Marx said somewhere that financial crises are a memento mori for capitalism – near-death experiences that remind the elite that the entire system comes with a time limit. By the same token, every round of the euro crisis performs the same role for the European project.
In 2011, the occupied squares of Syntagma in Athens and Puerto del Sol in Madrid became the frontline of the global financial system. The Greek crisis of 2015 reminded us not only that the euro itself was mortal, but that most of the political certainties preached as to its future were mere platitudes.
And now there’s Italy. After an election in which the populist Five Star Movement (M5S) came first, with 33 per cent of the vote, last week saw an attempt by the party, together with the far-right Northern League (LN), to form a coalition government. I wrote then that, if its coalition programme were implemented, it would bankrupt the Italian treasury and provoke a standoff with both the eurozone authorities and the EU Commission.
It took less than seven days for that standoff to begin. The Italian president, Sergio Mattarella, stopped the M5S/LN attempt to form a government by blocking the appointment of Paolo Savona, a eurosceptic, as finance minister. Then he appointed former IMF official Carlo Cottarelli as interim prime minister, to lead yet another technocratic government. Luigi Di Maio, the leader of M5S initially called for Mattarella’s impeachment and demonstrations are planned. Italian shares have fallen and bond yields spiked.
Yet as with all instances of memento mori, this is not yet death itself – only a signal of its possibility. To understand how it plays out, what the Italian left should do, and how the left across Europe should react, we have to trace two fault-lines in the current system: the flawed economics of the eurozone and the flawed geopolitics of the EU27.
First, the economics. By the time the Greeks threatened to default on their debts, most of them were held by European states and the European Central Bank, because as the price of the 2010-13 bailouts, the official sector had taken these liabilities off the commercial banking sector in Europe, thereby insulating it from the shock of a potential “Grexit”.
Italy is different. Italy’s €2.3trn debt stands at 130 per cent of its GDP. If it defaulted on just a part of that, it could take down the European banking system. However, the first casualties would be Italian savers. About two-thirds of Italian debt is held in Italy: around €450bn by pension funds, €350bn by banks and €350bn by the Italian central bank.
So if Italy left the euro, or was thrown out, or its treasury went bankrupt, or it faced a bond buyers’ strike – these are all separate routes to penury – the Italian middle class would get wiped out. Their pension funds would take a hit, and if they had savings in the bank, these would get wiped out. Meanwhile, the Italian treasury would effectively be nationalising the €350bn it had borrowed from its own central bank, causing the new lira to collapse in value.
Therefore, even if you think – as I do – that the euro is bad for Italy, and that the eurozone austerity rules have strangled Italian growth, leaving the euro in this way is a bad idea, full stop. That, by the way, is no guarantee it won’t happen, for reasons we will come to.
The proposal, originating from M5S, to create a parallel “fiscal currency” – known as miniBOTs – is worth considering, however. Though the Bank of Italy has ruled it would be illegal under eurozone regulations, technically you could argue that so is quantitative easing. The aim of creating a parallel market in government debt would be to a) erode it and b) send a politico-economic signal to the eurozone that national governments are capable of creating defensive instruments when faced with the kind of coercion that wrecked Greek democracy in 2015.
The second fault-line is political. By using the euro issue to veto the formation of a populist government, the Italian presidency, backed by Angela Merkel and all the other usual suspects – including the gloriously irrelevant Labour MP Chris Leslie – has turned the crisis into a showdown over sovereignty inside the EU. Matteo Salvini, the leader of the LN, and an increasingly key player in the coalition, has called for the impeachment of the president and/or for new elections. The latter is most likely.
Mattarella’s gesture has dramatised the core problem of the eurozone: it has come to express an unequal power structure. Since the euro is theoretically unleavable without crashing the entire banking system, the president could argue that a government whose actions might lead to euro exit creates a threat to national security, and should be blocked from office. Instead of the shared sovereignty and equal currency union implies, what we have is the sovereignty of solvent states (Germany, the Netherlands) over potentially insolvent ones.
In the next Italian election, whether M5S and LN run on a joint slate or not, it will be easy for them to make this an issue of legitimacy and sovereignty. Since neither of them campaigned on a promise to leave the euro, it is safe to assume they will do so the same this time round. They will most likely win an increased victory and attempt once again to form a government committed to renegotiating the Maastricht rules that mandate austerity, and to renegotiating the Lisbon Treaty.
This time around, however, the combined might of European centrism will be focused on influencing the election: think a combination of the Brexit referendum, the Greek crisis and the put-down of Catalan separatism rolled into one.
What should the Italian left do? As I argued last week, it would be fatal to support – even implicitly – the anti-democratic use of presidential powers, or to side with Merkel and the Commission in destabilising or blocking an elected populist/far-right coalition. If they can win a second election then, as with the first, the point is to let them try and fail, and design a new left programme to pick up the pieces.
However, the likelihood of a new election should now force the Italian left to get its act together. Support for the outright racists and conservatives of the LN and Berlusconi’s Forza Italia party combined stands now around 36 per cent, with the more amorphous, and sometimes left-leaning M5S on 31 per cent. The social democrats of the Democratic Party are on 19 per cent with the more Corbynite Free and Equal offshoot on just under 3 per cent and the far left Power to the People somewhere below that.
The only chance the left has is to, first, break mentally with the chains of eurozone fiscal rules and with the neoliberal strictures of the Lisbon Treaty. It needs to accept that the eurozone has become a means for suppressing growth in southern Europe, and a game rigged in favour of Germany. It needs to say so because these things are true – and because its refusal to say them has handed powerful arguments to a bunch of racists and loudmouths.
Second, the left needs to out-populist the M5S: in discussions with Italian leftists I’ve noticed a blank refusal to understand why their own supporters are switching to the new movement. Some of its demands are straight out of the playbook of a horizontalist left: the universal basic income, the limitation of MPs to two terms in parliament, the anti-corruption drive and so on. There is a mindset inside the Democratic Party similar to the one you find among Labour councillors in the north of England – an assumption of the right to rule, a closeness to powerful institutions. As a result, M5S and its supporters are always written off as closet right-wingers and the struggle to split populism along its class lines is never pursued.
The showdown between a LN/M5S government and the Italian and Eurozone machines is an opportunity for the left to propose strong and urgent reform – both of the Eurozone and the Italian state.
To advocate Italy leaving the Eurozone, given the structure of Italian debt, would be economic suicide. Rather the left in Italy needs to put forward a plan to reform EU governance and to change the rules of the Eurozone to promote growth in the periphery. President Macron of France has already tabled a weak version of the latter, while numerous left proposals have circulated for the creation of a two-speed Europe – always of course opposed by the unelected Commission and the German government.
And here is where the Italian left has powerful allies, should it want them, in the beleaguered social democratic, green, radical left and left nationalist parties of Europe.
The elements of a pan-European left programme would not be difficult to enumerate. They are:
– Revise the Maastricht Treaty rules, allowing governments to breach the 3 per cent deficit target in order to invest in infrastructure.
– Widen ECB quantitative easing to target growth in the periphery and to incentivise Germany and other north European states to borrow and spend, rather than to promote EU-wide stagnation.
– A new treaty to replace Lisbon, which positively promotes state intervention, aid and ownership of key industries to build a high-welfare, high wage model across Europe.
– A major crackdown on offshore finance, drawing trillions worth of capital out of the tax havens into the real economy in Europe.
– A Europe-wide labour market policy aimed at attracting high-skilled labour, distributing refugees and deterring low-skilled economic migration. For clarity, that means immigration controls at the borders of Europe and an evening-up of minimum wages and social welfare benefits across the EU27.
Who’s against all that? The centre-right for sure, and also the neo-right of eastern Europe. Unfortunately, up until now, it’s been the social democrats and some green parties too, who’ve essentially drunk the Kool Aid of free market economics.
As a result, clearly not all countries would sign up to a Europe that enacted the five bullet points above. However, that is no tragedy if, as a result of a new treaty, a two-speed Europe emerges, leaving the semi-democracies and outright xenophobes of eastern Europe to a second tier.
I think, however, it is possible to get the Austrian and French social democrats to back such a plan, and – if they are prepared to turn their attention to it – Jeremy Corbyn’s Labour and the ruling Syriza party in Greece, which is looking and acting more like a social democratic than a radical left party right now. In addition, most of the European United Left–Nordic Green Left (GUE-NGL – the radical left group in the European Parliament) could sign up to this, and such Green parties prepared to wake up and smell the organic coffee of a revolt against the status quo.
I’ve advocated in these pages before, that the Party of European Socialists, GUE-NGL and any other takers should stand a united Spitzenkandidat in the 2019 European Parliament elections. But the Italian crisis, if it kicks off in Autumn 2018, brings forward the crunch point.
Unless the Italian social democrats a) rip-up the Lisbon Treaty inside their heads and b) seek a pan-European front to force open the Lisbon and Maastricht settlements they will experience outright political extinction.
What does the crisis mean for the British Brexit process? Directly, very little – other than it might boost Boris Johnson’s chances of playing the EU27 off against each other before March 2019. However, if Cottarelli remains PM that is unlikely.
Indirectly, however, it will boost two arguments that I, and others, have been making on the left. First, that the psychological attachment of British centrism to the EU project was misplaced; that seeking a semi-detached relationship with the EU and with the eurozone was always the right thing for a social democratic party in Britain to do. The Remain camp, once it becomes the Rejoin movement, will have to face this argument squarely.
Second, that we need a Europe-wide realignment on the left, bringing together the energy and ingenuity of movements like Podemos, the Portugese Bloco de Esquerda and left nationalists like Sinn Fein with those inside social democracy who want to reform the EU towards a new, high-growth, high-welfare model – for example Christian Kern in Austria, Jeremy Corbyn in the UK and Benoît Hamon in France.
Having argued for such a project in principle, now is the time to launch it. Before the rentree, the leaders of every left social democratic, green, socialist and left-nationalist party in Europe should convene a decision making conference to launch a new, left alternative for this continent. As a massive up-yours to Salvini and his racists, we should hold it in Milan. La Scala holds about 2,000 people and there would be good acoustics for the singing, whether it whether it be the “Internationale” or the “Ode to Joy”.
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