EU’S at­ti­tude is a boost for Italy’s pop­ulists

The Sunday Telegraph - Money & Business - - Business - LIAM HALLIGAN Fol­low Liam on Twit­ter @liamhal­li­gan

On March 25 2017, lead­ers from 27 EU mem­bers as­sem­bled in­side the Palazzo dei Con­ser­va­tori where, on the same day in 1957, the Treaty of Rome had been signed.

As they lis­tened to each other’s col­le­giate speeches, cel­e­brat­ing the EU’S 60th an­niver­sary, two dis­tinct groups of demon­stra­tors had gath­ered on the streets of the Ital­ian cap­i­tal.

Just out­side the Palazzo, the of­fi­cially backed “March for Europe” could be heard cheer­ing. Sev­eral thou­sand EU sup­port­ers, many of them ex­cited young­sters car­ry­ing cen­tral­lyis­sued yel­low and blue plac­ards, held an up­beat rally.

Across the city, rather dif­fer­ent demon­stra­tions were hap­pen­ing, in­volv­ing many thou­sands more. Amid tight se­cu­rity, in­clud­ing a huge de­ploy­ment of Italy’s tough anti-riot po­lice, a much nois­ier rally protested bit­terly against the EU. Hemmed in by ar­moured ve­hi­cles, these demon­stra­tors – gen­er­ally mid­dleaged and more care­worn – marched un­der var­i­ous Right- and Left-wing ban­ners, shout­ing their dis­af­fec­tion.

They de­cried Brus­sels-based tech­nocrats and cor­po­rate vested in­ter­ests. They com­plained that the sin­gle cur­rency has ben­e­fited pros­per­ous na­tions like Ger­many, while im­pov­er­ish­ing the likes of Italy and Greece. They de­rided the EU as a “rich man’s club”, with “the banks al­ways getting saved by the Eu­ro­pean Cen­tral Bank”, while there was “never any money for the peo­ple”. There was no hint of cel­e­bra­tion – just smoke bombs and barely con­trolled rage.

These two op­pos­ing sets of demon­stra­tors in Rome – and sev­eral other Eu­ro­pean cap­i­tals on March 25 2017 – il­lus­trate the EU’S quandary. Brus­sels wants “more Europe” and “ever closer union” – but their project has lit­tle pop­u­lar sup­port. The EU has in­stead be­come the fo­cus of mas­sive pop­u­lar dis­con­tent, par­tic­u­larly since the global fi­nan­cial cri­sis. That’s largely be­cause the cen­tre piece of the “Eu­ro­pean Project” – the sin­gle cur­rency – has, for many mil­lions, been an un­mit­i­gated dis­as­ter.

By bind­ing mem­bers across the south of the EU into a high-cur­rency strait­jacket, the euro has crushed their com­pet­i­tive­ness. Un­em­ploy­ment in Italy, while of­fi­cially high at 11pc (com­pared to 4.3pc in the UK), is dis­missed as a gross un­der-es­ti­mate. Youth un­em­ploy­ment is around 40pc, even on the gov­ern­ment’s num­bers – a hu­man tragedy. Italy has not only failed to re­cover since the 2007 fi­nan­cial col­lapse, but has barely grown since the euro’s launch in 1999.

These re­al­i­ties ex­plain, of course, the pop­u­lar­ity of up­start pop­ulist par­ties such as the Eu­roscep­tic Five Star Move­ment and the anti-im­mi­gra­tion League party. Their re­cent elec­toral suc­cess – and pro­posed coali­tion gov­ern­ment – spooked the EU es­tab­lish­ment so much that democ­racy was yet again usurped in the name of “Eu­ro­pean unity”.

Last week­end, Ser­gio Mattarella, the Ital­ian pres­i­dent, ve­toed the ap­point­ment of vet­eran Eu­roscep­tic Paolo Savona as the coun­try’s fi­nance min­is­ter. In response, fi­nan­cial mar­kets took um­brage, with short­term Ital­ian bond prices suf­fer­ing their big­gest one-day fall in a quar­ter of a cen­tury, fu­elling a broader sell-off in Ital­ian as­sets rem­i­nis­cent of the 2012 euro­zone debt cri­sis. At an auc­tion of six-month debt, the Rome gov­ern­ment had to pay in­vestors the high­est yield for over five years.

Mattarella had ap­pointed Carlo Cottarelli, a for­mer In­ter­na­tional Mon­e­tary Fund of­fi­cial as in­terim prime min­is­ter, with the task of plan­ning for new elec­tions and pass­ing a Brus­sels-ap­proved low-spend­ing bud­get – the pre­cise op­po­site of what the Ital­ian elec­torate re­cently chose.

“This is the dark­est mo­ment in the his­tory of Ital­ian democ­racy,” warned, Luigi Di Maio, leader of Five Star, as he called for mass protests. “Italy is not a colony, we are not slaves of the Ger­mans and the French,” raged Mat­teo Salvini, head of the League.

This was the first time such pres­i­den­tial pow­ers had been used to block the for­ma­tion of a new Ital­ian gov­ern­ment. Far from solv­ing this cri­sis, that plays straight into the hands of those ar­gu­ing that Europe has too much in­flu­ence over Ital­ian pol­i­tics. The mar­kets agreed, con­clud­ing such tac­tics will ul­ti­mately de­liver an even stronger man­date for anti-es­tab­lish­ment, Eu­roscep­tic par­ties, cast­ing fur­ther doubt on the Italy’s credit wor­thi­ness and its fu­ture in the euro zone.

At the time of writ­ing, hav­ing dropped the idea of Savona as fi­nance min­is­ter, Italy’s pop­ulist coali­tion has just been given the green light to form a gov­ern­ment. In­stead of Cottarelli, the prime min­is­ter will be Giuseppe Conte, a lit­tle-known law pro­fes­sor. But Savona, who has de­scribed Italy’s euro mem­ber­ship as a “his­toric er­ror” and “a Ger­man cage”, will re­main in­flu­en­tial, and could yet be given an­other berth in the Ital­ian cab­i­net.

Fi­nan­cial mar­kets re­main rightly ner­vous. Rich na­tions such as Ger­many and the Netherlands have ben­e­fited hugely from sin­gle cur­rency mem­ber­ship. Yet there is no ap­petite among their vot­ers to sub­sidise poorer neigh­bours such as Italy.

Eco­nomic stag­na­tion and un­em­ploy­ment has pushed Italy’s public debts way above 130pc of na­tional in­come. With a bank­ing sec­tor awash in non-per­form­ing loans, the coun­try is at grave risk of a de­fault. But as the Euro­zone’s third-largest econ­omy, with GDP around ten times that of Greece, an Ital­ian bail-out may well be im­pos­si­bly ex­pen­sive.

The tem­po­rary ap­point­ment of the tech­no­crat Cottarelli, and the broader po­lit­i­cal stitch-up, is the em­bod­i­ment of what the Ital­ian elec­torate just re­jected. With the lat­est deal sub­ject to a Par­lia­men­tary vote of con­fi­dence, fresh elec­tions can­not be far away. Any new cam­paign will be fought en­tirely on the theme of “The Peo­ple ver­sus the Palazzo”. And the Palazzo is likely to lose.

‘Italy is not a colony, we are not slaves of the Ger­mans and the French’

Giuseppe Conte, the new prime min­is­ter of Italy, with pres­i­dent Ser­gio Mattarella, who ve­toed the choice for fi­nance min­is­ter, the Eu­roscep­tic Paolo Savona

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