Italy’s political “Inferno” puts Europe under threat

Italian journalist Silvia Marchetti writes for Glint on the political crisis in Italy and what it might mean for the EU and the single currency 

Europe holds it breath as Italy’s political mayhem threatens to jeopardise the European Union and potentially pave the way to a euro reversibility.

The country’s two populist parties – The League led by Matteo Salvini and the anti-establishment Five Stars Movement, led by Luigi di Maio – won the March 4th vote but failed to secure a stable majority. Their anti-European government was vetoed by Italy’s president Sergio Mattarella, so we now face a second round of elections which could take place as soon as July.

The second vote is set to determine not just the future of Italy but that of Europe.

Populist forces, angry with Brussels’ tight fiscal rules, Germany’s austerity diktats, the migration emergency and the European Central Bank’s binding banking regulations, will campaign against Europe and what they deem the “euro disaster”.

If The League and the Five Stars Movement win again, with more votes, the result will have a negative impact at the supra-national European level by delaying the EU’s integration progress and boosting populist fronts in other countries. A disruptive domino effect could ensue.

But their victory is highly unlikely. The prospect of a government of alliance between the two parties looks limited following their helplessness in forming a cabinet following March’s election. Additionally, their policy proposals are as deceptive as they are ambitious: above all the “citizenship wage” which is fiscally unrealistic and unfeasible.

All roads lead from Rome

So it all comes down to this simple equation: Italy is a founding member of the EU, it cannot afford to abandon the bloc, and Europe can’t afford to lose Italy.

Despite denials and contradictions both populist parties have more than once supported an exit from the euro and the total cancellation of Italy’s debt share (some €400 billion) held by the ECB within its asset-purchase program.

Was Dante a poor choice to adorn the euro?

In the worst case scenario of an Italexit – a nightmare which is haunting markets and can be read in the spread spike between German and Italian bonds – the single currency reversibility would become true. Other rebel “copycat” member states would be likely to follow Italy’s steps, arguing that if a founding, central state, does it, why not the peripheral ones that joined the union at a much later stage and who play a smaller role on the European stage?

Without the euro “shield”, Italy’s already high public debt of €2.3 trillion, the second largest in Europe after the Greece, would become unsustainable and the country would lose its solvency credibility, meaning investors would be scared to lend their money to the Italian state.

But pro-European forces will fight till the very end, explaining to Italians what the benefits are of remaining anchored to Europe, in both the Common Market and the Schengen Area.

Staying in the EU means mortgage and business loans would remain affordable. Saving accounts will not be violated. No border controls, no trade duties, no passports and no charges for mobile roaming – a tiny detail which could, paradoxically, convince euro-sceptic young voters.

Also, pro-Europe parties will argue for the premium of reform given by membership of the exclusive European Club. By staying inside the tent, Italy still has power to initiate change to European institutions and treaties.

Europe can be changed in order to make it stronger and more fit to face future challenges – this is likely to become one of the main slogans of the European defenders. The message they will try to convey in a simple way is that pursuing integration, having a common budget, defence policy, a single finance ministry, a political union and more pro-growth policies – instead of mere austerity – will benefit everyone.

In search of a bit of hope, Italians need just look beyond the Alps.

Last year’s French presidential elections saw the defeat of one of Europe’s largest populist parties. And Marine Le Pen’s Front National had a much larger consensus than both Italian antagonist groups put together.

Silvia Marchetti is a Rome-based journalist covering finance, economics and culture. She writes regularly for the BBC, CNN, Newsweek, The Telegraph, The Guardian and Spear’s