Italy’s scruffy cities and corrupt politicians highlight the flaws of the eurozone

The country should be a paradise, yet many of its young mope around without prospects or have moved to Europe’s north in search of opportunities.

Sign Up

Get the New Statesman's Morning Call email.

A decade ago Dani Rodrik, a Harvard economist, wrote of the “globalisation trilemma”. In the modern global economy, he posited, a country must choose just two items from a list of three: deep economic integration with other countries; democratic politics; or an autonomous nation state. So transnational economic democracy works; as does a self-governing nation state behind economic walls; so does an autonomous state led by market-sensitive technocrats.

The essence of today’s eurozone is that it seeks to obtain all three, and thus secures none of them adequately. Italy, where a populist new government is on the cusp of taking power, illustrates the point. In recent years the country has accepted an array of budgetary restrictions and meddling from Brussels. In 2011 Silvio Berlusconi, the democratically elected prime minister, quit after Europe’s power brokers indicated that they could not do business with him. Yet the prosperity that was meant to be the pay-off for such indignities is absent: since joining the euro Italy’s real GDP has barely changed; its mighty debt burden has become more onerous; its banks have racked up bad debts; and even today around a third of its young people are unemployed.

To travel around the country, as I did during its election campaign in February, is to witness a people on the prongs of Rodrik’s trilemma. Italy should be a paradise, blessed as it is with physical and artistic beauty, intelligence (“If we were as furbi [cunning] with our industry as we were with our taxes, we’d be the richest place in the world,” an Italian friend joked) and pockets of intense economic productivity such as the co-operatives-heavy region of Emilia-Romagna.

Yet Italy is also nothing like a paradise. Its cities often feel scruffy and unloved; walls graffitied, piazzas strewn with litter, immigrants marginalised in a society that has turned inwards to look after its own, young folk moping around without prospects. Many of the ambitious and mobile – including members of my family – have moved to Europe’s north in search of opportunities. Most dispiriting of all is the cynicism about politicians, who are viewed on a spectrum less defined by left-vs-right than by varying degrees of malevolence. “He’s not as crooked as the rest” is a depressingly common defence of Berlusconi. Against such a backdrop it is hardly surprising that Italy, once one of the most pro-European members of the EU, is now among the most Eurosceptic.

So it was that two populist parties – the regionalist-turned-nativist Lega and the anti-establishment Five Star Movement (M5S) – together obtained a majority at the polls on 4 March and are now forming a government. Much divides them, but they are united in their determination to rattle the bars of the eurozone. Late drafts of their coalition programme included huge tax cuts, a citizens’ income of €780 a month and a dismantling of pensions reform, all of which could cost more than €100bn (about 6 per cent of GDP). They may try to fund this by rewriting eurozone rules and issuing tradable notes to those owed state payments, which could end up as a parallel currency.

It is not hard to imagine things going wrong. The markets may lose faith in Italy’s debts. Unlike Greece, the country is too big for the European Stability Mechanism, the eurozone’s crisis firewall, to save it in the event of a panic. Both the M5S and the Lega have backed away from a referendum on leaving the euro, but the latter remains quietly committed to the idea in the long term. Giuseppe Conte, the law academic proposed by the two parties as a technocratic prime minister for his apparent inoffensiveness, is politically untested.

An “Italexit” is not inconceivable. Even the more likely outcome is gloomy: together the markets, Brussels and Italy’s president will probably restrain the new government, lowering the risk to the euro as the country limps on, with voters’ grievances going unresolved.

What to do in the long term? The eurozone’s future comes down to the trilemma, and whether its members would rather downgrade the nation state, their democratic control or the material benefits of economic integration. Emmanuel Macron’s proposals for European reform amount to choosing the first and embracing US-style democratic federalism; for the French president, democracy and integration trump national control. At the Sorbonne last September and in the European Parliament last month, Macron called for greater eurozone burden-sharing and democracy: a euro finance minister, a large federal budget and a European Monetary Fund, all overseen by more democratic institutions in Brussels.

Meanwhile – although it is not seen as such in Berlin – the northern European stance amounts to downgrading democratic rule, at least for troubled economies, to protect national control and economic integration. Anything resembling a “transfer union” (where the wealthy and productive routinely subsidise the poor) is politically toxic in Germany and its neighbours. So their response to Macron’s visionary proposals has been largely negative.

The great risk is that the absence of a Macroniste breakthrough and a rising backlash against the democratic deficit created by the German approach will make integration and its economic benefits the default victim. The populist surge in Europe is a more gradual, long-term story than some commentary allows, but it would be churlish to deny that it is rising and even pushing the mainstream towards keeping out immigrants, repatriating powers from Brussels and protecting national markets from foreign competitors. If Europe’s leaders don’t make their own choice about Rodrik’s trilemma, events will make it for them. l

Jeremy Cliffe is the Berlin bureau chief of the Economist

This article first appeared in the 23 May 2018 issue of the New Statesman, Age of the strongman