What Italy's economic woes mean for Sunday's vote
March 1 at 6:00 AM
The European Central Bank in Frankfurt, Germany. (Michael Probst/AP)
These days, no one is more negative about the European economy than the Italians. In Sundayâs general elections, hereâs how Italyâs hard economic times will likely factor.
A decade after the start of the euro-zone crisis, Italyâs gross domestic product has yet to return to its 2007 level. Unemployment is around 11 percent, while youth unemployment is at a staggering 32 percent. Itâs perhaps no surprise that at least 1.5 million Italians have left the country since 2008.
Italy, Europeâs fastest-growing economy between 1950 and 1990, has hardly been growing for two decades. As euro-zone membership does not allow the country to devalue its currency, two economic weaknesses have become particularly obvious:
- The reliance on exports like clothing, furniture, and footwear, vulnerable to competition from developing countries.
- The countryâs enormous public debt.
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Italyâs next government will have a mountain to climb. The main competitors are Silvio Berlusconiâs center-right alliance, Matteo Renziâs center-left alliance and the anti-establishment Five Star Movement. Whoever emerges victorious will have to wrestle not just with the normal challenges to economic growth, but also with Italyâs complicated relationship with the euro.
The dispute over the euro
Prolonged economic stagnation, followed by a double-dip recession during the euro-zone crisis, has made the euro a major bone of contention. In recent polls, 58 percent of Italians say that the countryâs cur rent economic state is âbad,â and 40 percent think that âhaving the euro is a bad thing.â
Still, ahead of the March 4 election, Italyâs main political players toned down criticism of the euro â" in a campaign that has been consumed with the issue of immigration from outside Europe. Despite earlier threats, no major political figure currently calls for an âItalexit.â
The center-right alliance is ahead in the pre-election polls. Its largest party, Berlusconiâs Forza Italia (FI), has campaigned in support of Italyâs euro-zone membership and with the stated intention to respect E.U. budgetary rules, though proclaiming these points at the same time âdebatable.â
This position contrasts with Berlusconiâs previous call for the reintroduction of the lira as a parallel currency. FIâs main ally, the radical-right Northern League (LN), is even more ambivalent. While its leader Matteo Salvini stopped campaigning for Italy to abandon the euro, he na mes the common currency as an âerrorâ that needs to be corrected.
The anti-establishment Five Star Movement (M5S) has shaken up Italian politics since emerging in 2013 â" and has shifted some of its own positions. Initially campaigning on social politics, environmentalism and anti-corruption, M5S has recently promoted restrictions on immigration, in line with Italyâs political mainstream.
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In 2016, M5S founder, the comedian Beppe Grillo, proposed a nonbinding referendum on Italyâs euro-zone membership. However, the current party leader, Luigi Di Maio, recently dismissed the idea of leaving the euro, calling a referendum âa last resort which I hope to avoid.â The M5S 20-point manifesto released in January 2018 omits any mention of a euro referendum.
The governing Democratic Party (PD) dominates the center-left alliance, heir to the government that in the 1990s qualified Italy for euro-zone membership at the 11th hour. Having backed all austerity measures since 2011, the PD is perceived as the staunchest supporter of the common currency. However, it is trailing both Berlusconiâs center-right alliance and M5S in pre-election polls.
A âEuroskepticâ government in Rome?
Itâs likely that none of the three parties will claim the votes required for a parliamentary majority, making government formation tricky â" although the center-right still has a chance to do so.
A continuing involvement of the center-left PD in Italyâs next government would produce a huge sigh of relief in Brussels. PDâs survival in government is most likely as a partner of Berlusconiâs FI in a âGrand Coalitionâ â" in disregard of their electoral alliances today.
Still, a role for Italyâs Euroskeptic parties â" M5S or LN â" in the next government is not completely off the table. Would either party, if in government, be likely to call for an end to Italyâs euro-zone membership? Probably not, but they would be likely to seriously question the E.U.âs stringent 3 percent deficit limit.
Can there be a return to economic growth?
Even if the election produces a more or less stable government, the key economic pledges of Italyâs major political players seem insufficient to address the countryâs economic challenges. Domestically, issues such as low labor productivity, public sector inefficiency and the growing education gap with the other industrialized countries demand urgent responses.
Instead, even radical proposals â" such as FIâs introduction of a 23 percent flat tax or the doubling of the minimum pension, M5Sâs citizensâ income and a universal pension or LNâs 15 percent flat tax and proposed tariffs on imports to protect jobs do not seem sustainable. While some of these policies might bring important short-term benefi ts to specific sectors of the society, they clash with the stringent E.U. fiscal requirements and donât address Italyâs structural weaknesses.
Moreover, the long-term future of Italy and the euro depends on an overhaul of the euro-zone institutions. Being part of the euro club means Italy cannot devalue its currency to boost exports â" which so far has made austerity, or âinternal devaluation,â the only option to do so.
While there has already been some debate on euro-zone reform, some issues might become more important in the next few years: Will Germany and other Northern European member states back down from the austerity mantra? Will they introduce Eurobonds as a guarantee for the debt of Southern European states? Will raising wages in the North create demand for Southern European exports?
Certainly, these questions are difficult to resolve. But if no answers emerge, Italy might simply muddle through until the next crisis hits.
Fabio Bulf one is a researcher at the Robert Schuman Centre for Advanced Studies of the European University Institute in Florence. He works on comparative political economy and European integration. Find him on Twitter @FabioBulfone.
ManÃ¨s Weisskircher is a researcher at the TU Dresden (MIDEM â" Mercator Forum Migration and Democracy) and at the European University Institute in Florence. His research interests include comparative politics and political sociology. Find him on Twitter @ManesWeissk.Source: Google News Italy | Netizen 24 Italy