OPINION

[Ferdinando Giugliano] After Trump and Brexit, Italy falls for nostalgia

By Bloomberg
  • Published : Jan 17, 2018 - 17:41
  • Updated : Jan 17, 2018 - 17:41
Italy’s politicians often stand accused of lacking the courage needed to shake up the country’s ailing economy. What if, however, the issue was Italian voters, who don’t want a reformist government?

This question springs to mind watching the depressing campaign ahead of Italy’s general elections, which will be held on March 4. Italians look increasingly set on going back to the future, supporting the 81-year old media tycoon and convicted felon Silvio Berlusconi, a four-time former Italian prime minister who is running on a platform of conservatism and nostalgia. (His conviction means he’s barred from entering parliament and his challenge of the ban in the European Court of Human Rights is very unlikely to be decided in time to change that.) The contrast with neighboring France could not be clearer: Last year, French voters backed Emmanuel Macron’s startling bid for the Elysee, giving him a clear mandate to pass sweeping reforms, at home and in Europe.

It would be wrong to conclude, however, that Italians are fundamentally opposed to change. Rather, they have just gone through six years of policies that have been labelled “reform.” While some of these measures have helped to improve the country’s competitiveness and fiscal credibility, others have either created confusion or little perceptible improvements in people’s lives.

The first round came in the shape of the technocratic administration led by Mario Monti, who was sworn in as prime minister at the height of Italy’s sovereign debt crisis in 2011. Monti implemented a radical pension reform, linking the retirement age to life expectancy, as part of a package of austerity. These measures have been widely credited with giving the European Central Bank the political space it needed to intervene decisively and stop the crisis. However, they made Monti unpopular with the electorate, who delivered him a thumping defeat in the 2013 general election.

A second chance came under Matteo Renzi, who became prime minister in 2014, after a year of inconclusive government by Enrico Letta. Renzi passed sweeping labor market reforms, relaxing hire-and-fire rules. He also overhauled the banking system, forcing midsized “popolari” banks to abandon a “one man, one vote” system which made consolidation much harder. Unlike Monti, Renzi enjoyed much lower interest rates thanks to the ECB’s intervention, which gave him room to cut both income and payroll taxes. However, Italians grew tired of what was seen as a narcissistic ruling style and became frustrated by years of high unemployment and other problems. In a referendum at the end of 2016, they rejected the constitutional reform he sponsored, forcing him to resign.

Monti and Renzi could not have been more different in their approaches and personalities. The former is a sober academic, while the latter a flamboyant politician. However, they faced the same problem: Their reform agenda did not deliver economic growth fast enough for them to take credit. Italy is now finally growing, though improvements are still far too limited for voters to notice. Youth unemployment, while falling, remains very high by EU standards, and wages are barely rising.

Many in Italy are longing for the past: The Five Star Movement is toying with a referendum on the euro. On the right, the Northern League also wants to reconsider Italy’s membership in the eurozone and abolish Monti’s pension reform. Berlusconi, whose Go Italy party is running in coalition with the League, has said abandoning the single currency would be unsustainable for the Italian economy. However, he has recently flirted with the idea of a parallel currency, though this would be illegal under the European treaties.

This should surprise no-one: Berlusconi has a Trump-like penchant for changing his tune when it suits his interests. A decade and a half ago he faced the wrath of the trade unions for seeking to make the job market more flexible; now he says he wants to overhaul Renzi’s labor reform to create more permanent contracts. He also wants to introduce a “flat tax” -- an idea which he included in his program when he first ran, no less than 24 years ago, without ever making good on his promise.

Many of these pledges are delusional. Italy’s productivity crisis predates the introduction of the euro and would not be solved by leaving the single currency. Abolishing the pension reform would be extremely expensive and raise investors’ worries over the sustainability of Italy’s towering public debt. Making the labor market less flexible will do very little to help the unemployed.

However, these assurances are precisely what many voters like to hear. Just like the majority of UK voters who supported Brexit and the tens of millions of Americans who propelled Donald Trump to the White House, Italians are ready to turn their back on the present. Nostalgia, welcome back to Rome.


By Ferdinando Giugliano

Ferdinando Giugliano writes columns and editorials on European economics for Bloomberg View. -- Ed.


(Bloomberg)