Saturday, June 30, 2018
Last Days of the European Union?
Greece is on the verge of settling the repayment of its bailout loans from the International Monetary Fund, European banks and other creditors. The bailout program is scheduled to end on August 21, 2018, but the creditors agreed June 22 to grant an additional ten years to repay nearly 100 billion euros ($116 billion) and to defer interest payments and amortization for another ten years, to 2033. In return, Greece will have to endure tight controls by its creditors to make sure the nation does not revert to its previous profligate behavior. It is already enacting yet another round of painful reforms demanded by its creditors—including a 13th round of pension cuts.
During the years Greece was sustained by a series of three bailouts, it was apparent if one of those failed, Greece would be out of the European Union and could well result in the end of the EU. Now the likelihood of Greece being out of the EU and perhaps the dissolution of the EU is no longer viewed as a concern. But a similar threat has arisen from another country, Italy.
In the recent Italian election, two minor parties regarded as no real threat to the nation's mainline parties did surprisingly well for the seats up for election among the 900 members in the two houses of parliament. When the president chooses someone to be the next prime minister, each house must approve. The 5-Star Party and the League got about half of the votes among the six parties in the election. Those two parties have both spoken in favor of Italy withdrawing from the EU, which they regard as a failed experiment.
When the president picked someone to form a new government, he deliberately avoided choosing someone from either the 5-Star or the League. This created a furor since he was single-handedly eliminating the people's most popular choices in the election; he was accused of usurping the popular will expressed in the March parliamentary elections. Clearly, this tactic was not going to win approval of the two houses of Parliament. So he would have to find another candidate. Both the 5-Star Movement and the League spent weeks trying to find a mutually acceptable candidate, finally agreeing on Guiseppe Conte, and then persuaded President Matarella to appoint him prime minister. Conte is a law professor, unaffiliated with any party and has no political experience.
The 5-Star Movement and the League have given voice to the many who are disenchanted with the mainstream political parties for their continuing failure to provide economic growth. Italy's economy is 5 percent smaller than it was in 2001, the only EU country other than Greece whose economy has shrunk over that period. Nearly 60% of unemployed Italians have been jobless for at least a year, and about 5 million live in absolute poverty (defined as being unable to afford basic goods and services)—nearly double the number of a decade ago. Last year the Italian economy grew a puny 1.5 percent, the fastest in six years, but that growth is already slowing, and wages haven't risen. Almost 30 percent of Italians age 20 to 34 aren't working, studying, or in a training program, more than any other EU country. And about half of that age group live with their parents, more than double the European average.
“Italy is collapsing and yet nothing has changed in this country for at least thirty years,” said Carlo Gaetani, an engineer. He says with conviction that he voted for 5-Star because it is “our last hope.” Apparently a lot of other young people agree because they are flocking to 5-Star and the League. In just the three months since the March election, the League's popularity has grown from 17% to 28%.
That the upsurge in popularity of 5-Star and the League is due to younger voters is shown by recent polls. In the March election, about 35% of Italians under age 35 voted for those two parties combined. About 43% of Italians over 65 voted for the old mainline center-right and center-left parties, while only 28% voted as the young Italians did.
Economic growth is one of the two major political issues in Italy. The other is immigration. Italy has taken in 750,000 immigrants. The EU cannot solve Italy's immigration problem; other EU members have problems with immigrants, too, and no law or policy on this subject will solve this EU-wide problem. Lack of EU help for Italy's immigrant problem has turned Italians towards anti-EU populism. 5-Star became Italy's largest party by running a strong anti-EU and anti-immigration campaign. This is likely to continue with an unstoppable rise in populism and the growing political power of younger voters. Italy has changed from a very pro-EU country to a strongly anti-EU country, and all the ingredients are at hand for this to continue.
It is likely, therefore, that a populist leader will one day be running the Italian government not at some distant point in time but perhaps quite soon. 5-Star and the League have solid majorities in both houses of Parliament. If Conte stumbles as prime minister, he might fail a vote of confidence, which would require a new election. That would almost certainly result in a victory for 5-Star or the League, most likely for Matteo Salvini, who is the real power in the League. And the first thing the government will then do is vote to withdraw from the EU. If Conte does not stumble and is not thrown out by a Parliamentary vote of no confidence, he will sooner or later have to face an election against 5-Star and the League, whose populist appeal to the voters will probably have grown even greater than it is today.
In 2011 Italian Prime Minister Mario Monte issued a statement describing a closed-door conference with [French] President Sarkozy and [Angela] Merkel in Strasbourg on November 24, 2011. It said that those two had declared Italy the decisive battleground in the euro-zone crisis and that “they are aware that a collapse of Italy would inevitably lead to the end of the euro.” Of course that was long before immigration emerged as a problem, but there were other reasons, which I explained in my book, and which still exist, for Italy to become crucial for the existence of the EU. Nevertheless, with this perspective, it is interesting that Chancellor Merkel on June 28, 2018, told the German parliament, “Europe faces many challenges, but that of migration could become the make-or-break one for the EU.”