Italy's political drama and the EU

Italy's left-populist 5Stars Movement (Movimento 5 Stelle) and the right-populist League (Liga), formerly called the Northern League, had agreed on a government. 5Stars got the largest percentage in the March national election with 32%, with the Liga third with 18%.

But the President and head of state of Italy, Sergio Mattarella, a former Christian Democrat and now Independent, refused to accept the proposed Finance Minister.

Alberto Mingardi reports (Italian voters head for euro showdown Politico EU 05/28/2018)

The two parties wanted Paolo Savona, an 82-year-old technocrat who has fantasized in public about a “secret plan to leave the euro,” as the all-powerful economy minister. And they refused to back down when Mattarella pushed back. The Italian president probably feared the effect of Savona’s appointment on a number of treasury auctions this week, and that Italy losing access to the bond markets was a very concrete possibility.

Politico identifies Mingardi as "director general of Istituto Bruno Leoni, Italy’s free-market think tank, and an adjunct scholar at the Cato Institute." So it's safe to assume that he's likely to be very sympathetic to ultra-conservative economic policies that have led so many Italian voters to reject the more mainstream center-left and center-right.

The coalition's Prime Minister candidate, whom Mattarella was willing to accept, refused to accept the job unless Mattarella was willing to accept a Finance Minister that the coalition wanted. The coalition parties are contesting the austerity policy required by the EU leadership, Angela Merkel in particular.

One thing I'm noticing on the reporting about this latest turn is that the distinction between "euorskeptic" and "eurocritical" seems to be getting blurred in the news. A euroskeptic has long been considered to be a person opposed to their country's membership in the EU, while eurocritics were pro-EU but insistent on reforms to reduced the much-discussed "democratic deficit" and the EU's Herbert Hoover/Heinrich Brüning economic policies. Given the current death-lock that neoliberal economic assumptions have on the European establishment, any country that seriously wants to reform the eurozone to make it into an optimal currency zone, which it has never been, will have to be willing to leave the eurozone if their minimal demands aren't met, maybe the distinction between euroskeptic and eurocritical is becoming less relevant.

Now President Mattarella has appointed an interim Prime Minister. "Carlo Cottarelli became known as 'Mr Scissors' for his cuts to public spending in Italy." (Carlo Cottarelli: Italy president names stop-gap PM BBC News 05/28/2018) Cottarelli was a former IMF official, making both the optics even worse. The IMF website notes that "served as Director of the Fiscal Affairs Department from November 2008 to October 22, 2013."

This is another kick in the face to the electorate, for whom the austerity policies are clearly a major problem. And they are right to consider them a problem. As the BBC explains:

After meeting the president, Mr Cottarelli said he would present a programme to parliament, including a budget, to take Italy into new elections "at the beginning of 2019".

If he was unable to pass a programme, which appears likely at this stage, "the government would resign immediately... until elections are held after the month of August", he added.

The BBC's James Reynolds in Rome says early elections are exactly what the two populist parties want, giving them a chance to rally support behind their claim that the Italian and the wider European establishments are getting in the way of the will of the people.

A source from Five Star told Reuters the party could campaign with the League in a fresh vote.

If Parliament refuses to approve the government, which is a real possibility, it will be a Presidentially-imposed technocratic government. And Italian voters will have very good reason to object to that.

To be clear, I have little confidence in the rightwing, xenophobic Liga as a governing party. But Liga leader Matteo Salvini is unfortunately correct in calling Mattarella's course an attack on democracy.

This editorial from The Independent is Italy's political crisis could have devastating effects on the European economy reinforces the stone-conservative narrative on economic policy that currently dominates the EU, Italy's political crisis could have devastating effects on the European economy 05/28/2018:

One of the few things the fractious putative coalition of the League, formerly the near-separatist Northern League, and the Five Star Movement agree on is that Italy should be allowed much more financial freedom, either within the euro or, if needs be, outside it. This is because they need to be able to print huge sums of money on an irresponsible programme, popular or not. The scale of the public spending required to satisfy their populist promises amounts to around 10 per cent of Italian GDP, a figure usually reached only during an extreme economic crisis. They can do that only by a vast increase in borrowing and taking grave risks with the viability of the euro and Italy’s membership of the system.

Ending the Hoover/Brüning is a necessity in order to fix the eurozone. But no one exactly knows what the effect would be of a eurozone member leaving the eurozone. But it will be very disruptive, almost certainly worse for all sides in the short run.

But if staying in the eurozone means that in Italy or other countries means that the bankers, the IMF, EU operatives, and Germany can dismiss the results of legitimate democratic elections and install a Hoover/Brüning "technocrat" instead, then Italy and other countries really are facing a choice between eurozone membership and democracy in their countries.

Wolfgang Münchau for years has been a perceptive critic of the eurozone construction and the EU response to the Greek debt crisis. He mentions again in his current column for the Financial Times his thoughts on what needs to be done with the eurozone (Euro must be made more robust to rival the dollar 05/27/2018):

Before the financial crisis the eurozone ran a small current account surplus. By last year, it reached 3.5 per cent of economic output. The larger the surpluses became, the more dependent the eurozone had become on the rest of the world.

Instead of hyperventilating about Mr Trump, Europeans might want to reflect on what got them into this mess. The EU would be more resilient today if it had not handled the eurozone crisis the way it did, and if its founders had made the euro more robust from the outset. Technically, it would still be possible for the EU to fix the problem, but that would require a degree of political union that goes far beyond even what Emmanuel Macron, the French president, has proposed. It requires at its core a mutualised debt instrument, a euro bond, as a financial instrument to underpin a large sovereign debt market. It would also require a broader mandate for the European Central Bank.