By Conor Gallagher
Italians elected their next government on Sunday, and as expected the Brothers of Italy Party (Fratelli d’Italia or FdI) and its leader Giorgia Meloni came out on top with a projected 26 percent of the vote.
The bigger winner, however, was disillusionment. It was the lowest voter turnout in Italy since World War Two.
🇮🇹🗳️ Ce niveau de participation serait évidemment un record historique. 2/2 pic.twitter.com/jQeOrXlgvE
— mathieu gallard (@mathieugallard) September 25, 2022
The cruel reality is dawning on Italians that no government will be able to reverse the decades-long decline in Italian living standards. Rome has little choice but to go along with Brussels dictates; if they don’t the European Central Bank is likely to threaten excessive deficit procedures or engineer a debt crisis as it has in the past.
If it wasn’t clear enough, EU Commission President Ursula von der Leyen issued a thinly veiled threat two days before Italians went to the polls.
NEW – EU Commission President on the upcoming elections in Italy, where a right-wing victory is expected:
“We will see. If things go in a ‘difficult direction’ – I have spoken about Hungary and Poland – we have tools.” pic.twitter.com/PxtvpXyCua
— Disclose.tv (@disclosetv) September 23, 2022
The EU also has a new tool in its back pocket: it could yank the more than $200 billion going to Italy as part of the zone’s Covid recovery package, Next Generation EU.
Meloni and the Fdl campaigned primarily on anti-immigration efforts coupled with tax cuts and piecemeal financial assistance to a beaten down electorate. But the biggest point in their favor was that it is the only party that has opposed the pro-EU and technocratic governments of the past ten years. That includes the most recent led by the former vice chairman and managing director of Goldman Sachs International and president of the European Central Bank Mario Draghi.
Support for the other rightwing parties that have tried and failed to stand up to Brussels in the past dropped considerably after they supported Draghi.
Italian politics are described as in a constant state of paralysis with good reason. There is little movement in areas of broad support as such policies are blocked by EU rules on deficits. And neoliberal programs don’t garner support; they are therefore pushed through during times of crisis under non-elected governments like Draghi’s.
As the new government prepares to take power, now is a good time to look back at Draghi’s time in office, what “reforms” he pushed through, and how he likely tied the hands of future governments by granting the EU even more control over the economic policies of Italy.
Widely dubbed “Super Mario” when the Italian president, Sergio Mattarella, handed him the reins of government in February, 2021 during the COVID crisis. Mattarella asked Draghi to form a government of national unity, saying it would be too much of a risk to hold elections at that point in the pandemic. Draghi’s economic reforms were supposed to reassure bond markets and propel the Italian economy forward.
Instead, interest rates on Italian bonds are at a 10-year high, Italian real wages are falling at the fastest pace in the EU, and it remains the only country in the bloc where wages have fallen since 1990.
Temporary, low-paid contracts now account for the majority of new jobs and 5.6 million Italians — including 1.4 million minors — currently live in poverty, an all-time high.
Inflation is driving down households’ real purchasing power, business and consumer sentiment is plummeting, and funding costs are rising leading to estimates that Italy’s economy will grow at only 0.5 percent in 2023 – the lowest in the EU.
Draghi did manage to push through structural reforms aimed at privatization, deregulation, weakening worker rights, and fiscal consolidation. He also further strengthened the EU’s stranglehold over the Italian economy.
The measures were pushed through under the pretense that Italy desperately needed the $200 billion in European Covid recovery funds to kickstart its economy.
In order to access those funds, which are nowhere close to what’s necessary to meaningfully impact the country’s battered economy, Italy was required to implement the reforms demanded by Brussels. (Indeed, some argue the entire point of the recovery funds is to offer states a pittance in exchange for giving up even more power to the EU.)
Draghi was happy to oblige. He first hired McKinsey to consult on Italy’s spending of its EU Covid funds.
So predictable, so sad: Mario Draghi hired McKinsey to ‘organise’ Italy’s distribution of Recovery Fund monies. What next? Get the Mafia to re-organise the Ministry of Justice?
— Yanis Varoufakis (@yanisvaroufakis) March 8, 2021
And then he got to work reforming the country. He passed laws that will push for privatizing local public services, change the role of Italian municipalities, and transfer power from elected officials to bureaucrats at the Italian Competition Authority (ICA).
The law moves some legal proceedings from Italian courts to the ICA, introducing a secretive settlement procedure which can be used in cases concerning restrictive agreements and abuse of dominant position.
The law entrusts the ICA with the task of defining through its own internal processes the procedural rules and amount of fine reductions in the event of a successful settlement procedure. Any information about the proceedings does not need to be disclosed to third parties.
The ICA will also be granted oversight of privatization efforts. Municipalities will be required to submit reports to the ICA justifying why certain services are better served by remaining run by the state, and there will be periodic reviews of these reasons, as well as increased cost-monitoring.
The stated goal is to eliminate red tape “affecting the freedom of economic initiative.” Critics believe that cash-strapped municipalities will continue to have a hard time providing adequate services, which will then be privatized.
Starting next year the Ministry of Infrastructure and Sustainable Mobility will begin to exercise powers over regions if they have not “removed obstacles to the entry of new operators.”
Protests managed to beat back two of Draghi’s proposals that drew widespread attention. The first was opening up the taxi sector to competition from multinationals, namely Uber and Lyft. The second was an effort to do the same for management contracts of bars and restaurants along Italy’s 7,500 kilometers of coastline. The latter has long been a sticking point with Brussels.
Draghi still managed to navigate laws through parliament that will make labor more “flexible.” He made it easier for businesses to fire workers and hire temporary ones, continuing a disastrous trend:
“Italy needs to improve price competitiveness”.
The dark side of the policy mix to reduce labour costs in 🇮🇹is that real wages have declined strongly vis-a-vis 🇩🇪🇫🇷 while temporary employment has increased. This has weakened domestic demand, contributing to weak growth. pic.twitter.com/3WS30sesyO
— Philipp Heimberger (@heimbergecon) September 22, 2022
Despite COVID deaths in Italy being the second highest in Europe, he lifted major public health restrictions so that industrial production and tourism could return to normal. He tightened welfare access and raised the pension age. He cut taxes for businesses, which will likely result in more privatizations and social programs on the chopping block in the future to make up for the budget shortfall.
Draghi managed to pass much of his legislation despite barely engaging with parliament by tying it to confidence votes. That’s hardly surprising as the technocrat made it be known that he believed parliament was only there to rubber-stamp his decisions.
He also received surprisingly little pushback from organized labor. Maurizio Landini, the leader of Europe’s second largest trade union Italian General Confederation of Labor (CGIL), caved to Draghi earlier this year when he refused to stand up to such moves.
Instead the CGIL cited COVID and said “this is not the time to weaken the country and block the reforms.”
Draghi said the “reform path” started by his government means that the conditions will be there in the future for the EU recovery work to continue, regardless of who is in government.
In terms of economic policy, any new Italian government will have little room to maneuver. The EU Stability and Growth Pact (a set of fiscal rules designed to prevent countries in the EU from “spending beyond their means”) is suspended until 2023 due to the pandemic and the war in Ukraine. But by receiving funds from the Next Generation EU package Italy will be restricted on any future expenditure decisions.
Additionally, in July the European Central Bank launched its Transmission Protection Instrument, which allows it to do “whatever it takes” to close euro spreads and theoretically avert future financial crises.
Again any such assistance for Italy would be conditional on compliance with the EU’s fiscal rules and continuing with the “reforms” already locked in place by Draghi.
It’s worth remembering that during the 2011 sovereign debt crisis, it was Draghi as the president of the ECB who demanded a series of reforms from Rome, including:
- the full liberalization of local public and professional services through privatizations.
- to reform the collective wage bargaining system, allowing agreements at company level in order to tailor wages and working conditions to the specific needs of companies.
- a review of the rules governing the hiring and dismissal of employees.
- to tighten the eligibility criteria for retirement pensions.
- to reduce the costs of public employment by reducing salaries.
It took him another 11 years, but he finally accomplished most of what he wanted. For Italians it’s just another stop on the one-way journey to neoliberalism, one that Meloni and the Fdl is uninterested in doing anything about.
While the party is certainly nationalist, the hyperventilating over the six degrees of separation to Mussolini has distracted from the fact that the first two points of the Fdl coalition’s agenda are the “full adherence to the European integration process” and “respect for Italy’s international alliances.”
The unwillingness to challenge the EU or NATO is likely why someone like Hillary Clinton can say of Meloni “the election of the first woman prime minister in a country always represents a break with the past, and that is certainly a good thing.”
While Meloni has already started searching for wiggle room in the Next Generation EU funding for Italy, Brussels is having none of it. Many observers believe the Fdl coalition will likely pass some anti-immigrant legislation, but the country will continue to be governed from the outside, i.e., Brussels.
And so it goes. For nearly 30 years now the country’s politics have been characterized by a back and forth between technocracy and anti-elite populism.
Draghi was the fourth technocrat to lead an Italian government since 1993. The populists come in, are stifled by Brussels, a crisis ensues, and the technocrats ride to the rescue to push through neoliberal reforms.
The next crisis is already at the doorstep: Meloni and the Fdl are facing an economic catastrophe because of the energy crisis, and yet they have promised to continue sanctions against Russia and military support for Ukraine.
Draghi, of course, was a driving force behind the EU sanctions against Moscow that are now helping to destroy the Italian economy.
The average wholesale electricity price in Italy nearly quintupled year over year in August, jumping to 543 euros per megawatt-hour. Thousands of firms are at risk of bankruptcy in the near term.
Markets are already starting to get jittery about the sustainability of Italy’s debt. The increasing uncertainty comes as the ECB hikes interest rates and pauses its quantitative easing programs.
The ECB could resume its Italian bond purchases on a large scale, but German Bundesbank President Joachim Nagel made clear recently that any assistance would require more economic reforms.
Let the countdown to the next technocratic government begin.
