Sergio Cesaratto – Italy: Politicians pass, the Italian impasse remains

An outstanding interview with insights into the current economic and political situation in Italy

Sergio Cesaratto teaches European monetary and fiscal policies at the University of Siena. He is author of Heterodox Challenges in Economics – Theoretical Issues and the Crisis of the Eurozone, Springer, 2020 (reviewed by BNE here).



  1. Italy appears to be lost in the political wilderness. Is that the case or is there system to this that we as outsiders simply do not recognise?

Well, unfortunately there is more stability in Italy than foreigners may perceive, at least in the sense that politicians come and go while troubles remain. There are various background elements to be considered when dealing with Italy. The first is the diffusion of self-employment and micro-firms both in the most developed north and in the south of the country. These exist in a realm of tax evasion and black labour market. The second is the historical problem of Mezzogiorno. The third is being a member of an inhomogeneous monetary union which has not always been favourable to the country, quite the opposite indeed.

Starting from the first element, small and medium enterprises are of course an asset for Italy, often technologically advanced and able to design niche products. I was rather referring to the underworld of micro-firms, from professionals to artisans, or taxi drivers. The political centre-right protects their widespread tax evasion, as well as rent seeking positions like beach resorts that de facto privatise beaches paying a ridiculous rent to the state. We may add to this the diffusion of home ownership – most of the Italian households own their homes. The centre-right has always been against taxation of the first home, so that even luxury flats are not taxed.

Coming to the second element, Mezzogiorno is a loose cannon: its electorate might fluctuate from the right to the left depending on the circumstances. Now it bends towards the populist left (Movimento Cinque Stelle, M5S) that was the main sponsor of “reddito di cittadinanza”, a programme supporting poor households and the unemployed.

The expected collapse of M5S is not happening because the southern electorate is suspicious of the former-fascists Fratelli d’Italia, that it often supported in the past, given their current neo-liberal turnaround. All this considered, the electoral base of the centre-left (Partito democratico and other minor formations) is presently limited to the educated and urban population, much concerned with defending the national health service and public education (although the PD has a poor record in this regard). The base of PD is said to be “ZTL-people”, people that can afford to live in the restricted traffic areas of historical city centres (“zona a traffico limitato”).

Participation in the European Monetary Union, the third element, has meant that the country has lost its capacity to conduct independent economic policies. So the electorate can vote left or right, up and down, this or that, and any combination “until it is blue in the face” (to paraphrase Keynes) without having the power to change the economic policy framework.

In saying that I am not arguing that centre-left and centre-right are the same. I may say the worst things about the centre-right, starting from their disinterest for the social state, education and research, the protection it accords to tax evasion and rent seeking, their silence (to say the least) about local mafias. A proper left is on the other hand absent in Italy.

The leader of PD, the former Christian Democrat Enrico Letta, is inadequate for the role. He nominated a former IMF official (Carlo Cottarelli) to run for Parliament, something that speaks volumes about his leadership and mentality. Well, I have forgotten the convitato di pietra, immigration. Although not really at the centre of this election, the general population is worried about immigrants. While Italy is suffering a dramatic demographic fall, uncontrolled and unqualified immigration is not the solution, but the left does not send the electorate a reassuring message regarding this issue (immigration is anyway not easy to tackle for an EU border nation like Italy, also given its ethical implications).

2) With the Vincolo Esterno Italian business interests and technocrats sacrificed democracy and self-determination, giving ruling power to the EU and in the end Germany with the goal of destroying the Italian unions and signing up to neo-liberalism. When Italian politics threatening to evade neo-liberal control we have seen EU technocrats declared unelected leaders of Italy (Mario Monti and Mario Draghi). Even the future far right government has already declared its fealty to the EU and NATO. It appears the Italians are content with this.

Yes, this is true. The European monetary union is a terribly monetarist edifice. On the other hand it cannot be completed in the direction of a more viable, U.S. style monetary union endowed with a conspicuous federal budget. This budget would redistribute resources in the union and fight financial depressions. But redistribution presupposes political solidarity, implies that you are a nation, not a collection of independent countries. Moreover, a federal, anti-cyclical fiscal policy is opposed by Germany, still faithful to its neo-mercantilist model. And yes, Giorgia Meloni, the leader of Fratelli d’Italia, is trying to hide her embarrassing neo-fascist pedigree by swearing to be a faithful atlantista and europeista. Her party, however, voted with Lega in favour of Orban at the European Parliament last week. Given the incompetence and the awkward background of Fratelli d’Italia, we do not exclude a new Draghi governo di unità nazionale excluding Fratelli d’Italia, if not immediately after the election, perhaps after some possible tensions with Europe. (Not with NATO: I believe that Meloni is sincere in her atlantismo, confident of the unfailing American benevolence towards friendly post-fascist governments). Salvini’s Lega is sceptical about the war, (rightly) worried about the consequences on its industrial electoral base in the north, and also Luigi Conte’s M5S which (correctly) doesn’t see why Italy should be so deeply involved in the conflict, and anyway wants to see progress towards peace perspectives. I do believe that Italians are currently disillusioned with Europe and sceptical about the involvement in this war.

3) Germany is in very serious economic and political difficulties. For the German political class the ECB is responsible for this crisis having not increased interest rates fast and high enough and letting the Southern EU member states live far beyond their means financed by German treasure. Up to now France and the PIGS (I have left out Ireland) have simply cowered before German hegemony. Do you see any change coming or shall we just have more whinging by kneeling Southern European EU member states? Or is the German crisis an opportunity?

German mass media (and “professors”) are the most hypocritical in the world. Germany gained enormously from the financial and economic disasters of Southern Europe. While Southern European nations were impoverished (including myself) by the EU imposed austerity policies, flight to quality of investors permitted the German government to save hundreds of billions in interest rates on bunds. Moreover, German exports gained from the weakness of the euro. Not to forget that German neo-mercantilism was primarily responsible of the euro crisis: German “vendor finance” fuelled the indebtedness of southern countries (not of Italy indeed) that imported from Germany with mucho gusto, until the model collapsed. Regarding Italy, then and now it has not lived from German support. Our foreign debt is presently zero, and was very small ten years ago. We entered the euro with a balance of payments surplus (Germany with a deficit).

Regarding interest rates, inflation has its origin in geopolitical factors, and the rise of interest rates is solely aimed at averting wage reactions to the rise of the cost of living. And you stop wage rises by increasing unemployment. Last week Eurointelligence admitted that higher interest rates might be useless given the geopolitical origins of inflation (it also admitted that in the high inflation environment of the 1970s workers defended their real wages robustly and successfully). So higher rates might make things worse. We should stop the war first, indeed. And this implies that Europe disalign from the U.S.. Germany has been very tepid in supporting the anti-Russian front (obtaining discounts from Gazprom, it is said). Berlin has indeed lost an occasion to lead Continental Europe to a more independent stance, given that we Europeans and not the U.S. are paying the costs of this war. The American and NATO responsibilities for the conflicht with their policies hostile to post-soviet Russia should also be taken into account.

Berlin will not be brave enough to defy Washington. In addition, I do not see any more progressive German stance about the reform of the European economic governance, and this is also true for the inept and bellicose Ursula Von der Leyen. France? Paris is supine to Berlin, and Berlin to Washington. Draghi or Meloni, in the same vein, will be supine to all. Going back to the interest rates: whatever their level, the Bundesbank view that interest rates on national debts should be decided by markets must be rejected. The spread between the interest rates on the Italian and German government bonds should go to zero. The ECB should forget any idea of ceasing the rollover of the government bonds it acquired under the various quantitative easing programmes. Over the last thirty years Italy has more than proved its fiscal moderation, in fact this restraint is probably the major cause of its economic decline. We need not prove anything to the “German professors”, or to the Bild or FAZ for that matter.

4) Oddly Italy appears to be one of the few EU nations that is using EU special funds to seriously counter climate breakdown (renewable energy and building insulation). What does this programme look like and is it successful? Apparently much is financed with tax credits. Is that then included in the fiscal deficit or can the government get around that to get more punch for their euros?

Draghi has done his best to use the EU recovery fund. However, do not forget that the total amount of the fund is a thin proportion of the European GDP, so that we cannot really speak of a European fiscal policy. Do not forget also that Italy has borrowed from the EU much of the funds, although at a low interests rate. Europe should move in the direction of a European socialization of investment spending devoted to environmental and industrial restructuring. But it is easy to imagine the ”German professors” (how provincial they are!) preparing the next recourse to the High Court in Karlsruhe!

You are right that part of the funds from Europe are used to finance a programme for building insulation. This has been partially successful. Likely it had a macroeconomic effect on GDP and employment. It was perhaps too generous – restructuring costs were all covered – so the beneficiaries had no interest in checking the bill. Moreover cost of materials was soaring for well known reasons. Some frauds accompanied the programme and most of the funds went to educated households better prepared to deal with bureaucracy. Ex post it should have been better designed. Yes, the State supported the programme through 110% tax credits (Superbonus). According to Eurostat they do not contribute to the current public debt. They correspond, of course, to lower future fiscal revenues. On the other hand, however, fiscal revenues will rise as a result of the macroeconomic impact of the fiscal stimulus. All considered, additional output, employment, additional fiscal revenues and energy savings, the balance seems positive. Ok, the State will get lower fiscal revenues than it would have collected without the tax credits, but on the other hand were it not for those tax credits, additional GDP and tax revenues would have not materialised, while losing the environmental benefits.

One of your questions raises a doubt indeed: in what sense did Italy use a couple of tens of billions leant by the EU to finance the programme if the tax credits are not part of the public debt? Last July, to a parliamentary question on this subject (from Fratelli d’Italia!), an undersecretary for the economy, an economist linked to the supposedly radical left, merely maintained that tax credits are public debt without explaining why. In his reply the post-fascist MP declared “himself deeply dissatisfied”, considering “only partially true the assertion that the Superbonus measure has a negative impact on the State budget, given the positive effect that the extension of the tax relief will have on the public accounts through the increase in tax revenues triggered by GDP growth. In support of this thesis, he then recalled the content of a previous parliamentary hearing of the Accountant General of the State with reference to tax retroactions.” (from the official transcription). This speaks volumes about the Italian left.

5) It is being predicted that a far right coalition will win the upcoming general election in September. Why are they so popular? Or are they simply less unpopular than the other parties. What are Italian voters expecting from them?

We are back to the initial discussion. Centre-right parties are popular for structural reasons such as widespread tax-evasion, self-employment, and micro-enterprises, wide home ownership and, yes, some ignorance – in spite of their glorious past and present high culture Italians are not, on average and in comparison with other countries, a well-educated people. Italians also feel a sense of decline. Impoverishment and frustration dominates in the lower ranks of society and not only there. Frustrated and uneducated immigration fuels this anger. Demographic decline mirrors this cupio dissolvi (gloomy dissolution) of the country. Leadership capable of restoring confidence in the nation is not on the horizon (in principle, I was not hostile to Draghi, but his docile pro-Atlanticism and the disdain shown towards certain social measures proposed by the M5S disappointed me greatly). Over the years, the social frustration has produced electoral successes first of Matteo Renzi, then of the League and M5S, and now, expectedly, of Meloni, all triumphs being regularly followed by disillusion and dramatic falls in consensus. Europe and this unfortunate war do not help, nor does the absence of a left that is dramatically distant from the real country (the outcome of the Chilean constitutional referendum, mostly focused on minorities and civil rights, says a lot about the reason of such decline).

Is Meloni and her party Fratelli d’Italia a danger for the Italian democracy?

No, I don’t think so. I am more concerned about their incompetence or inability to implement reforms. They certainly do not represent the best and most modern part of the country. You may note that one month after the elections, on 28 October 1922 is the 100th anniversary of the March to Rome (

Out of superstition or fair play no one evokes this phantom. And in any case, the centre-left parties know that they cannot win elections on the issue of anti-fascism, which many Italians, albeit mistakenly, consider to be an outdated and in any case less urgent issue. But on the issues of everyday life, those parties have nothing new to say. Not even Meloni, of course, but for many Italians they might as well try her out.

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