{"id":62475,"date":"2021-02-15T11:14:30","date_gmt":"2021-02-15T00:14:30","guid":{"rendered":"https:\/\/www.aspistrategist.ru\/?p=62475"},"modified":"2021-02-15T11:14:30","modified_gmt":"2021-02-15T00:14:30","slug":"whatever-it-takes-in-italy","status":"publish","type":"post","link":"https:\/\/www.aspistrategist.ru\/whatever-it-takes-in-italy\/","title":{"rendered":"Whatever it takes in Italy?"},"content":{"rendered":"
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In 2012, European Central Bank President Mario Draghi<\/a> pulled Europe from the depths of economic crisis with his famous promise to do \u2018whatever it takes<\/a>\u2019 to save the euro. Now, Draghi\u2019s native Italy is hoping he can save it, too, by leading a new unity government. But even for \u2018super Mario\u2019, success is far from guaranteed.<\/p>\n

Draghi\u2019s skill, competency and credibility are not in question. But the challenge ahead should not be underestimated. Not only has Italy\u2019s long-running economic crisis been compounded by the catastrophic Covid-19 pandemic; the country has been mired in a paralysing political crisis.<\/p>\n

If Draghi is to address the Covid-19 emergency effectively, let alone fortify Italy\u2019s economic foundations, he will first have to find a way to navigate the country\u2019s intricate politics. That means, for starters, securing the full support of the anti-establishment Five Star movement (M5S), something he appears to have done<\/a>.<\/p>\n

In Italy\u2019s 2018 general election, the M5S became the largest party in parliament, thanks to its Eurosceptic platform. The party\u2019s leadership even accused<\/a> Draghi, who left the ECB the following year, of \u2018attacking Italy\u2019. While the M5S has softened its stance considerably since then, and pledged its support for the Draghi-led government, it remains deeply divided, and many of its members consider this support as an unpalatable U-turn.<\/p>\n

But the M5S is only part of the equation. Draghi\u2019s new government will probably also need the votes of small centrist parties and former Prime Minister Silvio Berlusconi\u2019s Forza Italia, and possibly even Matteo Salvini\u2019s far-right Lega, in order to secure a parliamentary majority. But, even if he can form such an alliance, it will remain unruly and could easily become hostage to the disputes, preferences and whims of its members.<\/p>\n

And there is much about which Italy\u2019s political forces could disagree. The Draghi government\u2019s agenda will have to include both short-term emergency interventions and long-term structural reforms\u2014all of which will require significant public spending. The EU\u2019s \u20ac750 billion (A$1.17 trillion) Covid-19 recovery fund\u2014from which Italy, one of the countries most affected by the coronavirus, should get some \u20ac200 billion (A$312 billion) \u2014has been devised with this in mind.<\/p>\n

Draghi has acknowledged<\/a> that any solution to the Covid-19 economic crisis \u2018must involve a significant increase in public debt\u2019. But, for Italy, that increase must be significant indeed.<\/p>\n

When the Covid-19 shock arrived, Italy had still not fully recovered from the 2008 global financial crisis. In 2020, the country\u2019s GDP contracted<\/a> by nearly 9%. Add to that the surge in public spending, aimed at cushioning the blow to businesses and households, and the government\u2019s debt-to-GDP ratio has soared<\/a> to approximately 155%.<\/p>\n

GDP is expected to expand by just over 4%<\/a> this year. However, once the rebound from last year\u2019s contraction is over, GDP growth will slow significantly. Real output thus appears unlikely to return to pre-pandemic levels\u2014thereby reducing the debt-to-GDP ratio\u2014within the next few years.<\/p>\n

According to Draghi, the key to keeping high levels of debt sustainable<\/a> is to channel public spending towards \u2018productive purposes\u2019, such as education and skill formation. But Italy\u2019s political parties may not agree with Draghi\u2019s distinctions between \u2018good\u2019 and \u2018bad\u2019 debt. There is already widespread disagreement on how to spend the money provided by the EU recovery fund.<\/p>\n

More fundamentally, while productive spending is part of the debt-sustainability equation, keeping debt-service costs low is also essential. For that, a functioning government is a necessary, but not sufficient, condition. The politics need to be credible as well.<\/p>\n

Draghi\u2019s personal stature will help here\u2014Italy\u2019s stock and bond markets rallied at the mere thought of a Draghi-led government. But no one person can guarantee a country\u2019s ability to meet its debt obligations. And Italy\u2019s dysfunctional politics have consumed many good men (who still dominate the country\u2019s politics) in the last quarter of a century.<\/p>\n

If Draghi is to avoid this fate, he must focus on laying the groundwork for Italy\u2019s economic transformation, rather than leading the process. This means setting a time limit on his leadership: no matter how much pressure he faces, he should not remain prime minister past 2022, and perhaps not even that long. In fact, a general election should be called as soon as possible.<\/p>\n

There is no recipe for remedying Italy\u2019s political crisis, and no one should expect Draghi to provide one. A technocratic government needs to be effective and short-lived, allowing its legacy to be defined by the work of its successors. This means that Draghi\u2019s focus should be on guiding Italy\u2019s political forces towards sustainable policy decisions.<\/p>\n

It also means that those forces must figure out how to engage with one another constructively. That is, after all, the mark of a mature democracy. Attempting simply to suppress some voices, such as those of the Eurosceptics and even fascists, could cause pressure to build, leading to a potentially devastating explosion. Defusing such forces through dialogue and effective governance is the only credible way forward.<\/p>\n

Italy\u2019s current crisis, coming at a time when citizens are languishing in lockdown and the much-touted vaccination program has reached less than 5% of the population, has further depleted Italians\u2019 confidence in their political leaders. With deft and bold action, Draghi can go some way to restoring that confidence. But he cannot do it alone.<\/p>\n","protected":false},"excerpt":{"rendered":"

In 2012, European Central Bank President Mario Draghi pulled Europe from the depths of economic crisis with his famous promise to do \u2018whatever it takes\u2019 to save the euro. 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