di Paul Vanderbroeck*
“EU support without conditions, otherwise we’ll do it ourselves,” said Italian Prime Minister Conte recently to Italy’s European partners. For the third time in just over 100 years, Italy is once again facing the challenge to lift itself up from the abyss. The first two times after a war, now a pandemic.
The country has four choices. The first two are the two options Conte referred to: going solo, which would mean leaving the Eurozone or perhaps an Italexit; or European financial support with economic conditions, i.e. committing to socio-economic reforms.
The latter is clearly the preferred option of the Netherlands and other northern European countries. The third option concerns Chinese financial support with political conditions, i.e. commitment to supporting China’s political agenda in Europe and the world. This is a realistic option. The Italian port of Trieste is already part of China’s new Silk Road. China is missing no opportunity to support directly Italy in the Corona crisis.
The fourth and final option, direct loans for Corona related medical care and unemployment payments, will be discussed in the Euro Summit on April 23. Conte’s preferred option, namely financial support for economic reconstruction without conditions, seems to have been finally taken off the agenda after the recent agreement of the European finance ministers.
The first time when Italy was exhausted and on its knees, in 1918, the country decided to go solo under the leadership of Mussolini. The country was frustrated at the lack of support it received from the Allies after Italy helped them win WWI. Ultimately, the country entered a negative political and economic spiral, which ended in 1945 when Italy was again broke. Then the country opted for financial aid (Marshall Plan) on (American) political terms: keeping the Communists outside the government.
A period of economic growth and prosperity followed. But it also had a price tag. Blocking the Communists from power only succeeded at the expense of huge concessions to the trade union movement. As a result, Italy for quite some time has been facing an inflexible labour market and low productivity. The economy is kept going by relocating production abroad, temporary employment contracts, a significant black labour market as well as by running up government debt. It has prevented Italy from regaining economic growth after the financial crisis of 2008.
It is in the interest of the northern European countries and Italy to continue negotiating after the Euro Summit, so that besides immediate emergency aid, financial aid for economic reconstruction is also released. But on condition that Italy accepts socio-economic reforms.
The prosperity of all countries in the EU depends on a large and well-functioning internal market of economically strong countries. Italexit or a greater influence of China is economically damaging both to Italy and Europe in the longer term. It would greatly weaken the EU and reduce the stature of Italy in the world.
In both cases – as some Italian intellectuals and politicians rightly point out –, it will also fall prey to the Mafia. We don’t want a narco-state in Southern Europe, now do we?
*Dr Paul Vanderbroeck (Geneva) has Dutch and Swiss nationality. Is Executive Coach and has largely spent a lot of time in in Italy in the past four years, where he has been teaching at LUISS Business School.