EU austerity and the false promises of the Italian government: confronting two adversaries

Luigi Di Maio, deputy prime minister of Italy and leader of the Five Star Movement

Recently, the European Commission rejected the Italian draft budget and a confrontation between the EU and Italy is imminent. How should the left react? Alfonso Gianni writes.

As was entirely predictable, the European Commission’s reaction was not long in coming,. Hardly had Finance Minister Tria sent a letter proposing a dialogue between the Italian government and the EU authorities about budgetary choices, when Dombrovskis and Moscovici, in the name of the European Commission, let their opinion be known without mincing words. Their letter was broadly publicised although its circulation should properly have been restricted. But that is very difficult at those levels. The key phrase is that ‘the budget goals revised by Italy seem to point to a significant deviation from the fiscal path recommended by the Council’. In essence, the conspicuous step backward taken by the 5-Star/League government in planning the deficit/GDP ratio did not satisfy the Commission. At the first sign of turbulence in the markets and negative reception of the Italian text on the part of the EU authorities, the contracting parties on the government side suddenly backed down, deciding not to keep the 2.4% for the full three years but to implement a timed decrease, providing for 2.1% in 2020 and 1.8% in 2021. But it was clear that this would not be enough for the EU censors, in part because what counts in these cases is the provision for the first year, that is 2019, which was left at the 2.4% level.

From here on there was a clear-cut intrusion on the part of the EU into the discussion that still is to be formally opened in the budget session of the Italian Parliament. Moreover, the so-called European rules derived from the Fiscal Compact require our country to undertake a correction in structural terms of 0.6% of GDP, while the totality of the announced measures, even in its ostentatiously corrected formulation, would worsen the structural balance by 0.8 points. The European Commission’s letter is not a simple warning but the beginning of an escalation that can lead to initiating infringement proceedings. Furthermore, the public letter also constitutes an assist to the rating agencies – although they do not need added stimuli to do damage – which already downgraded the financial reliability of the Italian state, which will increase the spread and of the cost of debt, as well as the flight of investors from Italy.

This situation is worsened by the end of Quantitative Easing, even if the ECB has issued assurances that rates will not increase and even if it keeps reinvesting capital freed up by maturing assets ‘for as long as necessary’. If Italy is certainly a country too big to fail the other side of the coin is also true: that it is too big to be saved. Thus no particular benevolence on the part of the ECB is to be expected, whoever the new president is who follows Mario Draghi at the end of his mandate on 31 October 2019.

Italy’s true weak point is not so much, and not only, located in the area of high debt, beyond 130%, as it is in the asphyxiating character of growth. The figures forecasted by our government are not considered realistic, and not only be the EU’s mastiffs. 1.5% for the next year, followed by 1.6% for the next and then a retreat to 1.4% in 2021 seem a mirage in a, not only Italian, context of growth percentages resembling telephone prefixes beginning with zero. Recently released data on the collapse of industrial production would incline us to pessimism. Thus, to reduce the deficit/GDP ratio by changing the denominator of the fraction is a vain hope. To do so would require a proper industrial policy, an economic policy aimed at public investments in innovative sectors with a high rate of employment. But of this there is no trace, despite Tria’s repeated appeals to the need for growth. The Keynesianism that even in some sectors of the alternative left is credited to the government – for example in recent statements by Stefano Fassina, a LEU (Liberi e Uguali) deputy – is mere illusion. Actually, Keynesianism is based not only on deficit spending but on its quality, not only on redistribution but on the creation of new forms of social wealth.

 

Redistribution

Moreover, if we analyse the elements so far made known that are to sustain the government’s economic manoeuvre we see that even on the purely redistributive level there is much that is doubtful. The citizen’s income promised is nothing of the sort – not only because it involves simply an extension of the income for social inclusion already enacted by Renzi and Gentiloni but because, besides its conditions, which include the need to accept at least one of three job offers on pain of losing the income, Di Maio has also come up with a ‘moral imperative’ imposed on the recipients according to which they cannot use the income for expenses judged to be luxuries. This means we have arrived at the ethical state, the antechamber of a regime, and income that becomes subjugation. A presumed ethics glaringly contradicted by the reintroduction of a generous tax pardon, called a ‘peace’. An unemployed person’s income is thus to be cut off if he or she reject job opportunities offered by rundown employment centres; in fact (as Di Maio said), the unemployed person, in the event of a misrepresentation of his/her own condition, would risk six year of imprisonment. While tax evaders, especially the biggest ones, are let off the hook for the umpteenth time.

As far as the much-trumpeted Quota 100 for pensions is concerned, this only applies in the case of 62 years of age and 38 years of contributions paid,[1] but it is the years of contribution that remain fixed, so that in reality many will have to retire after 62. Moreover, different restrictions penalise those with precarious employment and in general women, that is, the weakest segments of the labour market, while the pensions should be strictly related  to contributions. This would mean a considerable reduction in the monthly pensions.

On the other hand, we need only cast a glance at the government ‘contract’ to understand that an improvement in pensions  and the social inclusion income are both incompatible with the reduction of tax revenue that is the inevitable consequence of the introduction of a flat tax. The latter has become a sort of ‘trial tax’, that is, taxation with three rates, but if it is passed the measure in its entirety, with a final rate considerably lower than the maximum of the present system, the loss in state revenue would be quite heavy, especially seeing as there is no trace of combating tax evasion in the government’s programme.

Where can the resources be found to keep the promises of the 5-Star/League?  The first figures published in this respect forecast 5 billion less for traditional welfare, such as healthcare and education. In substance, citizen’s income – which is not citizen’s income but rather a subjugation income – will largely be paid out of the pockets of the contributors who are not in a position to evade, in other words, the workers. What is involved therefore is a downward shift of incomes, leaving untouched the top economic categories. This means a version of capitalism that is not even that charitable.

 

Conclusion

For all these reasons, an alternative beyond the blunt austerity of the EU and the populist demagoguery of the 5-Star/League government needs to be built. The capacity to reconstruct the Italian left , and to immediately mount an intransigent but intelligent and effective opposition to this government, will be measured in terms of this alternative. At the same time, this whole affair has forcefully posed again the issue of what to do in the EU. An Italexit would have consequences still more disastrous, particularly for the popular strata of our country. Slavish observance of the European treaties with the contours of the measures adopted in the current Great Recession, such as the Fiscal Compact, involves consequences not much different internally, if less explosive, but with more prolonged effect while also leading to a possible implosion of European unity.

The positive example of resistance has come from Greece and Portugal. Certainly, they are smaller countries than Italy, but their experience is anything but insignificant. Regarding Portugal, Boaventura de Sousa Santos, one of the key intellectuals of the alter-globalist movement, has recently emphasised that what has happened in his country, after very harsh Memoranda, is not the result of a miracle but the capacity of the socialist government, supported by Bloco de Esquerda, to pursue an almost artisanal process of negotiating every point with the EU. He rightly calls all this ‘the return of politics’. If Italy, instead of throwing itself into the arms of Visegrad, were to construct together with Greece, Spain, Portugal, the Mediterranean South, a line of resistance, then the perspectives of combating the pincers of either Maastricht or the return to small fatherlands predicated on various nationalism might achieve concrete results. Instead of this, to contemplate the creation of a sort of anti-sovereignty front running from Macron to Tsipras would mean reinforcing the pincers, putting together oppressors and oppressed. Naturally, we would have to have a government of another colour and politics and in Europe the confirmation in the next elections of a consistent left line-up. It is anything but simple, but it is the only thing worth trying.

 

This article was first published on the Transform Europe website

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[1]                     100 represents the sum of age of the beneficiary and years of contributions paid in. The current Fornero system stipulates considerably higher retirement ages, which are set to gradually increase, and more years of contribution, with the latter set to gradually be unusable in justifying retirement, making advanced age the only criterion allowing retirement. This explains the attraction Quota 100 has for people.

 


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