The Itaian center-left coalition, lead by Democratic Party, is expected to win next general elections, but its mission will be hard, and only new alliances could challenge the German hegemony in order to find a way out from the eurozone's crisis.
The biggest news of the general elections scheduled on February 24th -25th in Italy Is that the center-left coalition, lead by the Secretary of the Democratic Party, Pier Luigi Bersani, is expected to win, and to gain the majority of the seats in both Houses of Parliament. It is going to be the second leftwing success in one of the three major eurozone’s countries after François Hollande’s victory in France.
However, both the revived Berlusconi's coalition (made by People of Liberty and Northern League) and the center-right coalition lead by Mario Monti, head of the current technocratic Government, hope that the PD does not achieve the absolute majority in the second chamber, the Senate, in order to become necessary in shaping the future government.
In any case, the Italy that Mr Monti is going to leave is a country with the worst recession in the eurozone, except Greece. According to the forecasts, 2013 will be another year of recession, with a pale recovery, less than one percentage point, expected in 2014. That is, the longest recession in half a century. It’s the price Italy pays to achieve a balanced budget in 2013, required by the European authorities, a paradoxical goal in the midst of the recession, and a target that has not been imposed on any other eurozone country.
If only balancing the budget was delayed until 2014 (in France is planned for 2017), at least twenty billion euro would have been available for anti-recession measures, such as increasing the agonizing public investment. However, Mr Monti has operated as a perfect executor of the Brussels policies, claiming that they had been made necessary by the commitments previously taken by the Berlusconi’s government.
The recession has brought about an explosive growth of unemployment that hits first the young people. But the unemployment increasingly affects mothers and fathers who are no longer young. Thus, the unification of the labor market, evocated by the rightwing reformists is going to be implemented not through the reduction of the precariousness for youngsters, but on the basis of "precariousness for all"!
The Monti government will also be remembered for the wretched pension overhaul, and the reform of the labor market aiming to facilitate the individual layoffs. It is not a coincidence, Monti’s support to Mr. Marchionne, chief executive of Fiat-Chrisler, who engaged in the abolition of the national collective bargaining and in the discriminate against FIOM, the militant and more representative Italian Metalworkers' Union.
Defenders of the technocratic government stress that Italy has to be grateful to Monti’s government for having put the spread under control. However, the reduction of the spread comes from the policy of Mario Draghi, ECB president, who has guaranteed unlimited liquidity to the banks, allowing them to acquire sovereign bonds and improve their balance sheets, making profit on the difference between the national bonds’ yields and the low interest paid to the Central Bank.
A bold intervention of monetary policy - taken in contrast with the Bundesbank - has aligned, in some respects, the ECB to the U.S. Federal Reserve. But with one major difference: Ben Bernanke has ensured that the FED expansionary monetary policy will continue until the unemployment rate will drop to six percent. On the contrary, Draghi has put as condition the continuity and deepening of the austerity and structural reforms, which have so far strongly contributed to increase the eurozone's unemployment rate, now close to twice the target indicated by Mr Bernanke in the U.S..
The historians who will write about the eurozone's crisis management will be astonished and puzzled, considering that, after having compared the ongoing crisis to that of '29, the eurozone brings about monetary and fiscal policies similar to those of Herbert Hoover, refusing the teachings of Franklin Roosevelt and Keynes.
The result is a dog that bites its own tail .The austerity and structural reforms, which are the basis of the Fiscal Compact, inhibit growth, leaving countries at the mercy of the financial markets. "The eurozone's fiscal compact -J. Stiglitz has observed - is no solution, and the European Central Bank's purchases of sovereign debt are at most a temporary palliative. If the ECB imposes further austerity conditions (as it seems to be demanding of Greece and Spain) in exchange for financing, the cure will only worsen the patient's condition "(A Year on the Brink). The facts seem to confirm this prognosis.
The comparison with the United States is instructive. The U.S. is faced with the threat of fiscal cliff, and Barak Obama has to confront the Republican opposition. In effect, the eurozone lives in a state of a permanent fiscal cliff, made up of growing taxes and public spending cuts, and the eurozone’s authorities, under German hegemony, are developing policies hardly different from those defended by the Republicans in the U.S..
At the end of 2012, five years after the outbreak of the crisis, eurozone’s GDP has not yet reached the pre-crisis level. And, according to the current forecasts, over the next five years, the average annual growth rate will be around 1 per cent. Overall, a lost decade for the eurozone and its inevitable decline in the geography of globalization.
How the announced Italian center-left government could face these handicaps? The mission will indubitably hard. But it could be helped by the fact that a deepening economic and social crisis in Italy would jeopardize the whole eurozone’s future. Banks, has been said, are too big to let them fail. Italy cannot be left adrift, without the implosion of the entire euro-system.
It will be very difficult if not impossible for Greece to remain in the eurozone. Its debt that was less than 120 percent of GDP before the crisis now it is at 170, while the population is reduced to despair. Spain, led by a right-wing government at the start acclaimed by the European authorities, after adopting all austerity and structural reforms imposed by Brussels, has a sovereign debt almost double in relation to the pre-crisis level and an employment rate of 26 percent.
However the most important question concerns the France of François Hollande. The growth is anaemic and the unemployment increasing. France cannot remain in the lethal austerity framework. The strong popular consensus that took the Socialist party to victory is rapidly declining. According to a recent survey, more than 60 percent of the French said they regret the Franc, including the majority of the voters of the conservative UMP and of the Socialist Party which, with Mitterrand and Delors, twenty years ago was at the forefront of the construction of the euro.
The eurozone policy has failed, but not from the German point of view. Angela Merkel is going to win by a wide margin, perhaps about 15 points according to polls, in the general elections to be held next September. The ruling CDU-CSU union could make up a government with the Greens or a new Grand Coalition with the Social Democrats, which hardly will change the German hegemonic policy vis à vis the eurozone. It is true that eurozone economic paralysis is hitting at this stage also Germany, but it keeps the advantage of being a great industrial power with a huge trade surplus, increasingly linked to the areas in more rapid development, such as the South-eastern Asia.
The confrontation of the leftwing governments with the current eurozone’s policies is unavoidable. And its outcome will depend on the relationships that will be established in the euro area, first between France, Italy and Spain, even though under a rightwing government . Everyone knows it but a misplaced reticence hides the fact that the eurozone cannot survive a bankruptcy economic and a socially unpopular policy that strikes deep into Spain and Italy and closely threatens France. Common sense says that it is a situation that can not last. The possible center-left government in Italy has, on one hand, to face the grim economic and social situation and , on the other, cope with the eurozone’s paralysing constrains inherited by Monti’s government.
This is a hard task, and it would be illusory to hide the dreadful challenge it implies. But it also opens a chance for overall eurozone at the extent that the common difficulties push toward a coalition of major countries, such as Italy, France and Spain have not other concrete option to avoid a gloomy prospect, but to challenge the current German hegemony, and try for a new way out from the crisis. Meanwhile an important step would be, as James Galbraith suggested (Insight, December 2012), opening a frank debate on the future of eurozone. The center-left victory in Italy should contribute to this goal.