WeeklyWorker

21.02.2019
European Commission: determined not to compromise the euro

Recession and xenophobia

Toby Abse reports on the latest shenanigans of the right-populist government - and the stirrings of organised working class opposition

Italy has now entered its third recession in a decade. The first and most dramatic of these came as a direct consequence of the global financial crisis of 2008. The second resulted from the euro zone crisis of 2011, and the hard-line austerity policies pursued by Mario Monti’s technocratic government that followed in its wake. Significantly, however, the latest one coincides with the first two full quarters of Giuseppe Conte’s M5S/Legagovernment (July-September and October-December 2018) - a government which came into office on June 1 2018.

Before the second set of negative growth figures - those for the October-December period - were announced on January 31, M5S deputy prime minister Luigi Di Maio was making absurd statements about a new Italian boom based on the digital economy, which would parallel the Italian ‘Economic Miracle’ of 1958-63, and a number of leading M5S and Lega ministers had expressed extreme irritation with economics minister Giovanni Tria for his relatively cautious warning about ‘stagnation’, rather than contraction, in the Italian economy. Now, the right-populist government seeks to put much of the blame for Italy’s recession on external factors; the rest, of course, is placed on its immediate predecessors, the Partito Democratico-led government of Matteo Renzi and Paolo Gentiloni.

Since the latter contention has about as much credibility as David Cameron persistently blaming the world economic crisis on reckless overspending by Gordon Brown, I will confine my detailed analysis to the former claim.1 It is, of course, true that the growth rates of the euro zone as a whole are weakening: the overall figures for the last two quarters of 2018 were both a miserable 0.2% (compared with 0.7% for the comparable months in 2017). The German economy is slowing down, narrowly escaping recession in the second half of last year, while there is slower growth in China and the beginnings of a US-China trade war are having some negative impact (even if some might argue that as yet this is more to do with widespread worries about the future than the direct effect of tariffs in the present).

However, despite the superficial attraction of this line of argument, emphasising global trends, these claims by Italian governmental apologists are not quite as convincing an explanation as they might seem at first sight. For example, it is noticeable that Italian exports actually increased in the last quarter of 2018, while internal demand contracted. There is now a credit crunch in Italy, which is bound to reduce disposable income and impact negatively on production for the domestic market. Whilst the populist demagogues made light of the increase in the ‘Spread’ - the gap between the interest rates on German and Italian government bonds - during the summer and autumn of 2018, an increase in the interest rates on Italian sovereign debt (much of which is held, in the form of government bonds, by Italian banks) led to a rise in domestic interest rates on both mortgages and loans to businesses. Although the ‘Spread’ has gone down below the 300 mark, around which it was floating during the months when the populists were at loggerheads with the European Commission over the so-called ‘People’s Budget’, the damage was already being done.2

Moreover, since the euro zone as a whole is not in recession, the European Central Bank - which decided months ago to abandon the quantitative easing that its director, Mario Draghi, had pursued for some years in order to stabilise the euro zone as a whole - is not likely to pursue a renewed expansionary policy purely for the benefit of Italy. That is especially so, given the German bankers’ grumbles about Draghi persisting with such a broadly Keynesian policy for as long as he did.3 In passing, it has to be pointed out that the recent collapse of the Genovese Savings Bank has drawn the ECB into paying more attention to the weaknesses of the Italian banking system - not exactly good news from the Italian government’s point of view, particularly if it is forced into a second bail-out of the Monte de Paschi di Siena Bank.

People’s Budget

Italy’s return to recession is important, not just because it may eventually erode the current consensus behind the M5S/Legagovernment4, but also because of its relevance to the implementation of the ‘People’s Budget’. The long-running feud between the Italian populist government and the European Commission over the ‘People’s Budget’5 was eventually resolved in early December, and the budget legislation was finally, and very hastily, passed by both houses of the Italian parliament in the closing days of 2018, reaching president Sergio Mattarella for signature a few hours before the new year’s eve deadline.

Whilst Tria, as an academic economist without any strong party allegiance, had long advised his political masters that it would be sensible to reach a compromise - rather than to risk the Commission starting an infraction procedure against Italy that could potentially put the Italian economy under external control for years - Matteo Salvini and Luigi Di Maio derive far too much pleasure from hurling crude insults at the commissioners to pay much attention. Eventually, M5S premier Giuseppe Conte, whose earlier career as an academic lawyer allowed him to see the merit of negotiation, adopted Tria’s line, without giving the economist any credit for it, and belatedly persuaded the two demagogues to calm down.

The Italian government continued to make a fetish of the exact figure of their projected budget deficit, reducing it to 2.04% from the contentious 2.4%, instead of going down to 2% - or ideally 1.9%, as the Commission would have preferred. Given M5S’s cavalier approach to figures, which makes UK Brexiteers look like pedantic accountants, I have no hesitation in suggesting that the figure of 2.04% was plucked out of thin air. Nonetheless, the end result was effectively a climbdown, knocking billions off the sums available for the Lega’s new pension scheme and the M5S ‘Citizens’ Income’ project.

Since the December compromise was based on a projected 2019 growth rate in the Italian economy of at least 1%, and the latest - probably optimistic - Bank of Italy forecast is 0.6% (whilst on February 6 the European Commission lowered its own forecast to a pitiful 0.2%), it is more than likely that by the summer the government will either have to introduce a second, emergency, mini-budget6 or risk another showdown with the Commission, since the size of both the budget deficit and the national debt are related in percentage terms to the size of Italy’s GDP.7 However, Di Maio and Salvini seem totally incapable of thinking beyond the May 26 European elections, and just hope that their pet schemes will yield a rapid electoral dividend, even if they prove financially unsustainable in the longer run. In order to square the circle for the current calendar year, it looks as if the ‘Citizens’ Income’ will only be paid in March at the very earliest, whilst those who already have the requisite qualifications for the improved pension will have to wait some months before actually receiving any money, and - needless to say, given the cost to the government - those in the state sector will have to wait longer than retirees in private-sector employment.

The fundamental lack of seriousness behind the ‘People’s Budget’ became glaringly obvious during the panic-stricken parliamentary proceedings in late December. Every now and then, there had to be an unexpected break in the sittings, so that a new text could literally be pasted and rapidly photocopied on parliamentary premises, in a bid to correct blatant grammatical and arithmetical errors. Even more farcically, some errors had to be corrected verbally, as some portions of the text had been read out to the parliamentarians, since time constraints prevented the speedy creation of hard copies. Needless to say, there was no proper debate, no time to take amendments and many parliamentarians subsequently admitted they had not even been able to read, let alone understand, what they were voting on.

Unlike Westminster, with its extremely laid-back approach to Brexit, the Italian parliament’s 2018 Christmas break was reduced to December 25-26, and sittings took place on both Saturdays and Sundays, sometimes into the early hours - which gave rise to widely publicised photographs of legislators fast asleep. The centre-left PD senators attempted to bring a legal action against the government for not allowing a proper debate, but the judiciary was not inclined to annul the budget. Roberto Fico, the M5S speaker of the Chamber of Deputies, was slightly embarrassed, given his acute awareness of the very numerous occasions on which M5S deputies had vociferously complained about the PD using parliamentary guillotines or votes of confidence in the previous 2013-18 legislature to push through bills without much discussion. He was, if anything, even more authoritarian than his Forza Italia counterpart in the upper house.

Social spending

In view of the tendency of some commentators on the ‘People’s Budget’ (eg, The Guardian’s Larry Elliott) to take the side of the populists and demonise the European Commission,8 and of others (eg, most journalists writing for Repubblica and Corriere della Sera in Italy, and the Financial Times and The Economist in the UK) to take an orthodox, neoliberal, pro-austerity line on social spending, something needs to be said about the substance of the ‘People’s Budget’ - in so far as we have detail on the main measures proposed. It should go without saying that certain measures - like the so-called ‘fiscal peace’ (ie, tax amnesty), and the flat tax, the latter of which so far only applies to self-employed professionals (eg, lawyers and dentists) - are thoroughly regressive and reactionary, reducing state revenue and increasing the gap between rich and poor.9

The new pension scheme - the so-called Quota 100 - is good as far as it goes and partially (I would emphasise, extremely partially) reverses the appalling Fornero law of 2012, with its ever-increasing retirement age (currently 67, but linked to the average expectation of life). Quota 100 is automatically reached by anybody aged 62 who has paid 38 years of pension contributions. However, those of the relevant age but without the requisite years of contribution will not benefit. On the whole the beneficiaries will be male northerners with a record of continuous legal employment in large workplaces, whereas women are more likely to have had their careers interrupted by childcare and other family responsibilities, and will thus fail to clock up the required 38 years.

Obviously anybody, male or female, who has suffered long periods of unemployment will not qualify. Unemployment is more prevalent in the south, as is the tendency of small employers to dodge pension contributions by paying workers cash in hand.10 To take a classic example, it is unlikely that a 62-year-old building worker will have 38 years’ worth of contributions, given the probability both of periods of unemployment and of periods working for unscrupulous employers in the black economy, which is particularly prevalent in the construction industry.

The ‘Citizens’ Income’ scheme is even more complicated. The one thing it certainly ought not to be described as is the universal basic income (UBI) - so beloved of both autonomists and some sectors of the ‘libertarian’ right. Whilst one variant of the scheme is directed at those past official retirement age in the form of a ‘Citizens’ Pension’, which arguably could be seen as a type of UBI, for the majority of recipients the ‘Citizens’ Income’ is really a form of jobseeker’s allowance. Anybody who turns down three offers of allegedly suitable work will lose the benefit. The first job offer has to be within 100 kilometres of the recipient’s official place of residence, the second can be anywhere within 250 kilometres, but the third can be anywhere in Italy!11 If the recipient has not gained employment within 18 months, the benefit lapses for a month, during which time a detailed assessment will be made to determine whether the person still qualifies under the rules.

Whilst M5S propaganda originally, and very misleadingly, spoke of a ‘Citizens’ Income’ of €780 per month, it has become clear in the course of time that the basic payment is €500 per month, with a maximum of €280 being allocated for rent if the recipient is a tenant. M5S leader Di Maio proclaimed in September 2018 that the ‘Citizens’ Income’ was designed to eliminate ‘absolute poverty’. The Ufficio Parlamentare di Bilancio (roughly equivalent to the UK Office for Budget Responsibility) has calculated that 6.9% of all Italian households are in ‘absolute poverty’, yet only 5% would qualify for ‘Citizens’ Income’!

And there is a systematic discrimination against foreigners, who are required to prove 10 years’ residence in Italy, the last two of which must be continuous.12 The residence qualification also discriminates against Italian-born homeless people in ‘absolute poverty’ - presumably this is considered a small price to pay to try and get around EU rules about overt discrimination on the basis of nationality or ethnicity. The marked similarity with long-standing proposals of the French Front National to confine welfare benefits to ‘real’ French people should be obvious, as should the similarity with various expedients adopted by individual Lega mayors to deprive the children of immigrants of the right to free school meals or free transport on school buses.

The injustices of the budget proposals discussed above gave rise to a 200,000-strong trade union demonstration in Rome’s Piazza San Giovanni on February 9. This was the largest such mobilisation for some years, and was the product of renewed unity between the more ‘moderate’ CISL and UIL federations and the more militant, leftwing CGIL - the latter having often been left isolated in opposition to anti-working class policies pursued by the PD-led government. It is also worth noting that Susanna Camusso (CGIL general secretary) has been succeeded by Maurizio Landini, the more leftwing of the two contenders for the post, and, although he had been previously criticised for allegedly favouring M5S over the PD, it is now quite clear that he is at least equally opposed to the new government.

Failings

Economic problems have most certainly contributed to the increase in the degree of xenophobia expressed by M5S and the Lega. Although the populist government had been far from friendly towards the French in general, and president Emmanuel Macron in particular, ever since taking office, the recent rapid deterioration in relations between the two states seems to have coincided with Italy’s plunge into recession - in other words, xenophobia seems to have been used as a deliberate distraction from the domestic failings of M5S and the Lega.

For months, Salvini had taken the lead in attacking the French over issues that were broadly related to his role as minister of the interior - particularly over immigration policy and the continuing presence on French soil of Italians who had been involved in the Red Brigades or other 1970s terrorist groups.13 But in early February Di Maio decided to outbid him. M5S leaders Di Maio and Di Battista travelled to France to meet some representatives of the gilets jaunes, to whom Di Maio had already given some verbal support a few weeks earlier. Whilst Di Maio has attempted to justify himself by claiming he was acting as M5S leader rather than as deputy prime minister of Italy during this visit to French soil, and that he is merely seeking to build a transnational alliance for the European elections,14 his choice of interlocutors was highly provocative. This applied in particular to the prioritisation of Christophe Chalençon, who has advocated a military coup against Macron, as well as making more general comments in favour of ‘civil war’.

Given the involvement of the gilets jaunes in serious street violence in the heart of Paris, any meeting of an Italian deputy premier with their self-proclaimed leaders would have been bound to annoy the French president, but Di Maio seems to have gone out of his way to pick one of the most extreme hard-liners that this confused and amorphous movement has produced. Macron’s immediate response was to recall the French ambassador from Rome on February 7 - the first time this has happened since June 1940, when Italy declared war on France. The French foreign office explained the recall of the ambassador by saying:

France has been the target of repeated, baseless attacks and outrageous statements. Having disagreements is one thing, but manipulating the relationship is another. All of these actions are creating a serious situation, which is raising questions about the Italian government’s intentions towards France.15

Creating the worst crisis between the two neighbouring countries since 1945 was not a rational course of action on Di Maio’s part, given that Italy does an enormous amount of trade with France and runs a considerable surplus in such transactions - in marked contrast to the balance of its trade with Germany, in which the stronger northern economy is very clearly the dominant partner.

M5S’s determination to cancel the building of the TAV (the high-speed train link between Turin and Lyon) is bound to further aggravate the French, and it looks as if it could lead to infraction proceedings by the European Commission, which has already given Italy some of the funds for this international infrastructure project. Moreover, in the long dispute with the EU commission over the budget, the French Socialist Party commissioner, Pierre Moscovici, had been far more sympathetic to the Italians than his hard-line Latvian neoliberal colleague Valdis Dombrovskis. So national self-interest should have suggested that annoying the French was not the best way to avoid a future infraction procedure if Italy’s stagnant or falling GDP creates more problems with the budget later this year.

The hostile reception given to prime minister Giuseppe Conte in the European parliament on February 12 is an indication of Italy’s increasing isolation in the European context, since the European People’s Party, the European Socialists and the European Liberals were united in their attacks on the Italian premier, who only gained non-Italian applause from the extreme Europhobic, rightwing factions in the Assembly. The most cutting remark was made by the president of the European Liberals, Guy Verhofstadt, who called Conte - to his face - “a puppet moved by Di Maio and Salvini”, which, of course, is a pretty accurate assessment of the premier’s relationship with his two nominal deputies.16 It is widely believed that Verhofstadt was acting as a direct surrogate for Macron, who has agreed that the contingent of En Marche MEPs expected to be elected in May 2019 will join the European Liberal Group - an addition which is likely to increase the relative weight of the Liberals in the European parliament at a time when the Socialists and the People’s Party are both forecast to lose seats.

By the time Conte addressed the European parliament, Macron had given up expecting a formal apology from him17 on behalf of Di Maio and Salvini - Macron’s initial condition for the resumption of normal diplomatic relations, as the French had explained to Italian foreign minister Enzo Moavero Milanesi. Both Mattarella and Moavero were extremely anxious to end the diplomatic spat with France as quickly as possible, but could not persuade the obstinate populist to express any regret, however hypocritically.18

Eventually, on February 15, the French ambassador was sent back to Rome, and almost as soon as he arrived in the Italian capital went to talk to Mattarella in the Quirinale presidential palace, assuring him that the French president wanted him to make a state visit to Paris in the near future - in effect indicating that Mattarella was now the only Italian leader with whom Macron felt he could have a rational discussion.

Notes

1. Whilst Italy’s GDP never regained the level it had reached before the 2008 recession, the period between January 2014 and June 2018 - roughly corresponding to the period of the governments of Renzi and Gentiloni - was one of sustained recovery with continuous growth. Obviously the expansionary policy pursued by Mario Draghi at the European Central Bank may well have played an important role, but the PD-led governments were successful in raising GDP - however negative they may have been in further tilting the balance against labour and towards capital.

2. Whilst the ‘Spread’ had been reduced to more manageable levels in December 2018-January 2019, it remains consistently higher than it was during the period of Renzi and Gentiloni’s premierships.

3. Draghi’s famous ‘whatever it takes’ comment in reaction to the euro zone crisis spreading beyond Greece towards Italy did not go down well with German ordo-liberals. Such conflicts indicate the degree of exaggeration and oversimplification that marks Costas Lapavitsas’s polemical account of the euro zone’s mechanisms in his The left case against the EU.

4. A Demos poll, carried out on January 28-20 gave the Lega 33.7% support (up from 17.4% in the March 2018 general election) and M5S 24.9% (down from 32.7%). Although the Lega now appears much stronger than M5S, the combined total of the two parties, at 58.6%, is more than 8% up on the general election.

5. See my article, ‘Italy’s government provoking a clash with EU’ (Weekly Worker October 25 2018), for further details.

6. This would involve finally implementing the frozen increases in VAT - which successive Italian governments have understandably delayed for years, despite promises made to fulfil the notorious neoliberal ‘fiscal compact’ embedded in the Italian constitution during the Monti era, or cutting expenditure either on their new pet projects or on normal state expenditure on health, education, etc.

7. It is the size of the national debt - generally considered the third largest in the world - that makes the Commission take a harsher view of Italy’s budget deficit than those of a country like France.

8. Elliott’s assessment is rather distorted by his ardent support for Lexit.

9. Both these measures were devised by the Lega, whose social base includes many tax-dodging petty bourgeois groups. But M5S, despite its ostensible concern about poverty, is willingly complicit in them.

10. It is worth pointing out that the small businessmen fathers of both Luigi Di Maio and Alessandro Di Battista have been accused of this, with a wealth of evidence.

11. Older readers will be put in mind of Norman Tebbit’s notorious ‘My father did not complain ... he got on his bike and looked for work’.

12. The Lega has tabled various amendments imposing additional restrictive conditions on foreigners that are clearly designed to make it more or less impossible for them to claim the benefit at all.

13. This is not a recent development, but the product of French policy under François Mitterand. By and large, Italian governments have ignored this issue in recent years, but Salvini was not content to let sleeping dogs lie, and seized on the issue to attack the French on another front.

14. There are various, rather confused schemes to present electoral lists based on the gilets jaunes for the forthcoming elections. But there are at least three rival factions claiming to represent the movement, and it is far from clear whether any of them will eventually be in a position to stand.

15. Translation from The Guardian February 8.

16. The synthetic indignation about this remark that came from M5S and the Lega was hypocritical, given that Salvini had called Renzi “a puppet in the hands of Merkel”, and Gentiloni “a puppet of Soros” - in the latter case borrowing an anti-Semitic trope from his Hungarian ally, Viktor Orbán.

17. Eventually, Di Maio was forced into a grudging, retrospective apology as a result of an off-camera conversation that Chalençon had with a reporter on a political talk-show broadcast in Italy: “We have paramilitary forces ready to intervene because they too want to bring down the government … If they put a bullet in my head … Macron will end up on the guillotine. The people will storm the Elysée Palace and take it apart: him, his wife and the whole clique’ (translation taken from The Times February 16).

18. The conciliatory independent, Moavero, got very little help from his populist assistant in his own ministry, M5S undersecretary for foreign affairs Manlio Di Stefano. He recently said that Macron is suffering from “small penis syndrome” (Repubblica February 14), exceeding even Boris Johnson in charm and subtlety.