The changes in Italy were welcome to European policy elites,
as they signaled the country’s determination to adhere to the strictures of
monetary union. German fears that Italy’s presence would undermine the single
currency were assuaged by the tough measures adopted by Prodi and others to
bear down on inflation, reform budgetary practices, and stabilize the lira.
Social pacts between government, business and the major trade unions secured
worker wage restraint, administrative reforms and judicial pressure curbed
wasteful and corrupt government spending, and revenue collection was tightened
up to combat tax evasion. All of these measures contributed to improving
Italy’s reputation as a reliable partner in the Euro enterprise, to such an
extent that Italy’s Euro entry was approved by its European partners despite
the failure to reduce public debt below the required 60% of GDP. By joining the
Euro, it was believed that Italy had secured a permanently stable exchange rate
with its main trading partners, a lower inflation rate (thanks to Germany
sharing its anti-inflationary credibility with the other EMU members) and
cheaper borrowing costs. So why is Italy now suffering its worse economic
crisis since the Second World War?
The Euro’s First
Decade: A Disaster in the Making?
The first few years of the Euro’s operation – beginning in
1999, with the irrevocable fixing of exchange rates and the entry into circulation
of Euro coins in 2002 – hardly presaged the crisis to follow. For Italy, the convergence of interest
rates around the core European economies continued to such an extent that the
spread with German treasury bonds (the differential between the perceived risk
of Italian government debt compared to German government debt) became
negligible. For Italy, a nation with the second highest national debt/GDP ratio
in the advanced world (after Japan), the resulting reduction in debt servicing
costs brought huge savings for the government.
The reduction in interest rates was a key benefit to Italy
of Euro membership. Outside the single currency, Italy’s history of high
inflation, its volatile exchange rate and the poor international credibility of
its governing elites would have kept interest rates high, damaging business
investment and significantly increasing the risk of default on Italian treasury
bonds. With public debt peaking at 121% of GDP in 1994, markets would have been
ultra-sensitive towards any signs of fiscal laxity, compelling Italian
governments to run a tight fiscal policy which would dampen economic growth.
The benefits of convergence for debt management were clear; the debt/GDP ratio
fell consistently until 2004, dropping to 103%, still high but on a trajectory
towards sustainability.
Subsequent events have shown that the benign effects of Euro
membership were more questionable. Hindsight provides us with the evidence that
major problems were brewing, despite the apparently favourable economic
climate. The European single market in general, and Euro membership in
particular, made Southern European countries financially far more integrated
with the other EU member states than had been the case in the past. Capital
controls were abolished as a requirement of the Single European Act of 1986,
totally freeing up capital movements between EU member states. But European
Monetary Union also significantly enhanced the effects of the removal of
capital controls, by reducing the transaction costs involved in transferring
funds across borders, and changing the perception of country risk. In the early
years of the Euro, markets began to see Euro membership as an irrevocable step,
implying that exchange rate risk had all but disappeared. The perceived safety
of Euro-denominated assets sparked massive capital flows, from which Italy and
the other Southern European countries initially benefited. But these capital
flows set the stage for the subsequent crisis by encouraging the accumulation
of greater external debt.
As a wave of capital headed South from the exporting
economies of Northern Europe, economic growth rapidly picked up in peripheral
economies such as Ireland, Greece and Spain. These capital inflows had
different effects on different countries: in Ireland and Spain, the money was
to a significant extent recycled into property speculation and construction,
and through that into consumer spending. The result was rapid growth and an
explosion of private household debt. In Greece, on the other hand, much of the
inflow went into government debt, and the government exploited its sharply
improved risk profile to increase spending, in part investing in public
infrastructure (notably, the 2004 OIympics), in part by fuelling a
clientelistic expansion of public sector employment. By the time of the
financial crisis of 2007-8, these three countries had accumulated significant external
liabilities and trade deficits, leaving them dangerously exposed should the
flow of capital reverse.
The picture in Italy was different. As a more mature
industrial economy, it was less prone to capital flows attracted by the
prospect of rapid ‘catch-up’ economic growth. Italy in fact had suffered from
very low growth ever since the onset of the crisis of the early 1990s. Moreover,
the Italian authorities appeared reluctant to encourage such capital inflows:
the opacity of the Italian financial system, the close relationships between
financial actors and industrial companies, and the notorious complexity of
Italy’s administrative and judicial systems, all acted to discourage inward
investment. However, Italian public debt had become more attractive to
international investors. Like in the other Southern European countries, the
apparent elimination of currency risk meant that Italian bonds seemed a good
investment, offering higher rates than German bunds, but almost the same
default risk. As a result, the profile of holders of Italian debt
internationalized, to the point that less than half was owned by domestic
investors.
The Italian economy benefited initially from these benign
conditions, and growth picked up from the stagnant levels of the 1990s, albeit
remaining well below the EU average. Italian exporters enjoyed a more stable
exchange rate with their main trading partners, a key gain for the Northern
manufacturing industries which were closely integrated into core Eurozone
production processes. But the Euro also exposed some of the weaknesses of
Italy’s economic institutions. Although inflation had dropped markedly through
the 1990s, converging at close the Eurozone average, the introduction of Euro
coins and notes in 2002 was widely perceived by the Italian population as
sparking inflation, as opportunistic businesses converted their prices into
Euros at rate of 1000 lire to the new currency, rather than the official rate
of almost 2000 lire. Although official statistics did not confirm any
significant increase in prices, the public perception of a squeeze on living
standards was strong. Certainly in some sectors where market competition was
ineffective and cartel-like behaviour entrenched, there were opportunities for
price hikes.
It is not clear whether the phenomenon of Euro inflation
impacted on wage bargaining, but it became evident over the subsequent decade
that Italy, like the other Southern European countries, saw a substantial
increase in their relative labour costs as a result of Euro entry. The formal requirements of the
Maastricht Treaty and the Stability and Growth Pact, which focused on fiscal
policy levers controlled by governments, perhaps distracted European
policymakers from the other potential sources of instability which lay outside
government control. As well as financial flows, labour market institutions were
also fundamental to economic management within the constraints of the Euro. By
tying Eurozone countries to an irrevocable fixed exchange rate with other
member countries, monetary union removed forever the strategic tool of
competitive devaluation, a tool deployed frequently by Italy over the postwar
period. Because relative inflation could no longer be addressed by allowing the
currency to slide, Eurozone member states needed to ensure wage costs did not
increase at a constantly higher rate than their neighbours.
This proved difficult, because the Southern European
countries lacked the tradition of stable corporatist bargaining entrenched in
the successful Northern European states. In Germany in particular, trade unions
had accepted in their negotiations with employers significant constraints on
real wage growth, in exchange for job security. Italy and Spain both achieved
high levels of industrial coordination in the 1990s, with trade unions
accepting wage restraint in order to facilitate Euro entry, but once monetary
union had been achieved, bargaining patterns reverted to the more inflationary
patterns of the past. The perceived pressures on prices, the low rate of
productivity growth, and the more tense political climate after Berlusconi’s
victory in 2001, all contributed to the breakdown of industrial peace. Although
wage rises were not dramatic by historical standards, in a context of a fixed
exchange rate and tough wage restraint in the Eurozone core, Italian unit
labour costs quickly rose relative to Germany, threatening competitiveness.
As well as declining competitiveness, the government’s
fiscal health began to deteriorate soon after monetary union. The austere
policies followed by the technocratic and centre-left governments of the mid-
to late 1990s were significantly relaxed once Euro entry was achieved. The
election victory of Silvio Berlusconi’s centre-right coalition in 2001, won
with promises to cut taxes (but no real commitments to cut spending), marked a
shift in emphasis. Italian public debt maintained its downward trajectory until
2004, when it reverted to an upward trend. Although this trend was briefly
halted by Romano Prodi’s short-lived government elected in 2006, by 2008 the
effects of the financial crisis had blown a hole in the Italian government’s
finances, and by 2011 public debt was back up to 120% of GDP, the level reached
in 1994. After little more than a decade, Italy’s fiscal progress had been
wiped out.
From Here to
Austerity: Italy Responds to the Crisis
The global financial crisis sparked off by the collapse of
the sub-prime mortgage market in the United States had dramatic effects in the
Eurozone. However, initially the periphery countries did not seem to be
affected any more than the stronger core economies: output dropped in 2008-9
(Q1 2008-Q2 2009) by 6.5 % in Italy, and 6.3 % in Germany. But as governments
across the advanced world allowed budget deficits to grow as unemployment rose
and tax revenues fell, the vulnerability of the Southern European countries
quickly became evident. The rapid increases in public debt resulted from high
and sustained deficits reminded markets that government bonds did carry an
element of default risk, and investors quickly concluded that this risk was
much higher for the periphery countries than for the Eurozone core.
Initially Italy appeared better placed to address the crisis
than its Southern European neighbours. The focus on Greece, whose chaotic
finances and history of unreliable accounting made Italy’s fiscal policy appear
comparatively robust, and Ireland, whose crisis was at first a banking rather
than a fiscal crisis, gave Italy valuable breathing space. The third Berlusconi
government, unlike many other Eurozone gpvernments, shunned expansionary fiscal
policy as a route out of the crisis, and maintained a primary budget surplus
even as the collapse in output tore through revenues. According to OECD
figures, Italy had the smallest deterioration in its fiscal balance between
2009 and 2011 of any Eurozone country, in stark contrast to Northern European
countries such as Germany, the Netherlands and Finland, which rolled out
stimulus packages adding between 5-15% of GDP to their public debt. Due to the
limited nature of Italian unemployment support, even the ‘automatic
stabilizers’ allowed to function by the Berlusconi government had a much
smaller effect than in countries with more generous welfare provision.
This early resort to austerity helped stave off the pressure
on Italian public debt. As the crisis of confidence in Eurozone government
paper spread to Portugal and Spain, which had much smaller debt levels, Italy
maintained a strict fiscal stance, aware that any sign of fiscal weakness could
lead to a rapid increase in the spread between Italian and German bonds. The
eventual breach of Italy’s defences had a number of causes. First, as more
countries struggled to contain the interest rates on new issues of debt,
markets developed an increasing fear of contagion, exacerbated by the limited
response of the European Central Bank and the clear signs of divisions between
Eurozone governments on how to deal with the crisis. Italy, with its
exceptionally large stock of debt, began to be identified as the next weak link
in the Eurozone, and investors in the bond markets factored this fear into
their trading behaviour. To that extent, Italy’s slide into debt crisis was in
part the result of a self-fulfilling prophecy triggered by broader fears about
the future of the Euro.
But Italy had specific problems of its own that enhanced its
vulnerability. Its economic weakness over the preceding two decades, with
economic growth the lowest of any of the Eurozone countries over the 1990- 2012
period, suggested that even if the global crisis were to resolve, Italy would
still struggle to return to healthy rates of growth. With a debt burden larger
than GDP, economic growth would have to be higher than the cost of debt service
if debt were to be reduced, and any spike in borrowing costs would destroy any
hope of this. In the absence of recovery, markets would have to believe that
the Italian government would deliver harsh austerity measures in order to
protect its budget position. Here the poor credibility of Italy’s political
leadership became a major burden. After the brief interlude of centre-left
government under Prodi ended in 2008, the Italian government was once again in
the hands of Silvio Berlusconi, whose chequered business career and tax-cutting
rhetoric proved less than reassuring. Berlusconi’s success in engineering a
return to power did not ensure a strong government, since his increasingly difficult
relations with his coalition allies, particularly Gianfranco Fini, meant the
government would have an unstable parliamentary support base.
The ‘political risk’ associated with Berlusconi brought about
a dramatic change in leadership at the end of 2011. Weakened by further
scandals, Berlusconi could not deliver any coherent response to the rise in the
bond spread through the second half of the year, and an ebbing of support in
the parliament led to his resignation. His replacement by Mario Monti, a former
European Commissioner but not a member of any political party, appeared to
mirror the imposition by EU leaders of a technocratic government in Greece
earlier the same year. Berlusconi’s tenuous grip on the political situation had
generated uncertainty about Italy’s resolve to keep control of its finances,
and the European Central Bank’s letter to the Prime Minister in July 2011
demanding a series of measures in exchange for central bank support confirmed
that the Italian government was increasingly subject to outside supervision in
the main areas of economic policy.
But although Monti’s ascent to the Prime Minister’s office
was certainly a result in part of direct pressure from the ECB and other
European leaders, it was far from unprecedented. The crisis of the early 1990s
ushered in a period in which a series of partially or fully technocratic
governments were charged with managing Italy’s financial and economic problems.
In 1993, as the leaderships of the major governing parties were decimated by a
wave of corruption investigations, Carlo Azeglio Ciampi, a central banker,
replaced Socialist Giuliano Amato until new elections could be held. After the
first Berlusconi government collapsed after only eight months, Lamberto Dini,
another central banker, replaced him until the election of a centre-left
government under Romano Prodi in 1996. Although Prodi’s first government was
formally a partisan administration, with the Prime Minister having stood for
election at the head of a coalition of parties, he assigned key roles to
technocrats in his cabinet, with Ciampi taking over the Treasury and Dini
acting as Foreign Minister.
These dynamics suggest a broader interpretation of the ways
in which Italian politics has shaped the nature of the current economic crisis.
The tensions between political forces – a powerful Communist Party and trade
union movement in the postwar period, pitted against a fragmented coalition of
Socialists, Christian Democrats and a variety of minor parties – have hindered
the formation of stable governments capable of adopting coherent and
far-sighted policies. The accumulation of public debt over the period from the
1970s through to the early 1990s was in part an expression of the difficulties
involving in holding together heterogeneous governing coalitions whilst keeping
the industrial peace: deficit spending appeared as an early, national
manifestation of the current European strategy of ‘kicking the can down the
road’. When Italy’s economic problems reached crisis point in 1992, the
existing array of political parties proved incapable of generating any serious
response, and instead collapsed under the weight of their history of systematic
corruption. But instead of paving the way for a more effective party system,
the changes of the early 1990s did little to provide Italy with stable and
sustainable government. The final
section examines why.
From First to Second
Republic: The Leopard Changes Its Spots
The adoption of a new electoral law, based in part on the
‘first past the post’ system used in most English-speaking countries, did
succeed in addressing one of Italy’s secular problems: its high government
turnover. The new electoral system forced parties to form pre-electoral, rather
than post-electoral, coalitions, and to stand for election under a de facto
Prime Ministerial candidate. So after the rapid collapse of the first
Berlusconi government in 1995, the Prodi government lasted from 1996-99, and
the same broad coalition sustained two further centre-left governments in
1999-2001. The Berlusconi government elected in 2001 lasted, with few changes,
until 2006, and his third government from 2008 to late 2011. But this increase
in the duration of Italian governments (which before 1994 averaged around one
per year), the ability of these governments to deal with Italy’s most pressing
structural problems has not shown the same improvement.
One reason for the failure of the reformed political system
– sometimes referred to as the ‘Second Republic’ – to address Italy’s economic
decline, is that the new political parties that emerged from the crisis of the
early 1990s have proved incapable of building coalitions for economic reform.
The complexities of winning over the myriad interests and lobby groups needed
for success in the new, more presidentialist pattern of political competition
hinder the construction of broad programmes of reform. This has meant that
narrow interest groups opposed to reform have achieved a degree of veto power
over the political process. On the right, representatives of the sheltered part
of the economy – small retail interests, taxi drivers, construction firms –
have enjoyed a sympathetic hearing from centre-right governments, making a
mockery of Berlusconi’s early stated ambitions to spearhead a liberalizing,
pro-market revolution in Italy. On the left, trade unions representing largely
older, stably employed production workers have been able to resist calls for
greater labour market flexibility, whilst public sector employees and
pensioners have sufficient weight in the centre-left parties to block radical
reforms and spending cuts.
This problem is not limited to the ‘partisan’ governments of
the left and right – Mario Monti too has faced similar pressures, with an
attempted labour market reform being watered down after union protests, whilst
education policy, whilst parliamentarians from Berlusconi’s Pdl party
threatened to block Monti’s ratification of the EU Fiscal Compact. Any
government, whether technocratic or party political, is subject to the
constraints imposed by the composition of parliament, and the Italian electoral
process has yet to deliver a parliament which could bring about a coherent
programme of reform. One reason for this is the low esteem in which politicians
are held in Italy: in the context of declining loyalty towards party labels and
ideologies, many politicians win election through the exercise of classically
clientelistic or corrupt methods, offering to defend the interests of narrow
but well organized and financed groups, rather than those of more diffuse
social constituencies. The lack of faith in the political class as a whole, not
surprisingly, undermines appeals to support reforms which may be initially
costly and would only bear fruit in the long run.
The lack of confidence in politicians is a long-standing
problem in Italy, but has taken a curious turn in recent years. First, the
emergence of Silvio Berlusconi onto the political scene in 1993 was a quite
dramatic and innovative phenomenon, with a business leader exploiting a gap in
the ‘political market’ to win power himself, building a political party in the
space of just a few short months. It became apparent, once Berlusconi had won a
strong mandate to govern the country, that his main preoccupations lay in the
passage of legislation which directly affected his own industrial interests or,
most frequently, the management and reform of the judicial processes to which
he was subject through his many indictments for corruption, fraud and tax
evasion. Of course, Berlusconi could not ignore his electorate and simply focus
on his own affairs, and he developed a secure support base of small business
people, the self-employed, pensioners and housewives, through astute use of his
media resources and the trading of favours.
More recently, the Beppe Grillo phenomenon has confirmed
Italy’s disgruntled attitude towards its political establishment and its
willingness to support non-traditional politicians. Grillo, a successful
comedian with a specialism in populist rants and conspiracy theorists, has
promoted a grassroots political movement – the Movimento Cinque Stelle (Five
Stars Movement) – which has few clear policies, but a very clear
anti-establishment and anti-party theme. Grillo’s political activity was
initially greeted as another quirky addition to Italian politics, but the
success of the Five Stars Movement in the 2012 municipal elections – winning
around 15% of the vote, and electing the Mayor of the city o Parma – suggested
that, like Berlusconi, Grillo could be a serious contender for political power.
The success of figures such as Berlusconi and Grillo reflect
the increasingly beleaguered status of conventional political parties in Italy.
This raises the degree of uncertainty around Italy’s future as part of the
Eurozone. As suggested at the beginning of this article, the main obstacles to
a resolution of the Euro crisis are political, rather than technical, and uncertainty
about future government policies is at the heart of this political impasse. If
Germany and the other Northern European countries are to accept a more
integrated fiscal and monetary union, in which they are to pool sovereign risk
with less credible governments, then they will demand guarantees about the
future conduct of these governments. The lack of a stable party system in
Italy, the reputation for corruption and opportunism of much of its political
class, and the strength of populist forces which, from Berlusconi through to
Grillo, are increasingly questioning the Euro project, are a long way from the
kind of reassurance that European policymakers crave.
