partner perspectives

Mar 13, 2012 | 18:31 GMT

12 mins read

Roma Kaputt Mundi

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Italy is at a crossroads. The next year will decide if it's condemned to economic stagnation, social unrest and political subjugation, or if it can emerge from a crisis that is first and foremost cultural. Either way, Europe and the Euro won't be the same. If they will still be.


1. “The Euro should not exist” (1). This is not a slogan of the Indignants movement, nor a motto of some no global caucus. It comes courtesy of the Swiss banking giant UBS and it opens a recent report titled Euro break-up – the consequences, published at a time when the Eurozone leaders didn't even dare to mention such a calamitous outcome. The last line sums up the analysts' view: “The only way to hedge against a Euro break-up scenario is to own no Euro assets at all.” (2) 

These blunt statements summarize Euro's tragedy. An unlikely currency, technically self-destructive and born to separated parents, keen on simulating a non-existent unity, with questionable results. Many angles can be chosen to evaluate causes and effects of this hazardous geopolitical endeavor. But probably no observing platform is better than Italy. For despite appearances, Italy has never been so powerful, its strength being its contagious weakness. Sure, Italy is Europe's third economy and the world's seventh. But it's ballasted by the world's third public debt stock and by a pathological lack of growth, that in the last decade has put it behind all countries but Haiti in terms of economic performance. All this, combined with a credibility crisis that's been building up for centuries and that was boosted by the tragicomic twilight of Silvio Berlusconi's government. 

But this is still not enough to project Italy at the center of the European and Western pandemic, that threatens to spread worldwide. After all, Japan features an almost double deficit/GDP ratio, and the US is not far from that edge. But the Japanese and the Americans happen not to be part of the Euro, whose long journey began in Rome in 1957 and in the Eternal City could come to a premature end. 

If Germany and (to a lesser extent) France are apparently spared by the threat of sovereign defaults, no one can actually rule out such a scenario for Italy. The “Italian moment”, as the New York Times defined a possible Italian bankruptcy (3), still looms on the country. But if Italy fails, the Euro itself is doomed. In the worst case scenario, the end of the single currency would jeopardize Europe's and America's banking sectors, whose balance sheets are stuffed with junk-bonds, thus lending a punch on the fragile US recovery, exposing the structural flaws of China's economic miracle and igniting what would likely be the worst global recession ever. 

To avert such an Armageddon, Rome must be saved. The world looks at Italy with sternness. To the most sympathetic ones, the country appears like a sweet land with a lose state and an abundance of mafias. A land used to prosper on protectionism, competitive devaluations (at least before the Euro) and tax evasion. According to Morgan Stanley, the Belpaese sits on an estimated private wealth of 8,6 trillion euros: Eur 340 thousands per household (4). On average, Italians are rich – the richest among industrialized societies. But they got indebted for 1,9 trillion euros. How can you trust such a pleasure-loving but irresponsible people? You can't. That's why – the European gospel goes – Italy must be put under fiduciary administration. Either, it must be banned from the single currency. 

2. How did Italy get to this point? Basically, through self-denial. The origin of Italy's historic pro-European stance is anti-Italian. Italy co-founded Europe hoping it would turn out to be the opposite of its own not-so-efficient state. But this choice was never put under real scrutiny before the current crisis. Italians – both elites and public opinion – got used to see their national and European goals as ones. Not differently from Brussels, but maybe more earnestly, the Italian establishment promoted a vision of Europe as something inherently good. In doing so, the EU and its currency ceased to be an option, just to become a historical necessity. You don't discuss what you can't change. 

But giving up sovereignty and escaping from reality in the name of a European religion brings about the risk of irresponsibility. For it incentives the state's retreat from its duties while glorifying the role of private actors like Mr Berlusconi (and many others), who filled the social and political vacuum left by the state's withdrawal. Here lies the origin of Italy's national crisis. 

Now Europe and the world want Italy to be responsible, reliable, mature. This forces Italians to equip themselves with a strategic mentality based on facts, rather than on a failed myth. For the Euro has never been a necessity more than it's been a geopolitical project born out of a choice. From a strictly monetary point of view it's an anomaly, being the only currency in history that lacks a sovereign, someone able to act as a guarantor and a lender of last resort. Worse: it has seventeen pseudo-sovereigns, with different (often antithetical) economies, cultures, societies and political systems, squeezed in what is hardly an optimum currency area. Decades of Euro-rhetoric have not produced a plausible argument for giving Estonians, Cypriots, Greeks, Italians, Luxembourgers and others a common currency. This applies even to France and Germany, especially if the latter – praised benchmark of the Eurozone — sticks stubbornly to its corporative capitalism, faithful to the “social market economy” theorized an put in practice by Ludwig Erhard, Economy minister (1943-63), Chancellor (1963-66) and father of Germany's post-war economic boom. 

Should we infer that the Euro was an act of collective folly? Not really. For each and every actor involved in it had its own reasons. France, Italy and most of the original twelve participants, conceived the single currency as a means to force Germany into sacrificing the Deutsche Mark and the Bundesbank on the altar of European integration. From this point of view, the Euro is a byproduct of Europe's – especially France's - germanophobia, exacerbated by the German reunification (3 October 1990). Maastricht (1991) is Versailles (1919) revisited: a treaty meant to punish Germany. This time for sweeping away the iron curtain, pushing the EEC into the darkest of its nights. By socializing Germany's currency and central bank, the French aimed at arrimer l'Allemagne, tieing Berlin to Paris and exorcising the fears arose by a resurgent “Great Germany”. Those fears are engraved in Charles de Gaulle's answer to Henry Kissinger, who once asked the General how could France prevent Germany from dominating the EEC. “Par la guerre” (“By war”), replied the French leader. (5) 

As to Germany, in Maastricht it undersold its most precious gems to France and the rest of Europe. In exchange, it got the infamous budget criteria, quite absurd and all but binding. A drug for the average German, to deceive him into believing that “Euro” was just another name for “Mark”, and that the ECB was a clone of the glorious Bundesbank. Mission unaccomplished. Celebrated by the Europeanists as “the Euro hero”, much less by the Germans for the very same reason, Helmut Kohl did not give voice to his compatriots' mood in Maastricht. That mood was clear: back then, the Germans did not want to give up their national currency. But when it comes to the European Union, European public opinions don't count much. Especially the German one. No wonder then that today 3 out of 4 Germans don't like the EU. As to the Euro, better not to mention it: 56% of Germans are against spending money to save the single currency, vs 27% who are in favor. In France it's just the opposite: 54% want to savage the euro, while 25% think it's not worth it. (6) 

3. Germany's response to the French offensive takes shape - after the Maastricht summit - in the Euro-core project (Kernereuropa), as hinted in 1994 by Wolfgang Schäuble and Karl Lamers, two leading Christian-democrats: for the Euro to resemble the Deutschmark, only countries that share Germany's monetary culture (the Netherlands, Belgium and Luxembourg) - with the notable geopolitical exception of France - have to be counted in. Enlarging the EU hinders its integration, broadens the gap between different interests and breeds a “regressive nationalism in almost every member state”. 

The Euro-core project is inherently anti-Italian and anti-Mediterranean. But it is also inherently anti-French, as it leaves Paris alone against Berlin and “its” Benelux. Finally, it counteracts the Anglo-American strategy of neutering the EU by pushing for its enlargement. 

Germany would now like to achieve, via the Euro-disaster, what it failed to get in the mid-Nineties, when Italy and Spain sneaked in: a Neuro, that is a Euro-Deutschemark just for Germany, Austria, France, the Netherlands, Luxembourg, Finland and maybe a few more, but without Rome and Madrid. 

The good Europeanist always hides his cards. Ever since Monnet, Europe must not be Europeans' business. Ideas of Europe (or its lack thereof) almost always reflect the options put out not by the EU Commission or the EU Parliament, but by the leaders of the major member states, Germany above all. The pro-European ideology just disregards the people. Hence, the suspension of democracy in the name of emergency or the rise of Europhobic and possibly xenophobic leaders in the heart of the Old Continent could be just a few steps away. 

There's much more than just economy at stake: European social life, institutions, geopolitics are in danger. Europe's founding fathers used to portray it as an insurance against war, but Europeanism without Europeans has eroded EU citizens' confidence not only in the utility of the Union, but also in its ability to secure internal peace. There is an ongoing virtual war in the Eurozone, fought with seemingly non-lethal weapons that nevertheless spread despair in the heart of our less and less cohesive societies. 

The main goal of the Merkel-Sarkozy duo's action (or inaction) is reelection, respectively in autumn 2013 and spring 2012. Time is running out, so Sarkozy could take on very strict fiscal constraints and abide by the rules of German austerity, while Merkel could maybe later swallow an acceptable (to her voters) version of the Eurobonds, as long as they're enshrined in a context of absolute monetary severity, and she may even not stand against the purchase of bonds by the ECB. 

But there's more, as the French and the Germans are on a rush. They want to seal a bilateral Schengen-style deal, to be signed by March next year by the willing and able member States (not the UK), starting with the “virtuous” ones: Austria, the Netherlands, Luxembourg and Finland. The foolishly shaped semi-automatic “brakes” would impose to every single partner the unachievable goal of reducing its debt/GDP ratio by 5% every year. As for Italy, it would mean cutting to zero its 120% debt/GDP ratio in 20 years. Quite impossible. The only certain effect of such a suicidal mechanism would be to deepen the ongoing recession, to promote social upheavals and maybe a political or even geopolitical crisis, by enhancing the chances of secession of the so-called “Padania” - that is, Northern Italy. 

Arguably, the Eurozone would also split at least in two. The Neuro (Northern euro) would be born, and it may give birth to a federation. The “vicious” states would either be relegated in the Seuro (Southern euro) purgatory or be forced back into their national currencies. As far as the 10 non-Eurozone EU members are concerned, they could either regroup in a super-EFTA or stand freely outside the EU. 

4. Beware Italy. The country is at a crossroads. Both ways look narrow and with high burdens. 

The first road leads to total subjugation: today via ECB and Germany, tomorrow also via an IMF loan. The Fund and the EU institutions would watch the Super Europe while it loots Italy's assets, as shown by the EU Commission ultimatum given to Rome to give up its golden shares in strategic companies like Eni, Enel, Finmeccanica and Telecom. That would end up in a plundered, humiliated country, torn by social unrest, secessionist and authoritarian compulsions. 

The other road rejects any form of compulsory administration, burdens Italians with long and harsh sacrifices, but harnesses the strength of their weakness in order to save themselves and what's left in solidarity among fellow Europeans. That strategy may unfold in three concentric circles 

The first would be getting ready to do what it takes to stay in the Euro, that is subverting the Neuro. Italy could start with a serious tax increase for the rich and by taking back the vast parts of its territory currently in the hands of organized crime. Italy is home to 'ndrangheta, the biggest mafia in the world, that together with Cosa nostra and camorra earns at least Eur. 150 billions per year. 

The second would be aimed at protecting the ECB from itself. The Eurotower shall not sink with the Euro just for the sake of German orthodoxy. The costs of financial austerity have to be balanced by the ECB guarantee on Eurozone banks and sovereign debts. The institution has to become a lender of last resort – a move that, together with the zero setting of the rates, would give the continental economies (that also absorb the bulk of German exports) new steam. 

The third would be working for a European Confederation (EC), a transnational democratic state, as opposed to the current EU. In order to have the EC, at least five states are needed: Germany, France, Italy, Spain and Poland. One cannot have Europe without any of them. 

The outlook for this plan looks daunting, but the alternative for the Italians and other Europeans is an assured financial crack, structural impoverishment and social chaos – which is often followed by illiberal drifts. 

References: 

1 – UBS Investment Research, Global Economic Perspectives, Euro break-up – the consequences, September 9,2011, p.2. The report is edited by Stephane Deo, Paul Donovan and Larry Hatheway. 
2 – Ibidem, p. 17. 
3 – J. EWING, “As European Nations Teeter, Only Lenders Get Central Bank's Help”, The New York Times, November 14, 2011
4 – L. THOMAS Jr., “Fate of Euro May Hinge on Italian Savers”, The New York Times, November 22, 2011
5 – B. CONNOLLY – The Rotten Heart of Europe. The Dirty War for Europe's Money – London 1995, Faber&Faber, p. 7. 
6 – YouGov poll conducted between November 4 and 7, 2011, www.yougov.com

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