Italy’s public debt stands at a staggering €2.3tn, or 132 percent of GDP: the third largest in the world after Japan and Greece. Furthermore, Italy’s banks hold the largest share of Europe's non-performing loans, totalling €224bn. Unlike Greece, which is a relatively small player in Europe, Italy has the third-largest economy in the Eurozone, contributing more than 15 percent of its overall GDP. Italy has now become a huge risk to the financial stability of the whole of the European Union.
This risk was brought into sharp relief in May when the President of the Republic, Sergio Mattarella, stepped in to veto the proposed candidate for Minister of Finance in the list of ministers presented to him by the Five Stars Movement and the League, as they moved towards forming a coalition government after months of talks. The reason for Matteralla’s refusal was that the proposed candidate was known as a Eurosceptic and had raised the idea of Italy possibly leaving the euro.
The spread on the yield on Italy’s two-year bonds suddenly spiked, reaching 2.73 percent: its highest level since the previous crisis of 2013. The Italian stock market was also hit. In particular, the shares of Italian banks took a dive. Unicredit, Italy’s number-one bank, saw a fall of 9.2 percent in the value of its shares; followed by its second bank, Intesa Sanpaolo, losing 7.2 percent. The crisis had a knock-on effect around Europe, especially in its weaker economies, such as Greece, Portugal and Spain, and even further afield.
Italy’s mountain of debt
The European Central Bank is particularly exposed to any serious financial crisis in Italy, as it holds €340bn of Italian bonds: about 15 percent of Italy’s overall debt. Italian banks also hold large amounts of government bonds, in effect propping up the state finances. So long as the state pays up, all is well and good. In the past 10 years, the Italian state has paid up €700bn in interest on its accumulated debt. But if the yield on state bonds were to become excessively high, the state could default on its payments, triggering a banking crisis that would not stop at the borders of Italy, but would engulf the whole of Europe, as the total amount of non-performing bank loans across the continent has already reached €938bn. Thus, a crisis in Italy would have a dramatic impact on European finances. Italy could thus be the trigger for a major world financial crisis. All this explains why the serious, bourgeois, economic commentators are concentrated on what is happening in Italy.
The European Central Bank is particularly exposed to any serious financial crisis in Italy / Image: Flickr, ECB
The underlying problem of Italy’s economy is its low level of productivity and thus its weak competitiveness, meaning it sells less than it used to on the world markets, takes in lower revenues and keeps falling further and further behind its main competitors. A recent IMF report showed that, since the introduction of the euro back in 1999, unit labour costs in Italy have grown by around 20 percent compared to Germany and 10 percent compared to the Eurozone as a whole.
Long gone are the golden years of the 1950s and 1960s when Italy was growing by around 7 percent per year. Now Italy is gripped by low growth, only now emerging – very slowly – from ten years of de facto stagnation, higher unemployment (about double what it was before the 2008 world crisis) and living standards falling sharply for a large layer of the population.
The new government
As we explained in a previous article:
“The Italian elections – a political earthquake in the true sense of the word – have produced what had long been predicted: a hung parliament, with no party, or coalition of parties, capable of expressing a majority government.”
Since then, the Five Stars Movement and the League managed to patch together a deal to form a coalition government in the form of a contratto ('contract'). One of the slogans that captured the attention of the poorer layers of society, particularly in the South, was the promise of unemployment benefit of €780. Another promise was to undo the hated pension cuts introduced by the previous Democratic Party-led government. It has been calculated that this could cost as much as 6 percent of GDP, something Italy’s state finances can ill afford. The League has added to the complicated economic equation by pushing for a tax reform, with the introduction of a basic flat tax which cuts taxes for companies, further reducing state revenues.
The newly formed government will not be able to carry out all its promised policies / Image: public domain
The government is trying to square the circle with such policies. In reality, it will not be able to implement all of its policies. To make sure that neither the Five Stars Movement nor the League gets out of hand, the Italian bourgeoisie has imposed one of its men as Finance Minister in the form of Giovanni Tria. In recent interviews released to the media, he has made it clear that all policies that this government implements will have to be sustainable, i.e. will have to stay within the limits dictated by Italy’s economic condition. He has ruled out expanding state spending to create jobs and so on, insisting that government policy must be based on the principle of reducing public debt.
Tria’s statements provoked the ire of activists in both the Five Stars Movement and the League. This is not what they voted for and it is already changing the popularity of the government. To be more concrete: the League is being enormously strengthened, while the Five Stars Movement is already in decline in the opinion polls.
Racism – a tool of divide and rule
How is the League achieving this? By diverting attention from the real economic and social issues to the question of the constant flow of migrants into Italy across the Mediterranean. Minister of the Interior, Matteo Salvini, the leader of the League, has been in almost permanent election campaign mode. He knows this government cannot last long, as it will not be able to solve the pressing problems faced by working people. It will not be able to create jobs nor increase pensions. On the contrary, it will be forced by the powers that be – the Italian bourgeois and the European Union officials – to buckle under and carry on with austerity.
Immigrants are being scapegoated by the League / Image: Irish Defence Forces
This explains the rabid racism promoted by Salvini. The message he is trying to get across is that all of Italy’s problems are due to the massive influx of migrants. That explains his order to stop ships carrying hundreds of migrants from being allowed to dock at Italian ports. Of course, this is pure propaganda, as while one ship was forced to go to Spain, another, with even more migrants, was docking at a Sicilian port. Nonetheless, Salvini is sending out a message that with him at the helm, something is finally being done about immigration. In so doing, he is bringing Italy into conflict with the rest of the EU. He lambasts the other European powers, accusing them of not taking their share of immigrants. In this, he has an easy task, as countries like France have blocked entry to immigrants across its border with Italy. All this is making Salvini very popular on the right, and the end result of all this is that the League will most likely emerge as the main party of the right in Italy.
Salvini's tough stance on immigrants makes him very popular on the right / Image: European Parliament
Five Stars weakening
In all this, it is the Five Stars Movement that is suffering the most. It is falling in the opinion polls as it begins to expose itself in the eyes of what is mostly a left-wing electorate. The Five Stars has won most of what would have, in the past, been the electorate of the old Communist Party. Talk to any industrial worker, especially in the South, and you will hear the same story: the workers in the factories voted overwhelmingly for the Five Stars Movement. The youth also massively voted for the Five Stars. That explains why the leader of this party, Luigi Di Maio, was made Minister of Labour, as it is he who will have to sell the government’s policies to the workers and youth.
The Five Stars Movement has already begun to be exposed / Image: fair use
However, it is not easy for the Five Stars to justify their coalition with the openly right-wing and racist League. And already the mood is beginning to change. In the factories, the almost blind faith that the Five Stars would radically change things has begun to disappear. There is no longer the same enthusiasm as before. It is early days, but the process of learning has begun. With time it will sink into the consciousness of the masses that this government is not going to improve their living conditions. At the moment the idea is being spread that, just as this government is taking a firm stand on immigration and challenging the EU institutions, so will it deal with the pressing issues of jobs and wages. But one does not flow from the other. At the moment what we have is an illusion, but the illusion will dissipate.
What will happen then? The workers and youth of Italy have tried to change things on the political front. As the old, established trade union leaders were not putting up a fight, they used what they had to hand: their votes. They turned against the Democratic Party, which has faced a major collapse in support, and voted in the Five Stars, believing that because it was a new party that promised to clean up corruption and guarantee everyone a basic minimum income, this would be the beginning of major change.
However such change is not going to materialise. And because the Five Stars is a new phenomenon that has not yet established a tradition, it will be very quickly exposed. There are already tensions between the more openly-pro-capitalist-wing of the Five Stars and its ‘left wing’. The Five Stars will thus split and fragment at a certain point. In this context, once it becomes abundantly clear to all that this government is not the government of change everyone desired, we will see a re-emergence of social movements. When the workers lose faith in the political front, they will be forced to move onto the trade union front. And given the asphyxiating stranglehold of the reformist trade union bureaucracy, we will very likely see movements from below, initially against the trade union bureaucracy, going back to the old traditions of the Italian working class of spontaneous, rank-and-file movements, akin to those that led to the Hot Autumn in 1969.
Crisis of the left and tasks of the Marxists
All the old left is gripped by a serious state of depression. They see nothing but racism and black reaction. There is talk of fascio-leghismo: a growing ‘fascistisation’ in the form of the League. There is even an element of blaming the working class itself for the state the left finds itself in. The truth is that the official, traditional left – in all its currents – has contributed to the present situation. At the forefront stand the old leaders of the Communist Party: the bulk of whom went on to form the Democratic Party. The irony of the situation is that the bourgeois media have successfully built up an image of the ‘left’ as being the Democratic Party: a party of the bosses. The leader of the League uses this to depict himself as the only defender of working-class people.
The task of the Marxists is to build up their forces, win and educate a new generation of activists, and prepare to intervene in the movements that will inevitably unfold / Image: own work
This, of course, is a very temporary state of affairs. It also ignores the real, underlying anger and frustration of millions of workers and youth. No one is offering a genuine solution to their problems. And the irony of the situation is that here we have a country that once had a powerful Communist Party with around 2m members, but which now has no political expression for the working class. There is a huge vacuum on the left and this explains the impasse in the situation. But the impasse will be broken at some point. The mood among the youth is a very radical one, which is expressed whenever there is an issue that attracts large numbers of young people.
While Salvini can whip up racism over the immigration crisis by blocking a ship from docking in Italian ports, the flipside of this is a feeling of disgust and anger among another layer of the population, especially a section of the youth. And once it becomes clear that this government has nothing to offer the workers, the youth or the unemployed, the floodgates will open to unleash a new period of intense class struggle.
In these conditions, the task of the Marxists is to build up their forces, win and educate a new generation of activists, and prepare to intervene in the movements that will inevitably unfold.