Italy's new government is unlikely to break with the past

The left-right coalition represents a continuation of the old, discredited politics - and a victory for Berlusconi.

When compared to other geographical areas Italian politics often looks very colourful. This is the nation which, in some ways, still represents a sort of laboratory for the western world, and acts like a model for other countries – from the building of the nation-states to the rise of fascism and the contemporary relations between media and power. This went along with the presence of characters like Garibaldi, Berlusconi, and, of course, Beppe Grillo. Different to some northern European states, Italy also experiences high levels of politicisation in national life, and a strong political and ideological polarisation and fragmentation. This contributed in making Italian politics so argumentative and, often, quarrelling.

Yet, miracles, at times, happen and for the second time in a row a "grand coalition" is being established, gathering together the centre-left and the centre-right. A government led by one of the leaders of the Partito Democratico, Enrico Letta, has been established. It is clear that Italy does need a government and a leadership. But is this the right one to deal with the economic and social turmoil Italy faces? President of the Republic, Giorgio Napolitano, talked about the need for "unity", like during the years of the anti-fascist Resistance (probably overlooking that politicians in Berlusconi’s party never rejected interwar fascism). Other commentators looked instead excited at the welcome, but cosmetic-only presence of young and female senior ministers. A source from the Partito Democratico even suggested that they had to back it because this government represented a "chance" for Italy.

Along with an evident lack of political strategy, the centre-left is showing a quite high degree of hypocrisy. Over the years, anti-Berlusconism was the only magnet to keep together some of its own forces and streams – and these anti-Berlusconi stances are very strong in the leftist electorate. At the same time, their poor attitudes contributed to the incredible endurance of Berlusconi’s political activity, and recently to the rise of Grillo's Five Star Movement. It also seems that they hardly learned from the history of Italian elections. Elections took place on 24-25 February, and the Partito Democratico was leading in polls. However, Berlusconi came very close, and the centre-left could not gain any realistic and stable parliamentary majority. Following the establishment of this governmental coalition, the real winner is Berlusconi, the one politician who many European elites and international organisations would have loved to see disappear.

We might wonder what these leading foreign and economic forces think about this development – especially if we consider that Berlusconi has recently employed anti-EU and anti-Euro propaganda which generated criticisms in Brussels. Moreover, it is unclear what this mixture of centre-right, centre-left, and liberal politicians will do in foreign policy, economic plans, conflict of interests, unemployment, and, intriguingly given Berlusconi’s ongoing trials, justice. It will probably be the centre-left losing votes again as it happened following their backing of Mario Monti's technocratic government. Berlusconi will, in fact, play the card of elections when he feels to be strong enough. He has already done this, and then played an electoral campaign against austerity, Germany, and the same Monti (after having initially supported him).

In some ways, Grillo won too. The left-right coalition gives strength to his argument that all parties are the same. However, millions of Italian people voted against traditional politics, against austerity (at least in part) and the technocratic government of Monti, yet they end up now with this type of catch-all government. The coalition also represents an attempt to react against Grillo and common citizens voting for the Five Star Movement. Traditional parties prefer to stay together, hoping that the economy will improve and Grillo lose votes. However, this is well in line with the ethical decline of contemporary Italian politics too. This is, in fact, the outcome of a couple of decades of failing political elites. Many people, and especially the youth, voted for the Five Stars because they wanted a moralisation of public life, meritocracy, cuts to politicians' privileges, a halt to the brain drain, and have deputies pursuing collective interests. A good part of the centre-left electorate also probably hoped that a new political era could start after years of Berlusconism, scandals, bribery, foreign media attention, and economic downward. Will a government backed by the heirs of the Bunga Bunga-like politics reverse the economic trend, save the country from mafia and corruption, and regain international prestige and the votes of the young generations?

Andrea Mammone is a historian of modern and contemporary Europe at Royal Holloway, University of London. He is author of a forthcoming book on transnational neo-fascism (Cambridge University Press) and coedited “Italy Today. The Sick Man of Europe” (Routledge)

Slight ritorno: Berlusconi, in the Italian senate on 30 April 2013. (Photo: Getty.)

Andrea Mammone is a historian of modern and contemporary Europe at Royal Holloway, University of London.

Ralph Orlowski / Getty
Show Hide image

Labour's investment bank plan could help fix our damaging financial system

The UK should learn from the success of a similar project in Germany.

Labour’s election manifesto has proved controversial, with the Tories and the right-wing media claiming it would take us back to the 1970s. But it contains at least one excellent idea which is certainly not out-dated and which would in fact help to address a key problem in our post-financial-crisis world.

Even setting aside the damage wrought by the 2008 crash, it’s clear the UK’s financial sector is not serving the real economy. The New Economics Foundation recently revealed that fewer than 10% of the total stock of UK bank loans are to non-financial and non-real estate businesses. The majority of their lending goes to other financial sector firms, insurance and pension funds, consumer finance, and commercial real estate.

Labour’s proposed UK Investment Bank would be a welcome antidote to a financial system that is too often damaging or simply useless. There are many successful examples of public development banks in the world’s fastest-growing economies, such as China and Korea. However, the UK can look closer to home for a suitable model: the KfW in Germany (not exactly a country known for ‘disastrous socialist policies’). With assets of over 500bn, the KfW is the world’s largest state-owned development bank when its size is measured as a percentage of GDP, and it is an institution from which the UK can draw much-needed lessons if it wishes to create a financial system more beneficial to the real economy.

Where does the money come from? Although KfW’s initial paid-up capital stems purely from public sources, it currently funds itself mainly through borrowing cheaply on the international capital markets with a federal government guarantee,  AA+ rating, and safe haven status for its public securities. With its own high ratings, the UK could easily follow this model, allowing its bank to borrow very cheaply. These activities would not add to the long-run public debt either: by definition an investment bank would invest in projects that would stimulate growth.

Aside from the obviously countercyclical role KfW played during the financial crisis, ramping up total business volume by over 40 per cent between 2007 and 2011 while UK banks became risk averse and caused a credit crunch, it also plays an important part in financing key sectors of the real economy that would otherwise have trouble accessing funds. This includes investment in research and innovation, and special programs for SMEs. Thanks to KfW, as well as an extensive network of regional and savings banks, fewer German SMEs report access to finance as a major problem than in comparator Euro area countries.

The Conservatives have talked a great deal about the need to rebalance the UK economy towards manufacturing. However, a real industrial policy needs more than just empty rhetoric: it needs finance. The KfW has historically played an important role in promoting German manufacturing, both at home and abroad, and to this day continues to provide finance to encourage the export of high-value-added German products

KfW works by on-lending most of its funds through the private banking system. This means that far from being the equivalent of a nationalisation, a public development bank can coexist without competing with the rest of the financial system. Like the UK, Germany has its share of large investment banks, some of which have caused massive instabilities. It is important to note that the establishment of a public bank would not have a negative effect on existing private banks, because in the short term, the UK will remain heavily dependent on financial services.

The main problem with Labour’s proposal is therefore not that too much of the financial sector will be publicly owned, but too little. Its proposed lending volume of £250bn over 10 years is small compared to the KfW’s total financing commitments of  750 billion over the past 10 years. Although the proposal is better than nothing, in order to be effective a public development bank will need to have sufficient scale.

Finally, although Brexit might make it marginally easier to establish the UK Investment Bank, because the country would no longer be constrained by EU State Aid Rules or the Maastricht criteria, it is worth remembering that KfW’s sizeable range of activities is perfectly legal under current EU rules.

So Europe cannot be blamed for holding back UK financial sector reform to date - the problem is simply a lack of political will in the current government. And with even key architects of 1980s financial liberalisation, such as the IMF and the economist Jeffrey Sachs, rethinking the role of the financial sector, isn’t it time Britain did the same?

Dr Natalya Naqvi is a research fellow at University College and the Blavatnik School of Government, University of Oxford, where she focuses on the role of the state and the financial sector in economic development

0800 7318496