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Who is to blame for Italy’s recession?

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Summary:
The Italian economy entered a recession at the end of last year, but as Adriano Cozzolino writes, there is little agreement over whether the current government, which entered office following the 2018 Italian election, should be held responsible for the economic situation. He argues that the country’s frailties stem from the systemic failures of a political economy model built over the last four decades, but that the sense of confusion that now exists in Italian politics is unlikely to help in the quest for a solution. A few days ago, Italy found out it had entered a recession at the end of last year. After a decade of poor growth and stagnation – let alone rising income inequalities and poverty – the country registered a contraction of 0.2 percent of GDP in the last three months of 2018.

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Who is to blame for Italy’s recession?The Italian economy entered a recession at the end of last year, but as Adriano Cozzolino writes, there is little agreement over whether the current government, which entered office following the 2018 Italian election, should be held responsible for the economic situation. He argues that the country’s frailties stem from the systemic failures of a political economy model built over the last four decades, but that the sense of confusion that now exists in Italian politics is unlikely to help in the quest for a solution.

A few days ago, Italy found out it had entered a recession at the end of last year. After a decade of poor growth and stagnation – let alone rising income inequalities and poverty – the country registered a contraction of 0.2 percent of GDP in the last three months of 2018. Despite this being partially expected, and following patterns of poor GDP growth throughout the Eurozone, the news resonated across Italian politics, especially given Luigi Di Maio, the leader of the Five Star Movement who is serving as Deputy Prime Minister and Minister of Labour, had recently stated that the country could be on the verge of an economic boom of the kind it experienced in the 1960s.

The real question, though, is to what extent the current government can be held responsible for the recession and long-term stagnation. Is the problem Italy’s government, or rather, as some have argued, should the blame be placed on the Eurozone’s political and economic model, which has failed to generate balanced and inclusive growth for its member states.

Political confusion

The Five Star Movement’s success in the 2018 Italian general election, where it emerged as the largest single party and went on to form a government with the League, has been read as a revolt from poor and middle-income households, especially in the South. The party’s political discourse proved effective at channelling the rising frustration of the working class, the unemployed, young precarious workers, and the new working poor.

Figures from the Italian Bureau of Statistics (Istat) show that absolute poverty rose to include around five million individuals in 2017 (the highest level since data started to be collected in 2005). Mass emigration is yet another phenomenon that is marking the decline of Italian society, with many young Italians sensing they have little prospect of a stable working future and a decent salary if they remain in Italy. It is difficult to prove them wrong. After the introduction of Matteo Renzi’s centrepiece labour reform in 2015 (termed the ‘Jobs Act’), employment rates improved slightly, but this was almost entirely down to temporary contracts, while non-temporary labour contracts declined significantly. That is even if we ignore the issue of wage stagnation.

Who is to blame for Italy’s recession?

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The answer from Eurozone governments and the EU’s institutions to the financial crisis emphasised fiscal consolidation and structural reforms. Many social democratic parties across Europe supported a package of austerity, privatisation, public sector liberalisation and labour market flexibility policies, as well as the use of taxpayers’ money to recover the losses of the financial sector. The perception has been that the costs for the crisis have been assigned to working people, while the postwar social contract on which welfare-democracies were built has been called into question.

The Italian Democratic Party (PD) is a case in point. The PD backed the technocratic government led by Mario Monti, which applied austerity policies and a highly contested pension reform to raise the retirement age. It also oversaw a rise in the country’s debt and a drop in employment and industrial production rates. Following the 2013 Italian election, the PD then took over in government, but largely neglected the underlying socio-economic imbalances in society, leading to a historic defeat in the 2018 election.

A recent study illustrates that the Democratic Party now draws support to a large degree from members of the upper classes, particularly those in city centres, rather than from working class citizens. Electoral support for the PD increases with income levels: from 13 percent among the working class, to 18 percent among middle class voters, and 34 percent of upper class voters. Much has been made of the PD’s pivot away from the left in terms of its policies and discourse, and this appears now to be visible in its electoral base.

This mutation of the centre-left is also evident in how they oppose the current Five Star Movement/League government, with the party now effectively attacking the government from the right of the policy spectrum. During the recent dispute between the EU’s institutions and Italy over the government’s budget deficit, the Democratic Party found itself in the position of taking the side of the European Commission in opposing a plan by the government to loosen austerity. The same can be said of the Five Star Movement’s plan for a ‘citizens’ income’, which has been criticised by prominent figures in the PD. Against the backdrop of rising poverty levels, notably among the ‘working poor’, this has played poorly with many of those on the Italian left.

The current government, on the other hand, has pushed a remarkably fuzzy set of issues onto the political agenda, partly due to the different political constituencies and discourses embraced by the Five Star Movement and the League. Matteo Salvini, the League’s leader, has come to dominate political debate in the country through a carefully calibrated communication strategy mixed with anti-immigration rhetoric. This has left little room for questions about austerity or other urgent political economy issues.

Italy’s recession

So against this political backdrop, who should voters blame for the country’s recession and economic stagnation? The decade of austerity politics which began in 2008 has left Italian society polarised and with a pessimistic view of the future. This is exacerbated by the fact that Eurozone states have increasingly turned toward an export oriented economic model, with debt at its heart, purposely favouring deflationary internal demand while promoting long-term wage moderation to enable competitiveness in global markets, regardless of whether this generates balanced and inclusive growth.

Thus, as soon as other international economies experienced a dip in growth due to other factors (notably trade disputes), the export-led economies of the Eurozone, Italy among them, slowed down accordingly. It would be misleading to blame the systemic failures of a political economy model built over the last four decades on the current government. The real problem is that Italy and the Eurozone are still some distance from having an open political debate about alternatives to the economic policies that have produced this situation.

The Italian political picture is now more confused than ever, with the PD shifting to the centre, the government agenda being hijacked by Salvini’s attempts to build his own political brand, and the Five Star Movement lacking the political tools and clarity of vision to offer tangible solutions. Meanwhile, the EU’s institutions show little sign of abandoning austerity orthodoxy in their engagement with countries such as Greece. In this context, the debate that is sorely needed in Italian politics will likely remain out of reach.

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Note: This article gives the views of the author, not the position of EUROPP – European Politics and Policy or the London School of Economics.

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Adriano Cozzolino
Adriano Cozzolino holds a PhD in International Studies, and has previously been a visiting doctoral researcher at the University of Manchester and Radboud University. His recent publications include articles in
Globalizations and Interdisciplinary Political Studies.

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