Antonio Lettieri – Italy and the disappointing history of the Euro

Italy is the only country where the old establishment parties have been swept away from the scene. The clash with the European commission has been focused on compliance with the rules – a sort of catechism – that dominate the eurozone.

Antonio Lettieri is Editor of Insight and President of CISS – Center for International Social Studies (Roma). He was National Secretary of CGIL; Member of ILO Governing Body,and Advisor of Labor Minister for European Affairs.(

Cross-posted from Insight

European union and Italian flags breaking apart

The long controversy that has struck relations between Italy and the eurozone authorities has been resolved at the last minute. There will not be the so-called excessive deficit procedure for Italy, an initiative unprecedented in the euro area since its foundation.

We must look for whether it was a simple road accident or rather the manifestation of a rupture of the engine that has ruled the eurozone in the last two decades. It is worth mentioning that the long and hard conflict opened by the European Commission against the new Italian government concerned only a few decimals of the deficit to be fixed in the national budget in 2019 – a conflict finally resolved by fixing the deficit to 2 percent (to be precise 2.04) budget.

To try to put the seemingly absurd dispute that involves one of the three main EU countries in a broader perspective, it is worth briefly going back to the nature of the challenges that have troubled the eurozone in the last ten years, after the crisis exploded before in the United States and then in Europe.

At the origins of the crisis

The  2008 autumn crisis, which officially started in the United States with the collapse of Lehman Brothers, was considered the worst since the Great Depression. But in the next two years, the fear of a catastrophe in the United States had been overcome. The contagion of the crisis has hit Europe, where the recession has progressed with a wave of massive unemployment. The crisis initially hit smaller countries like Ireland, Greece, and Portugal, but then hit Spain and threatened Italy.

It was in those circumstances that Mario Draghi, the new president of the ECB, with a speech in London in July 2012, made a turning point in the history of the euro area:: “Within our mandate -he said –  the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”

In effect, when placed in a larger perspective, it was not a revolution. Ben  Bernanke, president of Fed, the US Central Bank, had already been heading in that direction in the early days of the crisis by providing the country with unlimited liquidity, accompanied by a historic lowest interest rate. It was the launch of the Quantitative easing (QE).

Europe came late to the same initiative, adopting the QE in March 2015, seven years after the beginning of the crisis, when a devastating recession had already hit the Eurozone, recording the highest level of unemployment in the last seventy years. The initiative was not only later but badly conditioned: the liquidity promised by the ECB could only have been used to support banks and businesses.

In principle, after a long period of recession and stagnation, one could have rightly imagined a wave of new investments, a leap in growth, an attack on mass unemployment. None of this happened. On the one hand, companies could not have any interest in making investments or increasing the supply of goods and services in a framework of generalized and deep contraction of consumption by impoverished families.

For the same token, it is also understandable that the banks, given the difficulty to recover the resources previously lent, and often being on the edge of the bankrupt, were averse to assume new risky. So, paradoxically, an important share of the resources, which remained unemployed, returned in the coffers of the ECB.

The comparison with the US is still instructive. Not only the Fed had provided from the starting 700 billion dollars to rescue the financial system. In the following months, Barack Obama, immediately after his ascent to the  White House, deliberated the allocation of 800 billion dollars earmarked to the rescue of companies in danger of bankruptcy – as it was the case of GM and Chrysler in the automobile sector– as well as to the stimulation of new  investment, and to support the purchasing power of millions of citizens who had lost their  job.

The fiscal compact

What happened, however, in the eurozone? As we have seen, the financial resources provided by the ECB could not be used by governments to implement direct investments. That limitation was, in fact, so irrational and ineffective that Draghi later permitted the use by the public administration of a share of the resources provided by the ECB.

It was a right but delayed decision again. Already in 2013, the so-called Fiscal compact had been implemented: that is the commitment of each member state to accelerate the parity of the budget and reduce the amount of the debt until reaching the magic threshold of 60 percent of GDP. The European Parliament had not discussed, let alone approved, this strangulation measure at the center of the fiscal pact.

Summing up, monetary policy became the watchdog of the austerity. And, the recovery from the crisis became the task of the structural reforms: in other words, the adoption of neoliberal economic and social policies, based on the liquidation of bargaining power of the trade unions, the final liberalization of the labor market, privatizations, and the dismembering of public ownership.

It is a matter of fact that, choosing the couple austerity-structural reforms the eurozone has recorded during the last ten years the weakest growth and the highest rate of average unemployment in the western world. A look outside is enlightening and upsetting. In the US unemployment currently is at the lowest rate of the past half century, being between 3 and 4 percent.

Yet you don’t need to cross the Atlantic to see different economic behavior. It is enough to give a look at EU countries, outside the eurozone, to realize an impressive difference: in Sweden, Check Republic, Poland Hungary and so on, the growth rate has generally been between 3 and 4 percent,  more or less the double than in the eurozone. Where, according to the current forecasts, the prospect of growth is worsened for 2019.

What other data do we have to wait to see the failure of the eurozone, as we have known it in the last ten years?

Austerity and arbitrary rules

 As in the physical world in politics, there are no voids. The political space left vacant by social-democratic or center-left parties has been occupied by the right. A rightwing sometimes disguised, as in the case of Macron in France, with a neoconservative program, aimed at attacking the bargaining power of the trade unions, the final liberalization of the labor market, the dismembering of public ownership.

In Germany, the euro-skeptic Alternative for Germany (AfD) has become the third-largest party after the 2017 federal election, taking away votes from the battleship CDU-CSU, which has been at the top of German politics for the past seventy years.

In Italy the rightwing League, led by Matteo Salvini has emptied Berlusconi’s Forza Italia, for a quarter of a century at the center of Italian policy and, according to the national poll, he is still enlarging its electoral consensus.

In any case, Italy is the only country where the old establishment parties have been completely swept away from the scene, opening the way to a government supported by Five Star movement, which gained in the March election 32 percent of the vote and by the League. Even though they are two formations with different, and often opposed, positions, they have given rise to a coalition government based on a shared platform, the Contratto.

The League has a typical rightwing program anti-immigration and “law and order”. Five Star a program with, generally speaking, a leftwing orientation characterized by a larger public intervention, the fight to the corruption, a marked social policy, as the instauration of a “citizen’s revenue” finalized to alleviate the condition of some millions of poor people, mainly in the South.

The EU commission has attacked the new government not for the League’s rightwing policy, unfortunately, growing in all the EU, but,  fundamentally, for the economic and social targets of the new government that hits some cardinal principles on which the neo-liberal economic policy of the eurozone is based.

The novelty, at eurozone’s level, is that the new government, invested with a popular consensus that is unequaled in the majority of eurozone countries, has openly defied the old eurozone’s technocratic leadership. The qualifying aspect of this new coalition is that,  in contrast with the old euro-skepticism of each component, they have affirmed their determination to keep Italy in the eurozone.

In effect, the clash between the European commission and the Italian government has been focused on compliance with the rules – a sort of catechism – that dominate the eurozone. Their main implication is, indeed, the cancellation of the national role in the management of the fiscal policy, and in general, of the economic policy. One might ask what the sense is to convene periodic elections in a member state of the eurozone if it is forbidden to change the economic policy of the former democratically defeated government.

Indeed, these rules have never actually been met, starting with Germany at the beginning of the euro; let alone France, which has also recently announced a budget deficit of 3.5% for 2019. The fiscal parameters do not distinguish between the different conditions of each country with regard to their specific domestic problems, such as the high unemployment, the need for public investment, the region’s gap;  let alone with regard to the different consequences deriving from the changes in the international economic context.

In short, we cannot obscure the fact that even in a single currency area, each country is different from the others, and the budgetary policy cannot be administered by a distant technocracy without any democratic investiture and public legitimacy.

From an institutional point of view, the central objective of a needed eurozone’s reform should be the cancellation of the Fiscal pact, the intergovernmental pact that, as we have seen before, has never been examined, not to say approved, by the European Parliament. Canceling these unfounded rules doesn’t mean a union without rules. It will be enough to go back to the Maastricht Treaty which left an autonomy space to the member states, fixing a flexible budget deficit within three percent of the GDP. In that context, each member state should be able to manage an autonomous economic policy in line with its specific needs.


One could rightly ask if the freedom to maneuver the national budget depends on the intensity of popular revolts, as we have seen in France. Or, if it does not have to be a normal model of management for a government,  which rightly wants to implement the program that the electorate has entrusted to it.

In the end, the European commission has retired the menace of a procedure of infraction against Italy. A measure that in the end could have paradoxically strengthened the Italian government in front of the electorate as a victim of the European arrogance. In effect, the Italian government has open the Pandora’ box of the contradictions of the eurozone’s policy. This argument will remain central in 2019 when the European Parliament will be renewed, and the new one with a deeply changed composition will possibly be pushed to recognize that the current eurozone’s policy has been at the origin of a lost decade.

The new European Parliament will have an unprecedented composition, following the changes in the political forces in place in the major eurozone countries. It will be difficult to remember that the eurozone policy has been at the origin of a lost decade.

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