Italy poses test for EU reinvention
The dramatic emergence of Europe’s most populist government in Rome late last week might be the best hope for the European Union (EU) to reinvent itself for the 21st century.
Europe is seething with grievance, which has manifested itself in xenophobia and populist anti-elitism.
Italy’s new populist government has been greeted with alarm by international investors, who have driven down the value of Italian sovereign debt.
But the Italian election in March, culminating in a coalition of the populist Five Star and Lega parties, does not signal the potential demise of the EU, the world’s biggest economy. (Lega, or League, is the renamed Northern League, formerly a secessionist party.)
The new Italian demand that the EU work as well for Italy as it does for Germany instead points to a potential rebirth of the European project.
The EU has reinvented itself about half a dozen times in its six-decade existence.
The Eurocrats at the EU’s administrative headquarters in Brussels will tell you their efforts to accommodate the differences among the EU’s 28 member-countries, with their dozens of ethnicities, languages and national and regional idiosyncrasies.
But the reality is the EU has an unfortunate tendency, like most sprawling institutions, toward one-size-fits-all policymaking. That is a temptation federations such as Canada and Australia have had to learn to resist.
In essence, Italy’s new government seeks a break from EU fiscal orthodoxy, originating in Berlin, that constrains it in stimulus spending on infrastructure and social-welfare protections for the least advantaged.
The new coalition proposes the world’s most ambitious variation on the universal basic income with which Ontario, Finland and other jurisdictions have experimented.
The planned basic income scheme would provide a monthly state payment of up to $1,180 to everyone without a job, or whose pay falls below what’s judged to be a living income. The coalition also wants to rescind 2011 cutbacks in pension payouts. That austerity measure helped Italy shore up its national accounts, according to EU dictates. But it inflicted harm on seniors. That’s when a pronounced dislike of the EU began to set in among Italians.
The EU has long seemed to misunderstand Italy. It is a wonder the EU still enjoys 39-per-cent support in Italy, a higher rate than in many EU member-countries.
For most of the EU’s existence, it has enjoyed greater support in Italy than any other country. Yet the EU was oblivious to the growing Italian discontent with the European project, which began a few years ago, before it spread across the union.
Contributing most heavily to the grassroots Italian alienation was the EU’s insensitive reaction to pain inflicted on EU countries hardest hit by the European economic crisis dating from 2008. While stimulus provided by North America’s central banks sped economic recovery, an austerityminded European Central Bank prolonged the hardship by withholding stimulus until recent years.
Adding still more to Italian misgivings about the EU is the EU’s reneging on its promised financial support for Italy’s acceptance of about 60 per cent of the asylum seekers in the African refugee crisis.
And the traditional mild contempt among EU leaders for the EU’s poorer, southern member states was evident the day the new Italian ruling coalition took power May 31.
Jean-Claude Juncker, head of the European Commission, let slip his belief that Italy needs “more work; less corruption; seriousness.”
Juncker promptly apologized. But the stereotype he invoked is widely held by the Eurocrats in Brussels.
As it happens, the charge of laziness is bogus. At 40 hours a week, Italians work slightly harder than Germans (39) and Canadians (38).
Italy does rank an abysmal 54th on Transparency International’s annual corruption survey, far worse than Canada (eighth), Germany (12th) and the U.S. (16th). Then again, China ranks 77th, and is the world’s most dynamic major economy. Which suggests that Italy’s slow pace of productivity gains, its underfunding of R&D and EU constraints on economic stimulus are among factors more significant than corruption in retarding Italian GDP growth.
In any case, the coalition partners don’t need a lecture on corruption, since each campaigned on anti-corruption. That this escaped the notice of Juncker, the highestranking EU official, is indicative of an EU that suffers a knowledge deficit about one of its largest members.
Italy is among the most heavily indebted of the world’s major economies. The estimated $165-billion cost of universal basic income and restoring pension cuts might seem too big a burden to take on.
Yet it’s difficult to argue against meaningful steps to alleviate severe distress. Italians are struggling with 11-percent unemployment. And standard of living, as measured by growth in per capita GDP, has stagnated for almost two decades.
Despite that malaise, Italy has not succumbed to semi-fascist government, as EU members Poland and Hungary have done. Neither is it on a path to quit the EU, in contrast with Britain, which enjoys a stronger economy and has less cause to complain of EU meddling. Anti-EU rhetoric during the Italian election campaign has given way to a coalition pledge that there will be no “Ital-exit.”
Italy also is not an economic basket case.
The country has made strides in reducing its debt. Italy exports more than it imports, with a balance-of-payments surplus last year of almost $60 billion. Exports and business investment have driven solid economic growth, which last year matched France and Britain, at 1.6 per cent.
Of course, there are worrisome measures the coalition might adopt.
Prominent among those are the right-wing Lega’s campaign insistence on a flat tax of 15 per cent, which could cut government revenue by an estimated $114 billion a year. Lega also vowed during the March campaign to expel 500,000 migrants from Italy.
But the flat tax is a snake-oil potion favouring the rich that might prove a non-starter once the coalition grapples with the hard realities of governing.
Ditto the inhumane and costly business of rounding up half a million migrants.
In the heat of the campaign, Matteo Salvini, leader of the Lega party, now interior minister in the new coalition government, told supporters that “Those in power want Italy to be weak. Either the European Union rules change or it doesn’t make sense to stay in this European Union.”
An EU that wouldn’t survive the loss of Britain and Italy now has a powerful incentive to become more flexible in enabling Italy to govern itself according to conditions unique to that country. And to do so across the EU, and in the process forge a more perfect union.