Yves here. As much as John Weeks covers important ground in explaining how the Eurozone’s fiscal orthodoxy produces right wing policies, he overstates the commitment of the ruling Italian coalition’s interest in leaving the Eurozone. The first candidate for finance minster, Paolo Savona, walked back a great deal of his firebrand talk even after he was muscled out of the role. His replacement, Giovanni Tria, has gone to some lengths to tell Mr. Market that the Italian government has no plans to ditch the Euro.
By John Weeks, Professor Emeritus of the University of London School of Oriental and African Studies and author of Economics of the 1%: How Mainstream Economics Serves the Rich, Obscures Reality and Distorts Policy. Originally published at Triple Crisis
There seems some disagreement as to whether Nero played the violin or the harp as Rome burned in AD 64. Whatever happened 1554 years ago, there was considerable complacent fiddling in Brussels after the 4 March Italian election. To replace the centrist government of neoliberal Matteo Renzi Italian voters cast 60% of their ballots for two anti-EU parties, the aggressively xenophobic coalition of Lega neo-fascists and the anti-immigrant 5 Star Movement (Movimento 5 Stelle, M5S).
Confounding the hope and expectation of the EU elite, this pair formed their misbegotten government in Rome in April. The anti-EU rhetoric of these two parties, plus their promise to breech EU budget rules – end fiscal austerity – ended the fiddling and set off alarm bells.
The EU elite quickly moved to prevent this anti-establishment government from rocking the Brussels neoliberal consensus. The nominally neutral Italian president refused to acceptthe first proposed coalition government of the Lega-M5S. The refusal did refer to thee proposed racist immigration policies, nor to its aggressively anti-Roma policies. Unacceptable to the president that the person nominated for finance minister, who had long standing opposition to the euro (see commentary by Yanis Varoufakis).
Should anyone miss the implied priories of the Italian establishment, the president sought to form an interim government that would continue Brussels-designed austerity policies. To lead that government the president chose a former functionary of the International Monetary Fund. This affront to the electoral process proved short-lived. Soon the far right Lega and eclectic right M5S were back in government with a different, but no less anti-austerity, finance minister.
The partners have quite separate origins. Since its founding in 1991 as the Lega Nord (Northern League) firmly established its position on the far-right of Italian politics. Beginning as a separatist moment, it rapidly achieved regional success even in cities long held by the Italian Communist Party. Using a racist immigration message, the party made the leap from region to nations, dropping “Nord” to become the largest right wing party in Italy, The only group further right is the tiny, explicitly fascist CasaPound, a Lega ally named after the American poet Ezra Pound who lived in Italy and supported the Mussolini dictatorship.
The aggressive and explicit racism of Lega contrasts with M5S eclecticism and internal inconsistency. The M5S advocates policies also found in the programs of European progressive parties, such as a mild version of a basic income. However, its consistently defining political focus is anti-immigration, which provides the basis for a coalition between these unlikely partners. The M5S endorsement of extreme anti-immigration policies was shown by its leadership accepting hard line racist Natteo Salvini, leader of Lega, as minister in charge of immigration. The two parties share a demonizing of the Roma ethnic group(“Gypsies”), with concrete plans to drive them from Italy.
Neoliberalism Run Its Italian Course
How these parties became the largest in Italy reveals much about the consequences of neoliberalism in the European Union. The Italian financial elite pressed hard for governments in the 1990s to achieve the pre-conditions to be an initial member of the euro zone. To meet those conditions Italian governments borrowed heavily in financial markets, much of it from German banks. There followed one of the many little noted ironies of EU economic policy. The large Italian public debt that prompted a series of austerity conditions after 2010 from the European Commission in Brussels, accumulated well before the global crisis, to maintain the Lire stability required for euro membership.
Combined with the borrowing was home-grown fiscal austerity to meet the EU 3% deficit pre-condition for euro membership. The deficit pre-condition is defined for the overall fiscal balance, which includes interest payments on the public debt. Because governments borrowed massively to stabilize the Lire,interest payments approach 5% of GDP, As a result 1995-2006 Italy had the only government in the European Union with a continuous fiscal surplus net of interest payment (the “primary deficit”).
As a result of the substantial fiscal surpluses, the Italian economy grew slower than any other in the EU from the mid-1990s to the present. Polls showthat the consequent stagnation of employment and household incomes generated deep skepticism about EU membership. For twenty years the center-right and center-left Italian governments ignored the growing anti-EU sentiment. The racists and xenophobes of Lega and M5S reaped what the neoliberals had sowed.
European Integration: Sublime to Neoliberal
As the Italian politic turmoil unfolds as across Europe, we find authoritarians in power in Hungary and Poland, and Austria ruled by a coalition of rightists and neo-fascists. In the midst of spreading malaise we can reflect on how Europe came to this degeneration of democracy. By the middle of the 19thcentury the major powers of Western Europe had established themselves or were in the process of doing so, Great Britain and France, followed by the consolidation of Germany and Italy. During the subsequent one hundred years the governments of these powers led their citizens into war after war, each more barbarous than the one before.
After WWII European economic and political integration seemed the apparent solution to this alarming tendency of European governments to launch wars against each other. In the wake of that war the commitment of the leaders of the major European powers to peace was profound and deep. Important to that commitment was the US military occupation of Germany and Italy, and the putative threat of Soviet aggression. While it would be misleading to view integration as the political companion to NATO, we should not ignore the effect of US political and military hegemony over post-war Western Europe.
Placing the origins of European integration in the context of Cold War rivalry helps explain the rapid integration steps after the collapse of the Soviet Union. Discussions of a common currency began early as the 1960s (notably the 1969 Werner Plan), formalized in the 1972 Pompidou-Brandt Agreement. However, substantial progress awaited the most important European change derivative from the collapse of the USSR – the unification of Germany.
In a breathtakingly short period, the dominant force in Europe changed from ancien regimeof the United States and the Soviet Union to newly unified Germany. This shift of power paralleled another fundamental change, the transubstantiation of the European Union from cooperation across governments for peace to a neoliberal economic project. This change occurred with stunning success via a series of treaties severely constraining national governments. Beginning with Maastricht, these treaties allowed less and less policy flexibility, constraining national governments from implementing progressive economic policies. These constrains are by their nature anti-democratic as well as reactionary.
Because governments make the decisions that lead to war, agreements among governments are the appropriate and perhaps only practical way to establish non-aggression pacts, mutual assistance commitments and formal alliances. Depending on the specific laws and institutions of countries, these top-down treaties may or may not require approval by national legislatures. To be effective, such treaties should be irreversible. People from different countries do not go to war unless their governments order them to do so. Constraining governments from making war is a singularly appropriate constraint on the democratic process among civilized countries.
The two principle EU Treaties, On European Union and On the Functioning of the European Union, are anti-democratic for an obvious reason. They are the de factoconstitution of the Union. Unlike the constitutions of all other countries, they specify in detail the nature of the economic system that every member state must implement. These details, such as the infamous fiscal deficit rule of 3% of GDP and the ECB’s inflation target of 2%, cannot be changed by national legislatures or the European Parliament. The treaties constrain EU governments and citizens ad infinitum.
This permanent constraint is rendered irreversible by the near-insurmountable difficulty of changing the treaties, which requires unanimous consent of all member governments (and the case of Belgium by the provincial governments as well); or by a new treaty that overrides the previous, which also requires unanimous agreement. The extreme difficulty in altering any provision of the de factoEU constitution means in practice that EU citizens are denied the democratic right to alter the basic economic policies that govern their livelihoods.
These anti-democratic treaties came as the result of bargaining and compromise among governments of the centre-right and the centre-left, Christian democrats and social democrats under various country-specific party names. Having agreed to the treaty-enshrined dysfunctional constraints on national governments, over the next 20 years these parties faithfully applied them when in government.
In the new millennium each successive national economic crisis became increasingly intractable because the treaties prevented the rational policies that would have solved or prevented them. With each passing year and the centrists further discredited themselves before the electorates with their devotion to austerity. Obvious metaphors come to mind — lemmings racing for the cliff edge and 18thcentury doctors bleeding patients to cure their illnesses.
No metaphor is really necessary because policies speak for themselves. These governments, Holland in France, Renzi in Italy, or almost any other during 1990-2018, acted in the narrow self-interest of financial capital. Despite the manifest failure of German-via-Brussels austerity policies to generate a sustained recovery; despite the appalling human const of these policies, especially but not only in Greece; despite the repeated voter rejection of politicians advocating these policies; neoliberal centrists dutifully defended and implemented contractionary fiscal policies.
It is tempting to explain the political myopia of centre-right and centre-left by “complacency” from too long in government, “detachment” from the electorate, and/or ideological belief in the “TINA” principle (there-is-no-alternative). More promising than these subjective assessments is to pursue the approach in criminal investigations – cui bono, Latin for “to whom does it benefit?”
Inspect of trade and growth statistics since 2000 across the euro zone and the prime suspect jumps off the page – German industrial and finance capital. While cui bonoexplains the behavior of the German government, what about the apparent losers in the rest of the EU and especially the euro zone where austerity policies bite the deepest?
Why did and do the governments of other euro zone countries follow the German lead? The simple answer is that until the recent Italian election and Spanish change of government 15 of the 18 other euro zone states had governments of the political right. Several of these 15 governments would and have pursued reactionary fiscal policies with no encouragement from Brussels or Berlin.
That leaves Greece, Italy itself, and Portugal. Greece is the exception that proves the rule, a nominally leftist government enforcing austerity policies imposed upon it. In Italy the Renzi government purposefully pursued austerity without external pressure. Until the change in Spain only in Portugal did we find an established left party attempting to reject austerity policies (and strongly criticized by EU officials). Whether the Spanish Socialist government will join Portugal in fiscal rebellion remains to be seen.
For two decades centre left parties in Europe have connived, accommodated and embraced the fiscal ideology of the right, differentiating themselves only by the limp promise to implement those dysfunctional policies in a moderate manner. That is how we come to this sorry state in which only one euro zone country has a government of the centre left with a progressive economic policy.
After enduring almost twenty years of economic stagnation with the euro, the Italian electorate had enough and elected parties promising to defy the EU rules of fiscal behavior. The farce of the Italian centre-left implementing reactionary fiscal policies is followed by the tragedy of a frontal challenge to those rules by a coalition of xenophobes, chauvinists and proto-fascists.
The apparent response in Brussels and Berlinto the Italian electorate’s demand for change was to encourage the Italian president to patch together yet another austerity government. That ineffective response represented the continuation of the EU policy so infamously stated by the erratic president of the European Commission. During the Greek crisisin 2015 the ever-quotable Mr Juncker said, “Il ne peut y avoir de choix démocratique contre les traités européens” (there is no democratic choice about the EU treaties).
In the Bible Proverbs 29:11 tells us “whoever troubles his own household shall inherit the wind”. The Renzi government did indeed “trouble its own household [aka Italy]” and with its devotion to EU fiscal rules stirred a wind not south-by-southeast but right-by-far-right. The M5S/Lega government turns that Italian wind to gale force perhaps to sweep Europe.