Italy: Nothing new under the sun
The impending prospect of a new Italian government led by the populist Five Star Movement (5SM) and Lega depresses me — but for different reasons than what we hear all over the international press.
This is not a revolution. A revolution implies a drastic change. Here the change is cosmetic, not substantial. There is a continuity with what we have seen over the past decades; a sense of inevitability.
For a long time, Italy has elected politicians who promised — but could not deliver — safe jobs; now it has elected politicians who promise — but cannot deliver — free money. This is not a revolution, but a natural evolution. Like other politicians before them, the leaders of Lega and 5SM promise easy painless fixes; they vouch to make Italy’s voice heard in Berlin and Brussels, winning a change in the EU rules that force Italy to try and live within its means. We’ve heard it all before.
The Financial Times wrote that “Now the barbarians […] are inside the city walls”. Catchy, but it makes no sense. These are not outsiders. These are not the barbarians. This is the new generation of decadent emperors.
As I wrote in a previous blog, Italy has wasted the last twenty years, with no productivity growth, no rise in real per capita incomes, and perennially high youth unemployment. Clearly something isn’t working. Yet reforms have been reluctant and half-hearted; the preferred response has been to blame Germany, Europe and the Euro. The new economic strategy is the same as the old, only more extreme and unaffordable. As they say, to do the same thing over and over again and expect a different result is insanity.
This insanity has been encouraged by the mainstream international economic debate of the last ten years. Following the financial crisis, financial media and many academics told us that economics had manifestly failed; they condemned austerity, called for fiscal and monetary expansions, and blamed Germany for southern Europe’s economic woes. If you believed all this, you should in fact have voted 5SM or Lega.
Immigration played a role. A seemingly uncontrollable inflow of young unskilled people in a country with over 30% youth unemployment was bound to trigger a reaction. This is not an issue of racism — though it could become one. It’s an issue of common sense. Hundreds of millions of people around the world are dying of hunger, war, disease. You can’t help them all, but you can and should help some. How many? That depends on how much you are willing and able to pay. It sounds cold, but it is the cold reality. Europe’s citizens have had no informed debate to determine what cost they are willing to bear; Italy’s current economic system can’t generate the jobs and financial resources to accommodate substantial immigration. Europe’s inept handling of the immigration crisis has introduced an emotionally charged issue in a context where we can’t even have an unemotional debate on bread-and-butter economic issues.
Financial markets have not panicked — and for good reasons. The new government will not push to leave the euro — Italy is too risk averse for that, and has institutional safeguards. It will scale back its promises to less unaffordable levels — there are already plenty of signs in the fine print of its program, and I encourage you to read Unicredit’s Erik Nielsen for more detailed insights. Italy’s spreads will widen further, and the euro will weaken, but this is not the start of a new euro-crisis.
Ignore the usual prophets of doom; but if you like Italy, look on with sadness.
The slow decadence of the empire will continue. The barbarians will come, eventually.
