At the origins of the crisis

The autumn crisis of 2008, officially begun in the United States with the failure of Lehman Brothers, was considered the worst financial crisis since the Great Depression. However, in the following two years, the fear of a social catastrophe in the United States was over. Instead, the contagion of the crisis that hit Europe, causing a deep recession and mass unemployment, has not yet found an effective solution.

It was in these circumstances that Mario Draghi, the newly elected president of the European Central Bank (ECB), with a famous speech in London in July 2012, announced, what  has become, a historic decision: "Within our mandate - he said - the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”

Indeed, placed in a broader perspective, the statement was not so surprising. Ben Bernanke, president of the Fed, the Central Bank of the United States, had already moved in that direction in the early days of the crisis, providing the country with unlimited liquidity at the lowest interest rate in American history. It was the launch of the Quantitative easing (QE).

But not only. In the following months, Barack Obama, immediately after his rise to the White House, had approved the allocation of 800 billion dollars both for the rescue of companies in danger of bankruptcy - as in the case of General Motor and Chrysler - and to support the purchasing power of millions of Americans who had lost their jobs.

The European Union was late to adopt the QE. It was March 2015, almost seven years after the start of the crisis, when a devastating recession had already hit the Eurozone, and caused the highest level of unemployment since the second world war, first hitting the smaller countries such as Ireland, Portugal and Greece, and then Spain.

In general, after a long period of recession and stagnation, one can expect a wave of new investment and a reduction of unemployment. None of this happened in the euro area. On the one hand, companies had no interest in investing in a framework of generalized economic contraction. On the other, many banks were on the verge of bankruptcy. So, paradoxically, an important part of the resources supplied by the ECB returned to its coffers.

The Fiscal compact

It is worth coming back to 2013 when the eurozone governments adopted the so-called Fiscal compact: that is, the commitment of each EU member state to achieve the budget parity and to start reducing the public debt until reaching the magic threshold 60 percent of GDP. It is also important to remember that the European Parliament had not discussed, not to say approved, these new suffocating measures, imposed by Germany with the acquiescence of France and the complicity of the other UE governments.

In essence, monetary policy became the watchdog of austerity – that is, the contraction of public spending and wages - while the solution to the crisis must have been the task of the so-called structural reforms: in other words, the adoption of neoliberal policies centered on the liquidation of the bargaining power of the trade unions, the final liberalization of the labor market and a wave of privatization.

However, it is not necessary to cross the Atlantic to appreciate a different approach. It is sufficient looking at the EU countries outside the eurozone to see an impressive difference: Sweden, Poland, Hungary,  the Czech Republic, as well as other countries have got a growth rate more or less double, between 3 and 4 percent.

Austerity and structural reforms

Just like in the physical world, there are no voids in the world of politics.

In Germany, the Euro-skeptic Alternative for Germany (AFD) joined the Bundestag, becoming the third federal party in the 2017 elections, taking away votes from the "battleship" CDU-CSU and from the SPD, the parties that in the last seventy years had been at the helm of German politics.

In France, Emmanuel Macron, who had been virtually unknown, with his neoconservative program, fundamentally centered on the liberalization of the labor market and the privatization of public assets, easily defeated his challenger Marine Le Pen of Front National, he ascended to the Elysée Palace.

In Italy, the turning point was even more radical and unexpected with the exit from the scene of the parties that, under different guises, had led the government for the last quarter of a century. We know the outcome. In the absence of viable alternatives -  having the Democratic party rejected the possibility of forming the government with the Five star movement, the only possible government was to be based on the coalition between Five Star and the League, forces originally divided and in many ways opposed, now converging on the so-called Contract.

On the one hand, there is the League that carries on its typical right-wing program against migrants, "law and order", flat taxes, and so on. On the other, the Five Star with a position generally inspired by a leftist orientation based on wider state intervention, the fight against corruption, and a marked social policy, as the introduction of a "citizens’ income" aimed at alleviating the condition of five million poor people, mainly in the Mezzogiorno.

The EU commission has attacked the new government not for the rightwing policy of the League - a policy that is actually growing in the EU - but, fundamentally, for its economic and social goals at odds with some of the key rules on which eurozone's neoliberal policy is based. Rules on which the Financial Times, that cannot be accused of anti-euro bias, in a recent editorial, wrote: "As regards the fiscal rules of the eurozone, the essential problem is that they are arcane, illogical and source frequent frictions both between governments and between Brussels and national policymakers ". (Difficult times for the eurozone, 2 January 2019)..

In short, we cannot hide that even in a single currency area, each country is different from the others and that fiscal policy cannot be managed by a distant technocracy without any democratic investiture and political legitimacy. Moreover, one should ask what the sense is to convene periodic general elections in a member state if it is forbidden to change the politics of the former democratically defeated government.

The novelty is that the new Italian coalition government, invested with a popular consensus that has no equal in the eurozone countries, even though proclaiming its determination to keep Italy in the eurozone, has challenged the EU neo-conservative leadership.

The never-ending crisis

In the United States, the recovery gave rise to the longest growth phase in American history. 2018 has ended with an expected growth rate of about 3 percent, while GDP increased in the decade after the crisis by 17 percent and unemployment fell to below percent, the lowest level for many decades.

The eurozone crisis, on the contrary, has not yet ended. In the last decade, growth has averaged 0.8 percent annually, the lowest in the history of the European Union. And the unemployment om the eurozone reaches an average rate around 9 at the end of 2018, with peaks of around 11 in Italy and 15 percent in Spain, to mention two of the four largest countries in the euro area.

At the ” the birth of the euro- the Economist has written, "Europe’s leaders hailed a new era of tight integration easier trade and faster growth, thinking they were building a currency to rival the dollar“. (Eur not safe yet, (January,5th 2019).As we know, the time has brutally canceled that illusion.

The divergence did not appear only between the euro area and the United States but within the euro area itself. It is enough to dwell on the growing gap between the three major countries of the area - Germany, France, and Italy - which alone concentrate three-fifths of the Eurozone's population.

Germany - taking advantage of the lower exchange rate of the euro compared to what would probably have been the exchange rate of the Deutsche Mark - has constantly offset the low domestic demand with an annual export surplus of around 8 percent of GDP - a world record. On that basis, it has achieved a growth rate higher than the euro area along with the lowest unemployment rate. In this way, Germany's predilection for the single currency is easily understandable.

Unlike Germany, France has recorded a constant trade deficit and has remained entangled in an average annual growth rate of around 0.8 percent. The lower growth has also been accompanied by a permanent budget deficit above 3 percent of the GDP, except for just one year in the decade. At the same time, unemployment kept staying at more than twice the level of Germany.

The economic gap between France and Germany is even more striking, looking at Eurostat data on per capita GDP at the regional level. In Germany, only 18 percent of the population lives in the regions with a per capita income below the European average.  In France, an astonishing level of the population, as high as 72% of the population, lives in regions with per capita GDP below the EU average (See: 24 ore, January 2, 2019, and Eurostat on Regional GDP per capita).

A mismatch hardly conceivable when France, with Mitterand and Delors, was engaged in the realization of the single currency as a means to strengthen its economy and promote a more balanced partnership with Germany. The euro has instead increased the imbalance and the worsening of inequality and social hardship explaining the climate of the social and political revolt of the "gilets jaunes”.

Looking at Italy, the third largest economy in the eurozone, the picture is even more bizarre. Unlike France, Italy taking advantage of high competitiveness in the manufacturing industry has achieved a constant trade surplus - the fifth highest among the big countries after Germany, China, Japan, and South Korea.

This performance may have been a good premise to support internal growth. The opposite has happened. The Eurozone deficit rules, imposing the senseless achievement of budgetary parity in the middle of the crisis, were destined to reduce private consumption and to cut public investments.

Not surprisingly, the outcome has been a fall of five points with respect to the GDP level of 2007, while unemployment, starting at around 6 percent on the eve of the crisis, has doubled over the decade.

One might ask whether the choices of economic policy ultimately depend on the intensity of popular revolts, as has been demonstrated in France. Or if the administration of the national budget should not always be the main task of a government committed to implementing the program entrusted to it by the electorate.

Evidently, for the European Commission, the regular conduct of the elections is an exercise that is more about political aesthetics than the substance of democracy.

Towards a new future for the eurozone?

In conclusion, the Italian government has contributed to the opening of Pandora's Box, making clear the contradictions of eurozone policy. The next May elections for the renewal of the European Parliament will reflect the profound changes in the European political scene. And, first of all, the eclipse of the social-democratic and center-left parties.

From an institutional point of view, the first objective of the reform of the eurozone should be the cancellation of the Fiscal compact, the intergovernmental agreement that, as we have seen before, has never been examined, let alone approved, by the European Parliament.

Undoing its groundless rules does not mean a Union without rules. On the contrary, it will be enough to go back to the Treaty of Maastricht, which in 1992 set the founding principles of the eurozone. On this basis, Member States would have retained a budget management autonomy in the framework of a flexible budget deficit within three percent of the GDP. In that context, it would be possible for each Member State to manage a relatively autonomous economic policy in line with its specific structural and cyclical needs within a cooperation framework.

Indeed, a new majority in the European Parliament will not find itself faced with the alternative between the maintenance and cancellation of the euro. The issue will rather concern the need to modify the rules that have been superimposed on the single currency, producing its disappointing economic results, along with deep divergences and conflicts between, and within, the member states.

Recognizing the failure of current policy will become the lever to establish a new balance based on the use of the single currency as an instrument that the Member States collectively employ to create a more advanced economic and social balance in a framework of reconciled popular consensus.

Eventually, the recognition of the crisis should be the condition for the opening of a new phase of the eurozone and, indirectly, of the European Union. It is not certain that this will occur. But it is a concrete possibility. And it could even be the last chance to give the Euro a new future after a lost decade.