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Macro focus: The Italian conundrum and the way forward

Habemus Governum. It took months to reach an agreement between the competing “anti-system” parties that have emerged from the last Italian general elections, the M5S and the Lega, and to get the approval stamp of the President of the Republic, Sergio Mattarella, on the proposed Cabinet members, which was effectively achieved after a reshuffle of the initially proposed Cabinet.

The newly formed Italian government led by Giuseppe Conte, now has to tackle a seemingly intractable challenge: how to fulfil M5S/Lega election promises, without creating a crisis at the European level that could spiral out of control, engulfing the Italian economy back into a crisis that it managed with great pain to overcome, and creating more anxiety about the future of the Eurozone and of the European Union as a whole.

It will require extraordinary skills and a grand mastery of politics — to the level described in Niccolo Machiavelli’s masterwork, The prince — , to square the circle and to reach an acceptable compromise. One that would be perceived, neither as a treason by the popular masses who voted for two political parties with seemingly irreconcilable agendas, nor as as an outright rebuke of the European treaties and institutions — especially the Fiscal compact signed in 2012, which requires all the Eurozone member states to adhere to strict fiscal orthodoxy rules, preventing in effect the implementation of any sizeable fiscal stimulus.

First, as mentioned in an article published by the Financial Times, the new government will have to water down some of the items contained in the M5S/Lega ruling programme, for the sake of achieving its most important political and economic objectives: 1° the design and implementation of a universal income scheme to support the Italians who have been impoverished by the severe 2009/2013 double recession and by years of austerity politics; 2° the implementation of a supply-side policy by lowering corporate taxes and streamlining government regulations that weigh on the competitiveness of Italian businesses, 3° an overhaul of European asilum and immigration rules — the so-called ‘Dublin regulation’ that, in its current formulation, puts most of the burden, when it comes to dealing with immigrants and asylum seekers, on the shoulders of the countries of arrival, namely Greece and Italy, 4° The completion of the European Banking reform through the implementation of the most controversial pillar, the European Deposits Insurance Mechanism. The latter may appear as an arcane technical measure, but it is actually paramount to achieve a restructuring of the Italian banking sector.

Second, the Italian government must form a coalition on the European level, in order to be able to shift the European agenda in favour of the important objectives mentioned above. Emmanuel Macron, the president of France, who has been relentlessly, — though unsuccessfully so-far — , championing EU and Eurozone reform in the sense of a deeper integration and increased solidarity, would obviously have to be included in this coalition. But the new Italian government will also have to convince leaders of mid-sized countries such as Spain, Belgium and the Netherlands, that it is can be a ‘force for good’ and not a time-bound political distraction.

Third, it would be wise to apply Machiavelli’s advise which states that a prince has to make friends out of his ennemies. Italy has witnessed cerca 60 governments since World War II. Instability is the key feature of the Italian political system, and all attempts to consolidate executive power, and to overcome the game of perpetual combinazione needed to retain power, have failed so far, as was illustrated by the failure of the referendum organised in 2016 by then rising political star Matteo Renzi. Therefore, if the M5S/Lega coalition wants to achieve meaningful results, it would have to reach out to the Italians who have not voted for either of them, preferring instead to stick with the traditional political parties, or to cast a blank vote. It would also need to assuage concerns in Germany and within the European Commission about the true intentions of this government, and showing a willingness to compromise on certain issues, while asserting a determination to achieve its main political objectives.

Time will tell if this government has any chance to succeed or if it is doomed to fail. However, what is certain is that there will be no future for the European Union, if it ignores the pressing need to overhaul its current institutional stalemate, in favour of a more robust and cohesive model, which can deliver growth and stability for every EU citizen, not just on paper but in the real world.

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