Can Trump Loving Italians Make Quitaly a 2017 Reality?
“The problem with Europe is Europe,” declared Italy’s finance minister, Pier Carlo Padoan, at the Davos World Economic Forum in Switzerland. Meanwhile, after meeting in Koblenz, Germany, right-wing Matteo Salvini, leader of Italy’s Northern League, smiled triumphantly, posing with other European nationalist politicians. He’d agree with Padoan, but he’d make Italy great again by scrapping the Euro-which he calls “a failed currency”.
He and his fellow European right-wing party members, including Marine Le Pen, applaud Trump’s victory. They’re trying to ride his coattails, aping his tactics. Will tweets, fake news, and disdain for the press twist European public sentiment toward their nationalist causes?
Before taking office, Trump’s team rang EU officials, asking which country would quit the union next. A worst-case scenario answer for the EU’s future is Italy, with far more devastating consequences than Brexit. With currency and debt intertwined with Europe, Quitaly could cripple the European Union.
Tally the mounting financial pressures on Italians, adding the way EU membership taxes them, and it’s tough to make a convincing argument for Italy remaining loyal to the single currency market. Italy’s being sorely tested, far more than the UK and the US when you compare unemployment and GDP rates. UK and US voters reacted to shrinking industrial jobs, immigration and a populist sentiment of “taking their country back”. They'd find Italy’s massive migrant crisis dwarfs any immigration issues the UK or US has.
An avalanche of issues that EU can’t help with
Italians are famous for their hyperbole, for dramatic hand gestures and passionate tempers but lately the litany of challenges Italy is forced to bear seems biblical, rivalling disaster films. Headlines feature an icy scene of catastrophe as surviving puppies are rescued from a hotel crushed by an avalanche and school children are killed in a fiery bus accident. Deadly earthquakes that have already destroyed medieval villages signal impending doom, expected to return at any moment. Nature seems to collude with human folly to push Italy into operatic tragedy as the world’s oldest bank awaits rescue.
The Finance minister described Italy’s rejection of constitutional reforms in the December vote that prompted the resignation of Prime Minister Matteo Renzi as part of what he sees as “a crisis”. He has no hope that EU institutions have the ability to resolve the myriad economic constraints EU membership saddles Italy with. This is the scene as the curtain opens on the Trump era; European nationalists will exploit these events in their own power grab.
“Bail- in lite”: Flexibly saving the world’s oldest bank
The European Commission must approve the newest rescue plan to save Monte dei Paschi di Siena, the world’s oldest bank, which has, for years, been sinking under bad loans and poor profits. The large, venerable bank needs to find €8.8bn in new capital to balance its books. EU law mandates that “Bail-in” rules force private investors to pay to save banks before taxpayers’ funds are tapped. This would backfire in Italy, so it’s been softened: customers who purchased risky bonds can be compensated, claiming they were mis-sold. Taking a hard line these days risks an Italian revolution that would guarantee an anti-EU political party succeeds.
Like all other lenders, Italy’s largest bank Unicredit, was caught in the cycle of debt, structural problems and weak growth. Needing to find €13bn it slashed 14,000 jobs just before Christmas and begged investors for money for the fourth time since 2008. Monte dei Paschi announced it will cut 2,450 jobs and close 500 branches over the next three years.
Last July economists predicted that the Italian banks would present EU’s next crisis, as the mounting debts would need to be dealt with. Putting off reckoning day only made it more painful. By January, DBRS, a Canadian rating agency downgraded Italy’s sovereign debt, so banks need to put up an additional €5bn or so as collateral for loans from the European Central Bank.
EU’s unpopular austerity
The EU Commission is putting further pressure on Italy, requesting the government find €3.4bn which is 0.2% of GDP in order to avoid being fined for having the second highest budget deficit in the EU at 133% of GDP. Finance minister Padoan shrugged this off saying that with planned privatisations he expected growth to increase in 2017. Alas, a week later, the International Monetary Fund cut Italy’s projected 2017 growth from 0.9% to 0.7%, the same rate seen in 2016. In order to meet obligations, the government will have to raise taxes, which will further cut into the hoped-for growth. The Italians are negotiating to have the costs of the migrant crisis and recent earthquakes subtracted from EU’s economic expectations.
Italy’s economy has shrunk by around 10% since 2007, with general unemployment of around 12%. Youth unemployment of around 40% indicates a tragic lost generation. Surprisingly, Italy has been remarkably generous in providing for the 24,940 migrants it pulled from the sea in 2016 alone. They’ve been unable to persuade EU to come up with the funds to compensate their efforts to handle more than their fair share of the migrants, which finance minister Padoan says worries him from a humanitarian, security and financial perspective. This volatile issue is a powder keg that nationalists can ignite with anti-immigrant agenda. EU fails to shields its poorer southern members from bearing the brunt of the Mediterranean migrant crisis at its own peril.
Fake news and populism: A powerful pair of punches
The populism that let Trump dominate the world stage is growing in Italy, fueled by the same fake news that was influential in the deciding the US election. Italy’s Prime Minister Renzi said he feared that fake news would put voters against him in his country’s referendum vote when it was revealed that misinformation helped Donald Trump win. Renzi may well have lost due to fake news, since, according to fact checking site Pagella Politica, half of the most popular news stories related to the referendum on social media weren’t real news.
Italian elections aren’t due until May of 2018, but populist parties such as The Five Star and The Northern League are delighted by the chaos and calamity, hoping to whip up support while the momentum of Trump and Brexit are high. They’ll push for early elections where they stand a much better chance of winning. Salvini’s 2017 motto is: “Happy Wind of Change”.
Populism is “the biggest threat to the European Union” says Ray Dalio, the head of Bridgewater Associates, the world’s largest hedge fund. He’s noted today’s populism is on a scale not seen since the 1930s, admitting that it “frightens” him “because it can lead to crisis”. A country already inundated with crisis, Italy’s already shown its dissatisfaction with its leadership the same way that British voters have. If leaving the EU gets onto their ballot this year, a requiem for the critically wounded Eurozone could be the next catastrophic scene coming out of Italy.