Italy and the disappointing history of the Euro

Italy is the only country where the old establishment parties have been swept away from the scene. The clash with the European commission has been focused on compliance with the rules - a sort of catechism - that dominate the eurozone.

This year the eurozone turns twenty. If the first ten years have been characterized by a complex start-up phase in search of an internal balance, the second decade has been marked by a crisis that has not yet found a solution. It has suffered two crises in 2008-2009 and in 2012-13. And currently, it is again marked by a new fall in growth and an increase in unemployment. Economic difficulties are reflected in the political framework of the three major founding countries. In France, in less than two years into his presidency, Macron has fallen to the lowest rating of consensus in the history of the Fifth Republic. In Germany, the collapse of the Socialdemocratic Party makes the old leadership of the two principal parties (SPD and CDU-CSU) unattainable. The latest developments see the Italian government challenging the framework of rules that have dominated the eurozone. In this shaky context, the elections for the renewal of the European Parliament next spring will possibly decide the future of the eurozone.

The long controversy that has struck relations between Italy and the eurozone authorities has been resolved at the last minute. There will not be the so-called excessive deficit procedure for Italy, a threat unprecedented in the euro area since its foundation.

We must look for whether this clash was a simple road accident or rather the manifestation of a rupture of the engine that has ruled the eurozone in the last two decades. It is worth mentioning that the long and hard conflict opened by the European Commission against the new Italian government concerned a few decimals of the deficit to be fixed in the national budget in 2019.

To try to put the seemingly absurd dispute that involved one of the three main EU countries in a broader perspective, it is worth briefly going back to the nature of the challenges that have troubled the eurozone in the last ten years, after the financial crisis exploded before in the United States and then in Europe.

At the origins of the crisis
The  2008 autumn crisis, which officially started in the United States with the collapse of Lehman Brothers, was considered the worst financial crisis since the Great Depression. But in the next two years, the fear of a catastrophe in the United States had been overcome. Instead, the contagion of the crisis invested Europe with a deep recession and a wave of massive unemployment. The crisis initially hit smaller countries like Ireland, Greece, and Portugal, but then hit Spain and threatened Italy.

It was in those circumstances that Mario Draghi, the new president of the European central bank (ECB), with a famous speech in London in July 2012, made a turning point in the history of the euro area: “Within our mandate -he said -  the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”

In effect, when placed in a broader perspective, the statement was not surprising. Ben  Bernanke, president of Fed, the US Central Bank, had already been heading in that direction in the early days of the crisis by providing the country with unlimited liquidity, accompanied by a historic lowest interest rate. It was the launch of the Quantitative easing (QE).

Europe came late to the same decision, adopting the QE in March 2015, seven years after the start of the crisis, when a devastating recession had already hit the Eurozone, recording the highest level of unemployment in the last seventy years. The initiative was not only late but poorly structured: the liquidity promised by the ECB could only be used to support banks and businesses.

In principle, after a long period of recession and stagnation, one could have rightly imagined a wave of new investments, a leap in growth, an attack on mass unemployment. None of this happened on the eurozone. On one hand, companies could not have any interest in making investments, or increasing the supply of goods and services, in a context of generalized and deep contraction of consumption by impoverished families.

For the same reasons, the banks, given the difficulty to recover the resources previously provided, and often being on the edge of the bankrupt, were averse to lend money, assuming new risky. So, paradoxically, an important part of the resources left unemployed returned to the ECB's coffers.

The comparison with the US is once more significant. Not only the Fed had provided from the starting 700 billion dollars to rescue the financial system. In the following months, Barack Obama, immediately after his ascent to the  White House, had deliberated the allocation of 800 billion dollars earmarked to the rescue of companies in danger of bankruptcy - as it was the case of GM and Chrysler– as well as to the stimulation of new  investment, and to support the purchasing power of millions of citizens who had lost their  job.

The Fiscal compact
What instead in the eurozone? The financial resources provided by the ECB could not be used by governments to implement direct investments. And it was not the only limitation to enhancing investment.

It is worth coming back to 2013 when was launched the so-called Fiscal compact d: that is, the commitment of every EU member state to achieving the budget parity, and to give way to the reduction o the public debt until reaching the magic threshold of 60% of GDP. It is also worth remembering that the European Parliament had not discussed, let alone approved, the Fiscal compact and within it this strangulation measure.

Summing up, monetary policy became the watchdog of the austerity policy. While the exit from the crisis had to be the task of the so-called structural reforms: in other words, the adoption of neoliberal policies based on the liquidation of bargaining power of the trade unions, the complete liberalization of the labor market, and the privatizations of public assets..

It is a matter of fact that, choosing the couple austerity-structural reforms, the eurozone has recorded, during the last ten years, the weakest growth and the highest rate of unemployment in the western world. Shifting the focus outside the eurozone is enlightening. In the US, for example, unemployment has been gradually reduced until reaching less than 4 percent - the lowest rate by many decades.

Yet it is not necessary to cross the Atlantic to see a different economic result. It is sufficient to take a look at the EU countries out of the eurozone to see an impressive difference: in Sweden, Czech Republic, Poland, Hungary and so on, the growth rate has generally been between 3 and 4 percent - more or less double that in the euro area.

What else must we wait for to recognize the failure of the current eurozone policy?

Austerity and arbitrary rules
Just as in the physical world, in the world of politics there are no voids. The political space left vacant by the social-democratic and center-left parties has been generally occupied by the right-wing movements.A right wing sometimes disguised, as in the case of Macron in France, with his neoconservative program, qualified by the attack on the bargaining power of the trade unions, with the final liberalization of the labor market, as well as by the dismembering of public ownership.

In Germany, the Euro-skeptic Alternative for Germany (AFD) became the third party after the 2017 federal elections, taking away votes from the "battleship" CDU-CSU, which was at the top of German politics for the past seventy years. In Italy, the right-wing League, led by Matteo Salvini, who has pulled a mass of votes from Berlusconi's Forza Italia and, according to current polls, keeps increasing its electoral consensus.

So, Italy is the only country where the old ruling parties have been swept away from the scene, paving the way for a government supported by the Five Star movement, led by Luigi di Maio, which gained 32 percent of the vote in the March elections, and by the League, led by Matteo Salvini. Even though they are two formations with different, and often opposite, positions, they have set up a coalition government, led by  Giuseppe Conte; based on a shared platform: the so-called Contratto.

The League has, indeed, a typical rightwing anti-immigration and "law and order" program. The Five Star movement has, instead, a program with, generally speaking, a leftwing orientation with a broader public intervention, the fight against corruption, a marked social policy, as the implementation of  the "citizen’s basic income" aimed to alleviate the condition of five millions of extremely poor, mainly in South Italy.

The EU commission has attacked the new government not for the right-wing policy of the League -  a policy that  is growing throughout the EU - but, fundamentally, for the economic and social goals of the new government, which are at odds with some of the cardinal principles on which the economic policy of the neoliberal eurozone is based.

The novelty is that the coalition government, invested with a popular consensus that is unequaled in the eurozone countries on one side, has defied the eurozone’s neoconservative technocratic leadership; on the other, he stated the determination to keep Italy in the eurozone, rejecting the hypothesis of an exit from the euro.

One might ask what the sense is to convene regular elections in a member state of the eurozone if it is forbidden to change the policy of the former democratically defeated government.

The clash between the European Commission and the Italian government focuses on compliance with the rules - a sort of catechism that dominates the euro area - whose main feature is the cancellation of the national role in the management of fiscal policy and, in general, of economic policy.

In fact, these rules have never been implemented, starting with Germany at the beginning of the euro. France, for its part, recently announced a budget deficit of 3.5% for 2019. It is a fact that the fiscal parameters of the eurozone do not distinguish between the conditions of the member states: the unemployment rate, the need of public investments, the territorial differences, and; the different impact of changes in the international economic context.

In short, we cannot hide that even in a single currency area, each country is different from the others, and the budgetary policy cannot be administered by a distant technocracy without any democratic investiture and public legitimacy.

From an institutional point of view, the first target of the eurozone's reform should be the cancellation of the Fiscal compact, the intergovernmental pact that, as we have seen before, has never been examined, not to say approved, by the European Parliament. Canceling its unfounded rules doesn’t mean a EU without rules. It will be enough to go back to the Maastricht Treaty which allowed an important degree of autonomy to the member states, setting up a flexible budget deficit within three percent of the GDP. In that context, it would be possible for each member state to manage a relatively autonomous economic policy in line with its specific needs.


In the United States, after the massive intervention of the Fed and of the new presidency od Obama, the recovery begins, first slowly and then accelerating. 2018 closes with a growth rate of around 3 percent, the highest since 2005.  GDP has risen by about 20 percent after the crisis, unemployment has dropped below 4 percent, the lower level for many decades.

The eurozone crisis has never ended. Over the last decade, growth averaged 0.8 percent annually - the lowest in the history of the European Union. The difference is not only between the eurozone and theUS but also within the eurozone. Germany could react to the fall in domestic demand and investment with throughout massive exports heading around 8 percent of the GDP, a record at world level.


The eurozone crisis, instead, was never over. In the last decade, growth has averaged 0.8 percent annually, the lowest in the history of the European Union. The difference did not appear only between the euro area and the United States but within the euro area itself. In fact, Germany could take advantage of the low exchange rate of the euro compared to what would have been the exchange rate of the Deutsche Mark in the absence of the single currency. In this way, it was able to compensate for the drop in domestic demand and investments by an annual export surplus around 8 percent of the GDP - a record at the world level.


On the other side, France, which has been setting a constant trade deficit, has remained  entangled in a poor average annual growth around an average  0.8 along the decade, accruing the gap with Germany through less growth and a more than double unemployment rate.

Unlike Germany, France has recorded a constant trade deficit and remained entangled in an average annual growth rate of 0.8%. The low growth has also been accompanied by a permanent budget deficit above 3 percent, except for one year in the decade. At the same time, unemployment keeps to stay at more than twice the level of Germany. Taking into account that France was the main actor in the process that, at the end of the last century,  culminated in the common currency, the deep gap with Germany is one of the most relevant aspect of the eurozone crisis,

On the other hand, Italy, taking advantage of its competitiveness in the manufacturing industry, has reached a constant trade surplus - the fifth highest figure in the big countries after Germany, China, Japan and South Korea. This performance may have been a good one premise to boost growth. But the rules of the euro zone, imposing the chimerical achievement of the budget parity in the middle of the crisis, were destined to reduce private consumption and to block public investments. Not surprisingly, the result was a dramatic fall in GDP of five points below the 2007 level, while unemployment, starting at around 6 percent on the eve of the crisis, doubled over the decade.

No one should be surprised by the collapse of the parties that have ruled in Italy in the last ten years. Their collapse has been the consequence of their accomplice acceptance of a devastating policy based on the combination of austerity and structural reforms imposed by the eurozone's leadership.

In the end, the European Commission has removed the threat of the infraction procedure against Italy, a dangerous measure for the following possible attack by the financial markets. But also a measure that, paradoxically, could have strengthened the Italian government in front of its electorate, as a victim of the arrogance of the autocracy of the eurozone,

To conclude, the new Italian government has contributed to the opening of Pandora's box highlighting the contradictions of the eurozone policy. This topic will remain central in 2019 when, following the changes in the political forces in place in the main eurozone countries, a possibly deeply changed European Parliament and the new nominated  European commision will have to recognize that the policy of the eurozone has responsible for a lost decade. And, in any case, it is going to be a crucial moment for the future of the eurozone.





Differently from Germany  France, scored a constant trade deficit,  remained entangled in a poor average annual growth rate of 0.8 percent, and run a yearly deficit budget higher than the UE 3 percent parameter, except just one year in the decade. 



France, which, on the other hand, suffers from a constant trade deficit, has remqined  entangled in a miserable average annual growth of 0.8 percent. Italy, on the contrary, could exploit its  competitiveness in the manufacture, to achieve a constant trade surplus - the second in  the world afterGermany,  Japan and South Korea. It could have been a good premise to recover the growth.But the eurozne's rules imposed the compression of the public ependiture reducing investments and consumption together. The outcome is the fall of the GDP five points under the level of 2007. while unemployment at around 6 per cent  on the eve of the crisis more than doubled 


The failure of eurozone policies is in the light of the sun. Italy in 2007,showed 6% unemployment. In the course of the crisis after having more than doubled ,ten years after iis still arund 11 per centi.percent..

 the collapse of the parties that succeeded each other in the decade,  is the natural consequence of a policy that has sailed through the crisis in the framework of Eurozone policy based on the combination of austerity and structural reforms. In their blatant defeat there is no mystery. The legacy passed into the hands of the coalition could not be more burdensome. But the main problem is once again the relationship with the eurozone.

One might rightly ask whether the freedom to administer the national budget depends on the intensity of popular revolts, as we have recently seen in France. Or if it does not have to be a normal model of management for a government, which rightly wants to implement the program that the electorate has entrusted to it.

In the end, the European Commission has removed the threat of the infraction procedure against Italy, a dangerous measure for the possible attack by the financial markets. But also a measure that, paradoxically, could have strengthened the Italian government in front of its electorate, as a victim of the arrogance of the autocracy of the eurozone, 

To conclude, the Italian government has contributed to the opening of Pandora's box highlighting the contradictions of the eurozone policy. This topic will remain central in 2019 when, following the changes in the political forces in place in the main eurozone countries, the renewed European Parliament will possibly be pushed to recognize that the policy of the eurozone has responsible for a lost decade.

Antonio Lettieri

Editor of Insight and President of CISS - Center for International Social Studies (Roma). He was National Secretary of CGIL; Member of ILO Governing Body and Advisor for European policy of Labour Minister. (

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