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How the eurozone entered a new phase of economic crisis

Matteo Renzi's resignation reminds us that populism has financial consequences.

What a difference four hours makes. At six in the evening last Sunday the champagne corks were popping in Brussels. Norbert Hofer, the candidate of the far-right Freiheitliche Partei Österreichs, had just conceded defeat in the Austrian presidential election. By ten o’clock, however, the bubbles were going flat. Exit polls in Italy showed that Prime Minister Matteo Renzi was going down to a heavy defeat in the referendum on constitutional change he had called and championed.

Together, these two results laid bare an important truth about the rise of populism in Europe and its relationship to its troubled economic model. In Austria, the theory that a revival of fascism is sweeping even the most prosperous parts of the European Union was stopped in its tracks. The Italian result showed that Europe’s challenges are both more banal and more exotic than the rise of another far-right bogeyman.

Economics – and, yes, the euro – is a large part of the story. Most of the developed economies have had a poor time of it since the financial crisis of 2008-2009. The United States economy, the best performer of the lot, is about 10 per cent larger than it was before the crash. The average for the advanced economies as a group is a bit lower, at 8 per cent. The economy of Italy, meanwhile, has shrunk over this period: its GDP is 8 per cent smaller today than it was at its peak in 2007.

A better indicator of actual material well-being is GDP per capita. By this measure, Italy today is worse off than it was not just in 2007, but in 1997. National output per head has stagnated for 20 years – an astonishing, almost unprecedented statistic.

No doubt you are wondering if this dismal record of relative decline has been driven by the outrageous profligacy of the government, as in Greece, or by a chronic failure to compete in foreign markets, as with Portugal. Not a bit of it. Within Europe, Italy has for years been a model of fiscal probity, with a smaller budget deficit than that of both France and Spain, and smaller still than that of the UK. As for competitiveness, many of Italy’s small and medium-sized companies remain the envy of the world, and the country has a €45bn trade surplus to prove it.

Why, then, is Italy such an economic basket case – with public debt at nearly 150 per cent of GDP and a banking system buckling under the weight of €360bn of bad loans?

The answer in both cases is that there are only two conventional ways of escaping a debt burden: growth or inflation. In Italy, the euro killed inflation and has not proved conducive to growth; as a result, its government accounts have remained mired in the public debts accumulated in the 1980s and 1990s. For the same reason, it has proved impossible to extricate Italy’s banks from the legacy of non-performing loans inherited from the double-dip recession of 2008-2009 and 2012-14.

The solution prescribed by Brussels over the past decade has been for the Italians to take the euro and its spending rules as given, and to rely on supply-side reforms for a revival. There would be no return to an inflationary model. Italy was to generate growth by becoming more German.

The theory was not without its merits. There is little doubt, for instance, that there were aspects of Italy’s labour laws that were in dire need of the reform Renzi introduced last year. Yet the focus on deregulation has not worked in practice. The fact is that the eurozone as currently constructed does not work for Europe’s fourth-largest economy. So either the eurozone will be fundamentally recast, or Italy will be forced to leave. That is the simple economic lesson of the referendum.

Yet ultimately it is not the economic, but the political implications of Renzi’s defeat that are likely to prove most momentous in the long term. For what Italy has consistently shown more vividly and earlier than anywhere else is the nature of the political revolution overtaking the developed West, a revolution either disturbing or exhilarating, depending on your perspective.

In the UK we only woke up to these changes with Brexit. In the US, it has taken the election of Donald Trump. In Italy, the transformation has been going on much longer, and its logic has been more thoroughly worked out.

The itch that Ukip and the Trumpists scratch is the idea that the mainstream left and right parties are two sides of the same establishment coin – allegedly representative of economic enlightenment and the ethical high ground, but in fact embodying a corrupt and cloying groupthink that stands for nothing more than the self-interest and power fantasies of the cosmopolitan elite.

For decades in Italy, this idea was not just a borderline conspiracy theory but an explicit political strategy – until the late 1980s. It even had a name – trasformismo – as well as the most famous of modern literary epigrams to sum it up: the aristocrat Tancredi’s advice, in The Leopard by Tomasi di Lampedusa, that: “If we want things to stay as they are, things will have to change.”

In the early 1990s, however, trasformismo collapsed. Before the nativism of Germany’s Alternative für Deutschland party, there was the nativism of Umberto Bossi’s Lega Nord. Before the transgressive tycoonery of Donald Trump, there was the transgressive tycoonery of Silvio Berlusconi.

Most prophetically of all, the pioneer of exposing and exploiting the obsolescence of the mainstream media was not Steve Bannon and Breitbart News, but Gianroberto Casaleggio, the internet entrepreneur who died in April. He turned Beppe Grillo from an amateur blogger into Brother Number One of the anarchic Five Star Movement. It is this anti-globalist group, which holds 17 of Italy’s 73 seats in the European Parliament, that led the No campaign to victory in the referendum that toppled Renzi.

When I was at school, we studied Rome to learn the origins of Europe’s present political culture. Today, we should be doing so to understand its future. 

Felix Martin is a macroeconomist, bond trader and the author of Money: the Unauthorised Biography

This article first appeared in the 08 December 2016 issue of the New Statesman, Brexit to Trump

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How conspiracy theories about the Salisbury attack tap into antisemitic tropes

Rather than blame Russia for the poisoning of Sergei Skripal, some are questioning the intentions of Labour MPs. 

Shortly after the poisoning of former double agent Sergei Skripal and his daughter, guests on the BBC’s Newsnight programme discussed the reaction of Labour leader Jeremy Corbyn. The Twitterati went into meltdown. Was the image of the Labour leader amid a Kremlin skyline part of a mainstream media plot to depict Jeremy as a “Soviet stooge”? Was the hat he was wearing “doctored” to look more Russian?

Much of the conspiracy material circulating online recently – and indeed the story on Newsnight about Corbyn – flowed from the shocking attack that has left Skripal and his daughter in hospital and affected many others. The government, and now EU leaders, have blamed Russia for the attack. Yet among some sections of the online left, there seemed a reluctance to point fingers. But if Russia didn’t do it, how could the matter be explained to fit a pre-existing worldview? Jews such as myself wondered how long it would be before the finger pointed at us. It wasn’t even a week before political space had been created which emboldened some to pursue the notion that not Russia but gangsters, Britain’s own research lab or yes, Israel were more reasonably the brains behind the poisoning.

One of the voices that gained traction in relation to the spy attack story belongs to former British diplomat Craig Murray, who took exception to the speed with which Russia was declared responsible. Picking up on the government line that the toxin was “of a type developed by Russia” he penned a blog entitled: “Of a type developed by liars” building on his previous piece “Russian to judgement” which contained numerous allegations, including that “Israel has a clear motivation for damaging the Russian reputation so grievously”. Murray’s work was picked up by left-wing news outlet The Canary and Evolve Politics, among others. The latter also quoted Annie Machon, a former MI5 agent who has previously supported 9/11 conspiracy theories.

Murray’s view soon entered the mainstream, with the Guardian referencing it and one Labour MP sharing a Murray tweet declaring: “Wow, if this is true Theresa May has some very serious questions to answer”. The spotlight on Murray’s theories was a worrying development given that not long before, Murray, had been speculating about another matter.

After the Labour MP John Woodcock introduced to Parliament an Early Day Motion that unequivocally accepts the Russian state’s culpability for the poisoning, Murray tweeted: “Remarkable correlation between Labour MPs who attacked Corbyn in EDM wanting no investigation into Salisbury before firmly attributing blame, and parliamentary Labour friends of Israel, I wonder why?” One can read into this statement what one wants, but to me it seemed to imply that rushing to judgement on Moscow might benefit MPs supportive of Israel, which in conspiracy world are in its pay. Certainly that’s what a number of online hounds sniffed. But rather than one type of conspiracy, Murray was apparently pointing to another. “A conspiracy to attack the leadership of Jeremy Cobyn, perhaps. If you think I was accusing them of being part of a conspiracy to kill Skripal, you are daft,” he tweeted. In short, he seems to be saying, whilst there was not a conspiracy of MPs to be a part of any plot to kill the double agent, the EDM “perhaps” represented a conspiracy to attack the leadership of Jeremy Corbyn. 

Others were bolder. One Labour activist, writing about the aforementioned EDM, declared it was “worth noting one of the people sponsoring this motion is a named CIA asset”. Though unspecified, the asset referred to was believed by some to be Ruth Smeeth MP. This seemingly centres on Smeeth being named in a single diplomatic cable from 2009, released by Wikileaks, in reference to her views, when a parliamentary candidate, about an early election being called by Gordon Brown. 

Entirely unrelated to these particular tweets or Murray’s writing, Smeeth also happens to be an MP who has spoken out about antisemitism, and was forced to accept police protection following antisemitic abuse she has received online. She and another MP, John Mann, have both received antisemitic death threats. I stood next to Mann at Labour party conference as a delegate berated him, calling him a CIA agent for taking on this “antisemitism nonsense”. For me, this interaction underlined the causality between some conspiracy theories and antisemitic activity (Mann is not Jewish, but has been a prominent opponent of antisemitism in the party). 

Though it is difficult to reduce to a simple guide, allegations of Israeli conduct that draw on classic antisemitic tropes should be avoided. In recent years this has included suggestions of “organ harvesting” which draw on the antisemitic blood libel, or those that speculate about political control, such as suggestions that “the Israeli tail wags the US dog.”

Certainly, the centrality of Israel to conspiracy theory has a long history. In Mein Kampf, Hitler alleged: “All they want is a central organisation for their international world swindler, endowed with its own sovereign rights and removed from the intervention of other states.” Of course, this type of global antisemitic conspiracy theory predates Hitler. The antisemitic hoax, the Protocols of the Elders of Zion, is decades older. Russian in origin, it purported to reveal a meeting of Jews seeking to manipulate governments, foment war and subvert the morals of society. Today, we see a similar sentiment. Indeed, Russian president Vladimir Putin suggested that Jews, or other ethnic minorities, might be behind electoral interference in America. A US lawmaker recently blamed a Jewish elite for controlling the weather and closer to home, one of the Twitter accounts that popularised the Corbyn hat conspiracy, has also shared antisemitic conspiracy theories.

With conspiracy theories transposing from the far right to the extreme left online, it is unsurprising that before long Rothschild conspiracy (secret Jewish plot) memes were posted on Labour party supporter and other forums in relation to the Salisbury poisoning. Indeed, antisemitism itself tends to attract the acrid smell of conspiracy theory. When such an act is alleged, cries of “smears” and “witch hunt” follow. Only recently, The Times reported on an MIT study which revealed that a false-news tweet is 70 per cent more likely to be retweeted than a true story. Maybe this is why allegations of Mossad collaboration with Nazis or Hitler’s support for Zionism have been so widespread.

People cannot necessarily be held responsible for falling for conspiracy theories. Trust in government is at an all-time low. Spin, scandal and economic sorrow have left people looking for alternative heroes and whomever is deemed most reliable on social media timelines will do. Conspiracy theories play into prejudices. They empower and embolden people to feel a step ahead, they provide a scapegoat and a self-satisfying rebuttal loop. Those that do know better meanwhile are perhaps worried to tackle others for fear of attack, hope for better times ahead or most worryingly, see populist conspiracy as a Trumpian route to power.

Last week, we helped organise the first ever one man show in parliament: Marlon Solomon, who will return to Edinburgh with his show “Conspiracy Theory: A Lizard’s Tale” this year. As he reminded us this week, it wasn’t so long ago that a Labour MP was stabbed to death by someone with a warped view of reality. Obsessive and distorted hatred of Israel and Jews has an effect. Conspiracy theories matter. They have real-life consequences for people. It is incumbent upon leaders across the political spectrum not to normalise or sanitise conspiracy theories, or conspiratorial antisemitism, nor to allow us to think we can “trust no one”. But then, as the conspiracists will tell you, I would say that, wouldn’t I?

Danny Stone MBE is the director of the Antisemitism Policy Trust.