Greek Salad (made in Italy)
The anticipated creation of a populist government in Italy has sent shivers down the spines of those who have been following developments in Greece since 2015. Indeed, there are enough similarities to give rise to concern. The following discussion offers three key reasons why Italy (and Europe by extension) is about to head into some serious trouble.
Meeting of the extremes
The rise of populism in Europe that seemed to have stalled with the election of Emmanuel Macron to the French Presidency (and Angela Merkel holding on to power in Germany) made a comeback in the Italian election in March. The radical Five Star Movement came first with 32 percent of the vote and Lega, a right wing (formerly secessionist) northern movement, came in third with close to 18 percent. The two parties appear (at first glance) to be the polar opposites of each other, the former a leftist libertarian amateurish outfit, and the latter a hard core rightist anti-immigrant sectoral formation. Yet, as in Greece, once groups move far enough from the centre, they tend to meet at the extremes, if not in ideology, at least in their lust for power. Italian parliamentary balances mean that only a combination of Five Star and Lega can produce a viable government majority without a repeat election (something no-one wants).
When Alexis Tsipras (of radical left SYRIZA) and Panos Kammenos (of far-right ANEL) came together in 2015, many expressed incredulity and professed doom for the coupling. Yet, three years down the line, the romance keeps going, the two united by fear of electoral oblivion were they to split, and bound by a desire to address perceived injustices of past governments (primarily) against their support groups. Such injustices are reportedly corrected by the provision of benefits to their immediate supporters in the form of jobs, perks and personal favours (while the rest of the population faces crippling taxation). If the Greek experience is anything to go by, an alliance between Luigi Di Maio and Matteo Salvini, leaders of Five Star and Lega respectively, will endure, because it will have to. A government primarily interested in its own self-preservation, catering to the needs of limited client groups is not however what European governance is supposed to look like. It makes for bad policy. This something that Greeks have learned to appreciate in very concrete ways since 2015.
A key way in which bad policy-making expresses itself is through ‘unorthodox’ economic and fiscal plans. Greece has a lot to teach the world on what happens when attempting ill-thought ‘alternate’ plans. The problem is not so much that There Is No Alternative (TINA), but that the offered alternatives are worse than the status quo. Yes, there are problems with European governance. Yes, there are problems with the euro. Yes, there are issues with democratic legitimacy and the accountability of economic policy making within Europe. Alas, the answer is not to pull a Varoufakis, blackmailing Europe via dangling amateurish plans in the hope that fear of disruption alone will deliver a free lunch. This has been so clearly demonstrated during the few months of SYRIZA’s ill-fated “revolution” that repeating the endeavour in a bigger country like Italy should be considered unthinkable. Yet, history tends to repeat itself, as it is said, often as a farce. The leaked initial economic plans of Italy’s coalition-in-waiting are nothing if not farcical.
Let us have a quick look at the parties’ plans on banking reform. Five Star and Lega are reported to intend to seek a radical reform of the EU’s much fought-over bail-in regime (meaning allowing more bailouts); will ask for greater responsibility of supervisory institutions (ECB and NCBs) for banking failures; allow compensation for retail investors of failed banks (meaning even more bailouts); amend capital adequacy rules (globally) to favour SMEs; and have the government run bailed out banks. All that is alarming even before we look at their more radical ideas as to eurozone governance and any potential Euro-exit. But why should these ideas be dismissed out of hand? The reason is that running a government is not like attending an academic conference such as those favoured by the professoriate that is filling the ranks of Five Star and SYRIZA. Such ideas have zero chance of being accepted by Europe, never mind lead to amendments of global rules. As Greece discovered, markets are relentless and bond traders will not wait to see the results of academic reflections. The message is simple: threaten bond spreads and you become Greece. The problem is, reality tends to be antithetical to populist narratives.
Perhaps the worst (and most dangerous) aspect of governments consisting of extremes is not the type of policies they pursue, but their inability to pursue successfully policies in any direction at all. It is extremely unlikely that Di Maio and Salvini have the calibre themselves to be in government or that they can summon enough cadres to staff an efficient state administration. This is not meant to belittle or patronise politicians outside the ‘traditional’ governing parties. It is aimed instead to highlight the fact that those who spent a lifetime screaming from the sidelines (about corrupt elites, conspiracies, enemies of the people) are usually unable to sit comfortably on the chairs they have been raging against. Moreover, again as Greece taught us, once on the chairs, they might feel entitled to recreate the worst of what they opposed, in order to correct “injustices.” The experience of the “first-time left” government of Greece has revealed a pronounced gulf between what radical parties think can do once in government and what actually happens.
These three interlocking dynamics: ideological extremism, economic irrationality and populist incompetence, are enough reason for Europe (and Italy) to fear its incoming government. They are scary enough to have immediate implications for markets even before one unpacks a variety of horrors that lurk in position papers and policy desires streaming out of the two parties. At best, trouble in Italy will delay the very necessary changes in the Eurozone itself, derailing French President Macron’s ambitions of reform. At worst, once again, the Mediterranean may have spewed forth a monster.
*Dr Ioannis Glinavos is a senior lecturer at the University of Westminster