The Next France

By Neil Unmack

Italy is adding a bum note to Emmanuel Macron’s ode to joy. While it’s encouraging that a Europhile will take the French presidency after Sunday’s vote, attention can now turn to Europe’s other crisis-in-waiting.

Elections are coming in Italy, and there are more of the ingredients for a populist shock than in France. The economy has fared much worse since the creation of the euro zone, with growth averaging zero since 2001, according to the International Monetary Fund. GDP per capita has fallen in that time. The IMF expects the unemployment rate to reach 11.7 percent this year, 2 percentage points higher than in France.

Anti-EU forces are also spread widely across Italy’s messy political landscape. Stagnation has fuelled support for the 5-Star Movement, which could lead Italy out of the euro zone and currently polls just below 30 percent. Mainstream parties are shaky. The left fragmented after former prime minister Matteo Renzi lost his referendum on constitutional reform in December. The right is an awkward alliance between ageing former premier Silvio Berlusconi and more radical anti-EU parties, like the Lega Nord. The risk is that 5-Star forms a coalition with the Lega after elections that must take place by May next year.

The economy is picking up, but tighter monetary policy, as the European Central Bank reins in bond buying, could strangle the recovery, as could an overly stern fiscal policy. Italy needs to cut spending or increase taxes by 2 percentage points to meet European targets through 2019. Job losses from the restructuring of banks and bankrupt national airline Alitalia could become a lightning rod for anti-EU sentiment.

Europe can help. Italy is likely to miss its fiscal targets anyway, but loosening bloc-wide budget rules to encourage investment and spread out cuts over a long period would cement the recovery. A strong France, aided by Macron’s victory, might persuade Germany to spend more, and give other countries freer rein. However, even if a political shock is avoided, the next election may produce a weak government with no mandate for taking tough decisions to boost growth. Italy could be bringing discord to the region for years.


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