Renzi’s rebellion in the eurozone crisis

!.   The crisis of the eurozone, which embodied the rebellion of Matteo Renzi, has entered a new phase. The origin dates back to the consequences of the financial collapse in 2008 in the United States. But it is the outcome of the incredibly wrong and self-destructive own eurozone’s policies. The confrontation between the two sides of the Atlantic is enlightening. Let’s start from here.

After the collapse of Lehman Brothers in the fall of 2008, the US government decided without hesitation to take action to stop the likely contagion. The Congress deliberated an intervention worth 700 billion dollars to be used by the government to hinder the banking crisis. The operation was successful. The feared repeat of the 1929 catastrophe was averted.

A comparable policy was adopted in the following years in Europe. The member states invested hundreds of billions of Euros in the bank bailout, including notably Germany and France. But the analogy stops there. Apart from saving the banks, the policies aimed at dealing with the crisis began to radically diverge.

In The U.S. Barack Obama decided, as soon as he arrived at the White House, a budget package of 800 billion dollars aimed at rescuing the economy, through  investment and increased purchasing power. It was critically remarked in the U.S. that a larger engamentr would have been needed. However, the policy adopted in the eurozone was quite opposite. Since the rescue of the banks had increased the public  budget deficit and public debt, the eurozone authorities imposed the austerity policy, aimed to curb the deficit: in essence, a deflationary policy, whose only outcome could only be a mix of recession, mass unemployment and a public and private indebtedness.

Eight years after its start the consequences of this crazy policy keep hitting the eurozone. The national income is still below the pre-crisis level; the public  debt that austerity had to reduce has everywhere increased; unemployment, which was about 10 percent in the two areas, has dropped below 5 percent in the US, while it grew in the eurozone. The results of the eurozone’s policies could not be more shocking.

Compared to the major euro area countries, the situation in Italy is the most disappointing.The country has lost  9 percent of gross domestic product; Industrial production fell by a quarter; unemployment has doubled, shifting from 6 to about 12 per cent.

2.   In the framework of the “quantitative easing”, promoted by Mario Draghi, the ECB president, it would be normal to utilize the huge liquidity allowed by ECB at interest rate close to zero in order to implement public investment aimed at recovering  the growth, stimulating the private investment, fighting the mass unemployment. It would be reasonable, but it is forbidden: the Eurozone’s rules, in fact, impose a forced chimerical march towards a balanced budget. An evil vicious circle.

In this framework, Renzi’s uprising is explainable. He hoped that his aggressive economic and social reform agenda that followed Brussels’ recommendations (such as the firing freedom through the “Jobs Act”), could give him more room in implementing the domestic policy aimed at increasing the electoral consensus, cutting house’s tax and delivering some modest benefits to poorest families. But his hopes were frustrated by the Brussels’ hard line behavior, stressing Renzi’s “eurocriticism”.

The current dispute with Junker, head of the European Commission, at first involves just some decimal points of the budget deficit, being 2.4 instead of 2.2 previously agreed. But if If the issue was just that, a compromise, as advocated by Moscovici, the French European commissioner for economic policy, it would be eventually reachable. But the problem for the Italian premier minister is much more wide and challenging.

Not surprisingly, beyond the façade of a rhetoric optimism, Renzi has felt trapped. Austerity is a boulder on growth. And the “structural reforms” will benefit the employers, while increasing the rightwing electoral consensus, but doesn’t boost the growth.

The next April, in fact, the Italian government must send to Brussels the stability program for 2017 and 2018. The program must indicate the measures to reduce budget deficit to 1.1 percent of the GDP next year and achieve the structural budget balance over 2018.

Simplifying the cabala of numbers, this means that, while the current dispute with the European Commission covers three billion euro, instead for the next two years, the government should plan and implement a budget deficit reduction of about forty billion. It has to be added an increase in the primary surplus (the difference between tax revenues and public spending net of interests) should be increased  from the current 1.8 to 4.3 percent of GDP over 2019,.in order to implement the public debt cut, according the European requirements. An impossible mission. Or a suicidal one!

It is worth to point out that the current argument with the European Commission is limited to three billion Euros, while for the next two years the government should plan a deficit drop of about forty billion Euros. How to explain to a country fighting with an endless crisis this stuff, after having argued on a few decimals issue? And what about the two electoral key tests Renzi has to face this year? On one side, municipal elections in some of the largest cities, including Rome and Milan: and, on the other, the referendum on constitutional reforms regarding the overthrow of the Senate’s representativeness and functions – an electoral challenge that involves his political future, having threatened to resign should he lose.

3.   The past year has been an “annus horribilis” for several governments of the eurozone. In an impressive sequence, the heads of the governments lost the national elections: first, Samaras in Greece, then Passos Coelho in Portugal and, finally Rajoy in Spain. The Berlin-Brussels axis policy proved to be lethal for the most faithful governments.

Renzi is perfectly aware of the risk, as he shows in an interview to the Financial Times, concerning Rakjoy government in Spain: “I don’t know what’s going to happen to my friend Mariano… but I know that those who have been in the front line of being the faithful allies of the politics of rigour without growth have lost their jobs…It happened in Warsaw, though the circumstances were very particular there, it happened in Athens, it happened in Lisbon”.

The state of affairs is not more comfortable for France, where François Hollande has recorded the lowest score in the polls among all the presidents of the Fifth Republic. While Marine Le Pen’s National Front was the first party in the recent regional elections and next year will likely be a redoubtable candidate in the ballot for the presidency of the Republic.

Matteo Renzi is reasonably afraid of ending up in the same trap into which stumbled the governments, no matter whether of the center-right or center-left, faithful to the eurozone policies. It is worth to take into account that 2017 is an election year in Germany, and the German position will be, if possible, even more rigid in dealing with the subaltern governments of the euro constellation. Merkel will try to equal the record of Helmut Kohl winning a fourth term as Chancellor. But to achieve, she needs to watch his back from the hawk Schäuble, inflexible with the euro area governments.

Meanwhile, the political map of eurozone is more and more instable. Greece’s Tsipras government was brought to its knees by the blackmail of the Brussels-Berlin couple.  But it is likely to be just a temporary victory. In Greece the strikes have resumed, while the social context is worsening, under the Brussels poisoned “reforms” program.

The new Portuguese government, lead by the socialist  António Costa,  is based on a alliance that includes the anti-austerity Left Bloc and the  Communist Party along with the Greens. And in Spain, the attempt of a Great alliance between the PSOE and the  Popular Party, as Berlin recommended, was rejected, and  the socialist Pedro Sánchez  has been mandated to form the only possible government,  bringing in Podemos, which is ready to participate on the basis of an anti-austerity program - the alternative being new national elections.

The economic crisis and its authoritarian administration through rules like the ‘excessive deficit procedure’ also affect the democratic political asset. The parliamentary tasks and prerogatives of member states are turned off. National states are forbidden to formulate and implement any economic and social policy at the basis of the fellow citizens’ democratic choices, without a previous assent of Brussels. So the vote becomes a hollow exercise. And any opposition is labeled as populist or anti-European campaigner.

4.   The emptying of the ordinary state functions was not a platform on which the European Union and the single currency were built. There was not any pretense to reduce the national state at a semi-colonial status.

On the eve of the end of the European Union presidency, Jacques Delors, who was the main architect of the European construction, clearly stressed, in a book-length interview, his conception of the relationship between the member states and the EU. "The state - he emphasized - designs medium and long term economic and social development, after defining the general guidelines it provides, to achieve them, along with the means that the market does not spontaneously enables". And to leave no doubt about the function of the state within the framework of the European Union, reiterates the concept of the national states’ essential functions: "I reject the idea of ​​a" small state ", because in the current crisis of French society, there is needed a strong one….in the "global village, the state has an essential role to turn".*

Renzi looks aware of the radical dispossession of the state’s autonomy and essential functions, subjected to the strict control of Brussels’ technocracy, and of the risks faced by governments who  are subject to it.

The attack to the EU Commission is direct and abrasive: "You cannot put in the center the ideology of 0.1% or 0.2% of the budget deficit." Threaten an infringement procedure? "Let them: we go on ... our job is not to go to some buildings in Brussels to take orders." To date an accounting controversy but in the interview to the Frankfurter Allgemeine "before the meeting with Merkel raises directly the political question:" one of the points of contrast- says - is the behavior of Germany, starting each of the European Union appointment with a bilateral meeting with the French. I would be grateful if Angela (Merkel) and François (Hollande) could solve all the problems, but in generally it does not work that way".

Renzi’s reaction is not a reflex of an anti-European bias. Rather it is the effect of a growing disillusion among Italian fellows. “Whereas Italians - The Financial Times has written – were used to be among the biggest supporters of European integration, years of economic stagnation and recession have brought disillusion with its outcomes, particularly  when it comes to the euro”

It is not a coincidence that in this framework, the Italian prime minister, who took office two years ago, saw his poll numbers drop substantially over the course of 2015, with the Five Star Movement and Northern League consolidating their positions as Italy’s second and third largest political parties respectively.

5.   It is not surprising that Matteo Renzi has opened a Pandora's Box. His confrontational attitude toward the European authorities can have different, even opposite, outcomes. A failure can mean a big political weakening ahead of political elections that could be brought forward to 2017. Holding  the confrontational in front of an intransigent reaction of Brussels-Berlin axis can risk a deep breakdown, but could also  strengthen its electoral position in building up a “Nation’s Party”, bringing on board electors from the growing eurocritic wings on the left as well on the right side of the political spectrum.

But every prediction is likely to be random regarding an unorthodox politician used to position himself beyond left and right, who has shown no hesitation to weave the strong personal ambition with the political “transformism”.

 It's best to stick to the facts.

The eurozone crisis is deepening. A growing number of member countries, as we have seen, when there is the chance to make a choose through the polls, take position against the governing national elites, considering them followers of outside interests and powers.

The euro has proved to be a camouflage of the old mark, leaving in the hands of Germany (and Brussels executive arm) an implicit, hidden sovereignty on economic and social policies of each member country. With the consequence of allowing the German economy to operate with an undervalued currency (helping its astronomic trade surplus), while the other euro-countries have to operate through a overvalued currency  to be compensated by low wages and reduced welfare benefits.

Opening a debate on the facts as they are, not as it might be supposed to could be in an utopian vision, can save what owes to be saved, starting with the conquest of the European Union, now threatened by neo-imperial attitude of the unelected European authorities.

Renzi’s confrontational attitude, unusual among heads of the eurozone governments, could be, beyond its likely electoral opportunism and indubitable political “transformism”, an opportunity not to be missed.
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*Jacques Delors: "L’unité d'un homme" -, entretiens avec Dominique Wolton- 1994, pp. 100-103