At the beginning of Europe, there was Italy. Ancient Rome copied Greek culture, but politically the Roman Empire dominated the Mediterranean universe and set the agenda for future empires. Later, the Renaissance in Florence invented modernity and from there “Western” values took over the world. Italy was also a founding member of the Treaty of Rome. However, the recent elections have now sounded the death knell of the European Union as we know it. Once considered as the most pro-European country in the Union, nearly two thirds of Italian voters have chosen anti-European parties. It is a lesson for the rest of Europe.
Coming just a few weeks after Britain announced that it will have a referendum about leaving the EU, and after repeated failures over the years to ratify European treaties, the message is clear: fewer and fewer people still think that the European Union serves them well. For over four years, more than two thirds of Europeans have thought that their national economy is in “bad” shape, and Europe has not helped them. In Italy, their percentage is even 93%. Only 33% of Europeans trust their common institutions and only 30% have “a good image of the EU”. In Italy the proportions are similar, but still marginally better for Europe than for national institutions. This dramatic shift in public opinion is not an isolated case in Italy. It reflects the European Union’s incapacity to implement coherent anti-crisis policies. Every member state is supposed to do its “homework” in isolation, but in reality the common welfare is becoming hostage to partial interests.
One may blame Italians for making the wrong choices and causing a crisis. After all, do they not elect criminals to high office, live with the Mafia in their backyard and avoid making necessary reforms? Silvio Berlusconi has been sentenced to jail for tax fraud; his right-hand man Dell’Utri has been found guilty of tax fraud, false accounting, and complicity in conspiracy with the Sicilian Mafia. In fact, organized crime has tightened its grip on the Italian economy during the economic crisis, yielding a turnover equal to 10% of GDP and making the Mafia the country’s biggest “bank”, thereby squeezing the life out of thousands of small firms. But who is putting up with the Mafia? Even the Democratic Party (PD) is enmeshed in the local politico-economic-financial complex: the financial scandal of Tuscany’s bank Monte Paschi di Siena has been one of the causes why the PD has lost its initial lead in the recent election. Ordinary people suffer from governments which are unable to deliver public services efficiently and they lack equality of opportunity in their own country. They are invaded by a feeling of helplessness and they try to escape the oppressive system of bureaucracy, church and social hierarchy by finding their own little “arrangements” outside the official rules. As Acemoglu and Robinson have shown, nations fail because they are ruled by narrow elites that organise society for their own benefit at the expense of the vast mass of people.
Yet, those who are standing up against this system of corruption are hardly much better. In 2007, the professional “clown” Beppo Grillo claimed, that even Scampia, the most dangerous suburb of Naples and one of the areas with the highest crime rates in Europe, actually had a lower crime rate than the Italian parliament’s membership. Chosen by Time Magazine in October 2005 as one of the “European Heroes ” for his constant battle against corruption and financial scandals, Grillo now presides over the strongest party in both chambers of parliament, although he did not even run for office himself because he has been convicted for manslaughter. At least he is consistent with his own standards, having previously declared that members of the Italian Parliament ought not to represent citizens if they have ever been convicted in a court of law. But simply opposing the establishment and calling for more transparency and an end to corruption is not a coherent policy program. When Grillo declared that “Euro exit can’t be taboo in indebted Italy”, he was ignoring the enormous advantages Italy has obtained from the euro. While the state paid over 13% of GDP in interest on its public debt (which is, by the way, a redistribution from low-income tax payers to high-income investors) in the early 1990s, this burden has been lowered to less than 4.5% since the country joined the euro. Follow Grillo, and this advantage melts away like snow in the Mediterranean sun. Social injustice would increase and sooner or later Italy would default on its sovereign debt with far-reaching consequences for the global financial system. Grillo’s ignorance and electoral victory have simply made the consolidation of Italy’s public debt more difficult.
Instead of assuming responsibility in Italy, it is easier to blame Europe, Merkel and Monti. This simplistic strategy has resurrected Berlusconi from the dead. But is there truth in it?
The Italian economy is the worst performing in the Euro Area. Figure 1 shows that its productive capacities have grown by only 8.6% in 14 years, less than in other Euro Area member state.
Since European monetary union started in 1999, productivity has fallen by -3.9% in Italy, while it has risen by +8.3% in the Euro Area as a whole. Inflation has been above the Euro average and real wages have increased less (5.7%) than in the Euro Area (8.5%). However, given the negative productivity growth, rising real wages have reduced profit margins by 9.6%, which explains the right-wing rebellion against taxes and Europe. Thus, there are clearly structural handicaps from which the Italian economy suffers and they are not the fault of the euro.
Could it be Merkel’s fault? I have a lot of sympathy with those who think that the German government’s insistence on austerity has made the Euro crisis worse. Yet, in Italy the argument is weaker than anywhere else, because the economy got worse during the “Second Republic” (essentially the Berlusconi years) instead of making use of the opportunities generated by the euro (see Figure 1 above). Figure 2 shows that Italy has had a positive output gap (i.e. demand was in excess of supply capacities) from the mid-1990s until the Global Financial Crisis in 2008. Yet, Italian companies did not invest like those in other southern member states and improve its productive potential. Excess demand only pushed prices above the Euro-average. Although the economy bounced back after the crisis in 2010, as it did in all member states, the Euro crisis has pulled Italy down again partly because the debt consolidation in the previous decade had been insufficient. The Monti government had to tackle this credibility problem, and it is true that the austerity drive reassured financial markets, but, given the fragile background of Italy’s economy, the social consequences were devastating. The election results reflect this dilemma, but no government could have solved Italy’s problems in one or two years. Thus, blaming Germany or Merkel for Italy’s calamities can only prolong the crisis because it prevents dealing with the real issues.
What will come next in the unfolding drama is hardly palatable. There will be no reliable government able to act for a long time. Markets will panic, spreads go up and Italian debt could creep to the point where it will be unsustainable. The famous ECB program of buying government debt (OMT), which has saved the euro last year, will not be applicable, because there is no government that can commit to responsible policies. Germany will persist with austerity for Europe at least until the general elections in September. This is an explosive cocktail. Political, financial and economic instability will affect the rest of the Euro Area. Greece, Ireland and Portugal are small member states and the Union had the capacity to bail them out, but Italy is too big and too incompetent for Europe to do the same. Hence, Italy has become dangerous. It risks bringing down the whole European edifice.
What can be done? It is possible – Italy is always good for a surprise – that the Italian elites find an arrangement that would prevent the worst. But even if that happened, the political crisis in Italy, which follows a similar crisis in Greece a year ago, shows that the unanimous policy consensus by European elites (often called la pensée unique) is increasingly contested and may not hold much longer. One may regret it, but it is a fact. Europe has to draw the conclusion. A deep and rapid change in the governance of the Euro Area is needed: with a common currency, the welfare of all European citizens requires to protect them against the partial interests of national elites or the emotional frustration of citizens whose voices are never heard. The common good of European citizens must be governed by a democratically controlled European government that responds to universal suffrage. European-wide elections must decide whether to implement austerity or demand stimulating policies. National elections cannot do that, as member states claim to be sovereign, which gives them the right to implement policies that can damage the Union as a whole. It is time to remember the fundamental idea of the French Revolution, namely that citizens are the sovereign, not states. In the summer of last year, a short debate emerged about Europe making “a federal leap”. It has quickly vanished after the ECB had calmed financial markets. And yet, the issue is not dead. National elites organise Europe for their own benefits, and political power remains concentrated narrowly in the intergovernmental institutions of the Union. To refer back to Acemoglu and Robinson, politics is why Europe fails.
Here is the European paradox: the exclusive reliance on national democracies in a deeply integrated European market has become a threat to the survival of the Union and to the welfare of people in all member states; but only democracy can ultimately save the European project. What is needed is a genuine democracy at the European level, with power and authority to implement policies in the interest of all citizens. Nothing else will do.
 See Gary Marks, 2012. Europe and Its Empires: From Rome to the European Union; JCMS 2012 Vol. 50.1: 1–20
 Standard Eurobarometer 78, Autumn 2012.
 Daron Acemoglu and James Robinson, 2012. Why Nations Fail. The Origins of Power, Prosperity, and Poverty. Crown Business, Random House, New York.