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Europe

Italy’s “perfect storm” as the gates of Europe are under siege from populism.

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  • 00h30 Rome Time: Italian Prime Minister Matteo Renzi has resigned after suffering a heavy defeat in a referendum over his plan to reform the constitution.In a late-night statement, he said he took responsibility for the outcome. He said the No camp must now make clear proposals.

Video:

  • 11h:17 

Italian referendum: Exit polls show that voters have overwhelmingly rejected constitutional reform proposals on which Prime Minister Matteo Renzi has staked his political future:

Update: 19h*Austrian state broadcaster: exit polls suggest win for Van der Bellen ( Green Party-The Guardian):

  • The Guardian reports that early exit polls indicate Austria has voted in Green-backed candidate Alexander Van der Bellen as its next president, handing a painful defeat to rightwing populist Norbert Hofer.The defeat of far-right candidate Norbert Hofer to the liberal, left-of-centre Alexander Van der Bellen in Austria’s presidential electionsmarks a setback for the Eurosceptic, anti-establishment cause in Europe.

  • Analysis:

With Brexit and the U.S. presidential election, 2016 has already contributed its share of major political upsets. Yet another upset may be in the making. The  Italian referendum taking place today in Italy on constitutional reform and the second chance of Norbert Hofer of the anti-immigration Freedom Party (FPO) to become the first far-right president in Austria  could both possibly have disastrous consequences for Europe and the world.

Basically, the Italians vote today for a “SI” or “No” to a tailor-made precisely austerity plan for them. As political scientists like Mark Blyth (link:Austerity: The History of a Dangerous Idea) have noted, the euro zone is badly designed. Although it has a common currency, it does not have a central fiscal authority to make financial transfers across states to balance out shocks and assure shared economic growth and prosperity. This means that over the past eight years of economic crisis, it has destabilized European politics, driving a political wedge between poor southern European states and richer northern European states. This, together with the refugee crisis, has encouraged nationalist parties to mobilize against E.U. institutions across the continent and pro-integration mainstream parties to try to fight back. It also means that a shock in one country can possibly have broader reverberations for Europe and the world.

On the other hand, as Reuters reported, in Austria a country which stretches from Slovakia to Switzerland and borders Germany, was swept up in Europe’s migration crisis last year, stoking unease among many voters already concerned about globalization and rising unemployment, playing into the FPO’s hands.

  • Focus on Italy

Unlike Cameron and Brexit, Renzi did not call the constitutional referendum because he thought he would win, but because he didn’t manage to get his Senate reforms approved with the required two-thirds majority in parliament. But much like Brexit, the referendum increasingly resembles a national election in large part because Renzi said he would step down if it fails.

The trouble for Italy is that ‘business as usual’ isn’t an option if it wants to share a currency with Germany, the Netherlands, and others for the next 50 years. It needs Renzi’s reforms to allow urgent repairs to its zombified financial system that would let its economy breathe. Italy is hardly any better off than Greece after 17 years of euro membership. It just didn’t have the same pre-crisis boom.

Sadly, not all EU countries, with the sole exception of Germany, have understood that democracy and country’s debt  are not just strange but entirely out of line with each other.What i mean by that is, when a country that is already heavily in debt either some authoritarian parties  take office or the markets take the authority and act disorderly to the interests of people as it happened in Greece.

In the early 2000s, Germany was struggling to adhere to euro-zone criteria aimed at ensuring common currency stability. In 2003, The German economy had been stuck in a chronic slump since the beginning of the new century with growth stagnating near zero. Unemployment was on the rise and the budget deficit was consistently growing. With its own belt-tightening policy, it payed its own debt before someone else dictates to Germans to do so.

With reference in particular to Italy, it has come its time to subordinate to markets power over Italy’s society. But, what exactly are the problems of the Italian economy?

  • The decline of the Italian industry which cannot compete the German one anymore.

For instance, according to the Independent domestic appliances or white goods exemplify Italy’s decline. In 2007, Italy, once a world leader in the sector, produced 24 million appliances. By 2012, it was down to 13 million; output of washing machines, dishwashers, refrigerators and cookers was down by 52 per cent, 59 per cent, 55 per cent and 75 per cent. Italian manufacturers have shifted production to lower cost countries, resulting in large job losses. These developments have increased the gap between the industrial North and the Mezzogiorno, the traditional term for the southern regions, which competes with emerging economies in price-sensitive sectors.

size of manufacturing compared to industry i

  • The restriction of domestic consumption as a result of the loss of competitiveness – so investment, since no one is investing when domestic demand is decreasing along with the decrease of italian exports.
  • Banking system problems have exacerbated the contraction. Italian banks are hamstrung by around €150-200 billion of bad or doubtful loans, which has exposed inadequate capital and reserves. Unlike counterparts in the UK and US, Italian banks have been unwilling or unable to tackle the asset quality problem.

Italian banks are facing a problem that’s broadly similar to the problem some American banks faced in 2008. They made a lot of loans — around $400 billion worth, by some estimates — to people who aren’t paying them back — a situation that’s been made worse by years of weak economic growth in Italy.

poor performance banks

  • Difficulties on the labour market due to globalization in the sense that the wages of the industrial countries are now converging with those of the emerging economies . The reason is that the companies produce their products where the cost is less, thanks to open borders global economy and the transfer of technology.
  • Starting in 2001 when Italy entered the eurozone, Italy’s GDP growth turned absolutely paltry. It was the only economy that its GDP increased poorly during this first period in which almost all the other economies recorded high growth rates.
italy gdp per capita
Source: Google

For Italy is the NO vote wins tonight (which was leading at 54% according to the polls) and Matteo Renzi resigns from the post of the prime minister as well , the political uncertainty will skyrocket the interest rates for both the banks and the public debt. This  reminds to all of us  that ever since Italy reconstituted itself as a republic in 1946, a year after the fall of Benito Mussolini, it has churned through governments. In the 67 years since, Italians have had 61 governments,  each one lasting for a little more than a year on average.

  • Sources: 

Featured Image: @Flickr

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