The Fate of Italy and Europe


Italian Prime Minister Giuseppe Conte addresses the media to announce his ministers list after a meeting with Italian President Sergio Mattarella at the Quirinale Palace in Rome

The Italian cauldron has been brewing for years. Overall the country has
 barely climbed back to its 2008 levels of output, and while the North has 
recovered reasonably well, the South remains far behind. Unemployment is 
rife, pensions have been cut, and services that were never all that great
are in decline. Half-a-million immigrants mark Italy's position as a 
frontline state, face-to-face with the ruins of Libya and with Africa as a 
whole. The nominally center-left government that fell in the March 
elections was widely and correctly viewed as having no program to deal 
with these problems; its strategy was largely to voice complaints but act
 as the docile front for an austerity agenda set in Brussels and Berlin. 

Against this, on March 4, the Italian voters finally rebelled.

Sorting through the drama unfolding since then is clearly beyond The New
 York Times, for which there are just two parties in European politics: the
 “pro-Europeans” (for which read, the establishment) and the “populists,” a 
term of abuse applied to any party that appeals to the discontented. In
 this, the distinction between reactionary and progressive has practically 
been wiped out. But this is the critical distinction in Italy, just now
 between the two parties that dominated the election: the hard-right Lega and the Five Star movement, which, though not wholly progressive, seems to have drawn Italy's creative forces to its banner for the moment.

It was sufficient for the Times that the Italian president blocked a
 “populist” coalition that had a “Euroskeptic” finance minister, giving the 
Italian people a “second chance” to reconsider their March 4 election. Just as in France, writes a Times contributor, which so sensibly elevated 
Emmanuel Macron over Marine LePen a year back. But Italy is not like
 France. The March 4 election transformed Matteo Salvini's Lega from a 
northern to a national party, moving him ahead of Silvio Berlusconi as the 
leader of the Italian Right, and in the aftermath he and his party moved
up in the national polls. A second election, especially in the near term,
 would likely have catapulted him to parity and even ahead of Five Star,
 giving him a chance to form a government dominated by the far right.

Accordingly, Salvini played for time, negotiating this way and that, while his rival, Luigi Di Maio, leader of Five Star, tried and failed to woo the center-left establishment Democratic Party. Ultimately the Lega struck a deal with
 Five Star. But then, President Sergio Mattarrella played into Salvini's hands by 
blocking the initial choice of Paolo Savona as finance minister. The
 establishment seems to have thought, for a moment, that they could get
 through the year, regroup, and that a second election in nine months or so
might give them a better result. Meanwhile, the given reason for 
rejecting Savona was clearly a pretext; that Mattarrella considered a Lega leader acceptable in his stead sent a clear message: better a fascist than a

Outrage over Mattarrella's action, and his bizarre choice of a former IMF
 man, Carlo Cottarelli, to become the interim Prime Minister, scuttled the establishment's hopes. Had Cottarelli been confirmed at all, it would have been conditioned on setting a second election as early as late July, or at latest September. In that case Salvini might well have come out on top, leaving Five Star out and on
its way down. Di Maio saw this very clearly; it seemed his moment as the 
leader of Italy's largest party was destined to be quite brief.

But then, something happened. Among other things, Salvini went back to the North, and met his base among the industrialists of Lombardy, closely tied to Germany. It appears they told him to cool the nationalist rebellion. So he and Di Maio revived their coalition, coming up with another euroskeptic economist for the finance ministry. They formed a government, nominally headed by the figurehead lawyer Giuseppe Conte. Perhaps the president's approval signifies that the establishment now thinks their best bet is to give the new government a taste of power and a bit of time to fail.

The immediate prospect is a combination of the awful and the exciting. The 
Right will dominate the internal scene, and brutal measures against 
immigrants—basically, internment camps, pending deportations that
probably cannot be made to happen—are in the offing. On the economic
 front, the stage is set for a direct confrontation between Italy and 
Germany over fiscal stance. The coalition promises a (not-quite) flat tax,
 from the Lega platform, and a means-tested (not-universal) basic income
 for the poorest Italians, advanced by Five Star. They also propose to 
reverse pension cuts, a step perhaps more costly than the other two. The financing can be taken care of by issuing small-denomination transferable
bonds—a parallel currency within the euro.

These policies aren't ideal; they won't create the jobs or the physical
 renewal that Italy needs. But they can be put in place quite 
quickly. And they will bust the headlock of austerity—testing and 
probably demonstrating the power of fiscal expansion to generate economic
 growth, at least in the short run. They do not require, nor will they
 necessarily lead to, the abandonment of the euro. As Italian legal experts 
know, the fiscal compact and debt and deficit rules are not fixed treaty 
obligations; they are regulations—which have been interpreted loosely in 
other contexts. However, the parallel currency scheme can be transformed
if necessary into a euro-exit Plan B, leaving that possibility as an implicit threat in the Italian government's hands.

How will Brussels and Berlin react? So far, in comic denial. The EU
 budget commissioner declared that the markets would teach the Italians not
 to vote for populists, provoking a paroxysm of outrage. European Commission President Jean-Claude Juncker, a reliable buffoon, urged Italians to “work harder
and be less corrupt” (this from the former prime minister of that tax haven, Luxembourg). If Brussels and Berlin have actual weapons to deploy short of destroying themselves, a serious risk since they hold a large share of the Italian debts, they have yet to demonstrate what they are.

In this way the Greek drama of 2015 reappears under radically different 
conditions. Europe then refused to budge on minimalist policy demands; a
 Left government was to be subdued, nothing else. But Italy is ten times
larger than Greece, is a net contributor to the EU, is not under a memorandum, has a primary budget surplus which it can spend, a current account surplus as well, and a public debt which, however high, is not immediately problematic.
 And Italy saw what happened to Greece. So Europe now faces a government 
that probably cannot be subdued, in a country too big to fail. Italy may 
go forward with an economic plan that will be for a time more-or-less and 
comparatively successful, bringing benefits and popularity.

The curse is that if this Italian government succeeds, it may legitimate
 the anti-European hard right in Europe, clearing the path for a 
once-again-rising neo-fascism in France and then, perhaps, also in
 Germany. Against this, the Left and Europe need a plan, a program and a
 new approach. Two hundred Italian mayors have signed up with the Democracy 
in Europe Movement, the party it is forming is called Primavera Europea (European 
Spring) and it will be launched on June 13. Perhaps between now and the
 next election, something new and good may appear on this charged and 
fateful scene.

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