By Dr Giuliano Maielli, CGR fellow and Senior Lecturer in Operations Management at Queen Mary University of London School of Business and Management.
Walking through the Marché Bastille in Paris or the Japigia street market in Bari, you would find much the same types of produce at pretty similar prices. You would also find similarities in the topics of conversation among the traders and shoppers around the market; and now it is all the more likely that the EURO would be one such topic – for sure, making the top ten.
This may sound anecdotal, but there is little doubt that popular awareness of the debate about the future of the Euro – and whether the Euro has a future – is gaining momentum in the daily life of major Eurozone countries. Politicians are starting to listen.
It is unsurprising, therefore, that the programme of the recent International Conference on the Euro, Markets and Democracy, organised by the Department of Economics of Universita’ Gabriele D’Annunzio in Pescara, featured a round table with five Italian politicians: Gianni Cuperlo (form the ruling Democrat Party), Giorgia Meloni (founder of the “Brothers of Italy” movement and former Minister in the last Berlusconi Government), Fausto Bertinotti (Communist Re-Foundation Party), Matteo Salvini (Northern League, henceforth LN ) and Andrea Colletti (5 Stars Movement, henceforth M5S). Interestingly, only Cuperlo defended unreservedly the monetary unity of Europe. The “pro-Euro Party” might no longer be a clear majority in Bari’s street markets as well as in the Italian Parliament.
Yet, it is crucially important to reflect upon the diversity in the socio-political process that led different political movements to take up the idea that Italy needs a different European deal. The anti-Euro position of the Brothers of Italy, for example, seems to reflect more a political reaction to the events that led to the resignation of Silvio Berlusconi as Prime Minister in 2011. Back then, part of the political establishment deplored the perceived/alleged interference from Berlin in Italian internal affairs, with some even suggesting that Germany had been leaning on the ECB to intervene in the sovereign bond market and manipulate the spread between Italian and German bond yields to foster Germany’s preferred outcomes in Italian domestic politics. Without addressing the merit of this argument, it is clear that the debate on the Euro should be informed by the functioning of the real economy and the relationship between markets and democracy rather than vested political interests of declining political groups.
In this respect, the anti-Euro standing of M5S and to some extent LN seem to be much more ingrained in those societal sectors that have been most affected by de-industrialisation. To give an idea of the problem, between 2000 and 2013, car manufacturing in Italy decreased by 72.6% in terms of units produced while Fiat’s total output (excluding Chrysler) decreased by about 1% (http://www.oica.net/category/production-statistics/2013-statistics/). Fiat accounts for about 99% of Italian output in car manufacturing.
Yet again, this is a problem of currency as much as a problem of productivity and strategic responses to market segmentation and product/service innovation. Fiat kept in Italy the production of all upmarket brands (such as Maserati), moving to Brazil, Poland and Turkey the bulk of production for those brands competing in the price-sensitive segments of the market. Crucially, the output of Maserati is nowhere near the output of the German manufacturers Mercedes and BMW for products with comparable level of quality, suggesting that productivity does not keep the pace with Germany in the income sensitive segments of the market which are less disadvantaged by a strong currency.
If so, more flexibility in the exchange rate would not harm those engaging in quality manufacturing (which post lower productivity than their German counterparts anyway) but would actually help those competing in the price sensitive segments of the market to bring manufacturing back onshore (i.e. into Italy). As things stand, Italy seems uncompetitive in relation not only to Germany but also to competitors located outside the Eurozone.
In this context, the response of the political establishment after 2011 in the sphere of structural reforms was confined to an attempt to address entry/exit flexibility in the labour market. Albeit relevant, increasing entry/exit flexibility would not help per se to address those issues associated to the very fabric of competences and skills in the broad Italian productive system which greatly affect productivity, especially in the upper segments of the market. Also, it seems that the so far partial reform of the labour market has increased exit from skilled manufacturing jobs and entry into low-paid insecure and low skill service jobs. Moreover, the reform of the labour market per se cannot encourage FDI because of the inefficiencies created by the absurd and inefficient bureaucracy combined with the deeply flawed judicial system that seems to be designed to prevent firms from expediting dispute resolution through the courts. Crucially, both the reform of the public administration and that of the legal system imply a change in the structure of political support of traditional parties, because of the impact on public administration employment level.
Thus, while the political establishment promises reforms that cannot deliver (at least in the short term), M5S and LN are (politically) cashing in through the argument that, in the short term, Italy should leave the Euro to stop the employment shift from high skill manufacturing to low skill services and to stop a socially unsustainable level of taxation combined with wage squeeze. Plus, M5S and LN question the actual willingness of the traditional political parties to pursue a reduction of state bureaucracy.
Yet one has to wonder whether political formations such as LN or M5S could actually transform political activism into credible policy propositions. To this end, the M5S have all along tried to engage with the academic world both passively (for example, by circulating interviews with Italian academics and various material available on line, through various social media) and actively (by seeking endorsement of international academics). Then again, apart from the flamboyant political style of the M5S founder and former comedian Beppe Grillo, it is objectively difficult to figure out the political vision of the M5S if any. It seems that in the M5S one might find occasional nationalists advocating restrictive immigration policy and those disengaged from traditional politics, alongside the militant leftists and those engaged in NGOs and charity organisations be they of a Christian or Socialist inspiration. M5S really mirrors the messiness of the street market in Bari-Japigia and perhaps this is part of its political (in relative terms) success.
LN, on the other hand, has stronger regional connotations and internal coherence but rather than being an advantage, this limits the party’s political potential. In spite of several attempts to inspire or reach out to federalist movements in Southern Italy and open up to a broader range of social subjects, the LN’s anti-Euro stance resembles their traditional separatist agenda revolving around immigration control. While the target has changed (Italy then, Europe now) the vagueness of their underpinning economic and social policy remains the same.
Thus, here is the political stalemate: the inability of the political establishment to really engage in the debate on Euro and beyond has opened up opportunities for movements that might or might not be ready as yet to engage in serious economic policy or constructively reach out to the broad majority of stakeholders in the Italian and European civil society. Obviously, the academic debate as informed by serious research and analysis has helped and will help to inform serious political debate. Yet, it is important that the academic debate on the Euro and wider related themes becomes broad-ranging, accessible and mainstream. Regardless of individual convictions, this is crucially important for the future of our fellow citizens at either end of the troubled parts of the Eurozone – from the Japigia street market down in the South up to the Marché Bastille.