This is the second in a special Force Distance Times series on views of industrial policy from Europe: In the first of the series, Chris Cash of the UK’s China Research Group argued that the country’s new critical minerals strategy represented a comeback for industrial policy; demonstrated that the UK is ready to move, in lockstep with allies, in shoring up critical value chains for the 21st century. Here, Dr. Gustavo Piga argues that an Italian economic policy to save Europe demands grappling with the “austerity trilemma.”

In 2018, Italians sent 944 senators and deputies to the European Parliament to vote on their behalf. Sixty per cent of them belonged to one of three parties (5 Stars, Northern League, Fratelli d’Italia), all of which expressed marked dissent toward the economic policies dictated by Europe. Five years earlier, at the time of the previous round of elections, this percentage had barely reached 22 percent. And the rise continues: According to today’s polls for the upcoming national elections, scheduled for September 25th, the percentage of Italian delegates representing parties opposed to the EU’s economic policies is projected to hit 57 percent – in part a function of the addition of Italexit sovereignists and the Italian Green-Left who have distanced themselves from the Prime Minister Draghi’s agenda.

So, the real Italian anomaly is this: Over the course of ten years, the country, which was certainly pro-European on the economic front, has become highly skeptical of the economic policies imposed by Brussels. And despite the approval of and transfers from the EU Recovery and Resilience Plan (RRP), this anti-European majority is consolidating. This indicates that the country is doing something wrong in managing Italian economic policy – both from within and from Brussels – and that the National Recovery and Resilience Plan (NRRP) has not proved sufficient to remedy the errors.

So, the real Italian anomaly is this: Over the course of ten years, the country, which was certainly pro-European on the economic front, has become highly skeptical of the economic policies imposed by Brussels.

2013 marked the consolidation of the austerity of the Fiscal Compact, now considered by all (even by the conservative European Fiscal Board!) to have been a sado-masochistic mistake. The 2018 Italian vote sent a very clear signal that European austerity policies were not considered tolerable for Italy. Today, while the dissenting majorities have recomposed themselves internally (yesterday the 5 Stars Movement dominated, today the right-wing Fratelli d’Italia), their overall size is only growing: This signal, and this perception on Italy’s front, have not changed.

It is clear why this is the case. The National RRP has reintroduced an austerity mechanism similar to the Fiscal Compact, one centered around rapidly reducing the deficit to GDP ratio to stringent values, and forcing all the various Italian governments to comply to its logic — some more strongly (Draghi) and some less (Conte, in its second mandate before Draghi arrived). These policies have generated growth that is still insufficient compared to that of Italy’s euro partners paired with growing dissatisfaction, reflected in current voting intentions.

You cannot have austerity democracy, and a common euro currency simultaneously. We have to choose two of the three.

These two last governments have tried in every way to make the minority 40 percent of the ‘pro-Europe’ vote first an absolute majority (with the democratic moderate and pro-Europe party, the Democratic Party (PD), attempting to aggregate and moderate the 5 stars) and then (under Draghi) an almost unanimous coalition in the country. All of these attempts have ended badly. The PD’s last desperate attempt, a few weeks ago, to ally center moderate parties and progressive leftist ones (including the Green Party) to win the coming September 25th elections, met an even more rapid death, clearly revealing the limits of strategic exercises of this kind in the absence of a majority electoral base that is truly cohesive in terms of its economic agenda.

What to do? Italian economy policy has a few alternatives, summarized by the so-called ‘austerity trilemma’ that affects the euro-area, which states the following: You cannot have austerity (the loss of the possibility of using fiscal policy with increased public demand to counter adverse shocks and help the weakest), democracy, and a common euro currency simultaneously. We have to choose two of the three.

Here is why.

With austerity and a single euro currency, you cannot have democracy. The troikas of the International Monetary Fund and the European Commission rule, as they did in Greece. In Italy we see technocratic or artificial mechanisms that try to override the will of the majority in order to have austerity policies.

With austerity and democracy, you cannot have the euro. In those states where there are suffering populations that are not helped by austerity, the euro will certainly be abandoned by majority vote in a referendum. The risk that Italy and the European Union (EU) run if they continue not to represent the will of the electorate to get rid of austerity is this: The end of Italy in the EU and therefore the end of the EU.

Finally, with democracy and a single currency there can be no austerity. Instead, when necessary, there can be an expansive fiscal policy to protect jobs and ensure solidarity – and thus a true union in the (European) Union: Democracy requires that one listens to the cry of pain of those who suffer and react to it.

Practicing an end to austerity is not a call to surrender to right-wing parties. Far from it. A true left that cares about Europe should be the natural locus from which a spirit of a New Deal of the 21st century should start. This is a solution defined by public investments in deficit, supported by a qualified public administration, finally generating a true and lasting recovery and thus also the promise of lowering the debt to GDP ratio via growth. This would be the Italian economic policy undergirding a Left coalition capable of saving Italy and Europe, rather than jeopardizing them as it does today.

The conclusion: A Roosevelt is wanted in Italy and in Europe.

Dr. Gustavo Piga is a professor of Political economy at University of Rome Tor Vergata, where he chairs the Masters in Procurement Management and the BA in Global Governance. He has chaired the Italian Procurement Agency for Goods and Services and is the editor of several books, including the Handbook of Procurement, Cambridge University Press, and Revisiting Keynes: Economic Possibilities for our Grandchildren, MIT Press. Dr. Piga holds a Phd in Economics from Columbia University.

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