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The EU is unhealthily biased toward austerity – that's why it's now in a budget standoff with Italy

In 2008, Europe’s leaders promised to discipline finance. Instead, it is Europe’s people that were disciplined

Nick Dearden
Tuesday 06 November 2018 12:01 GMT
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European Commission asks Italy to revise its draft budgetary plan in unprecedented move

The EU is again engaged in a theatrical standoff with a southern European country. This time the country in question is Italy, whose populist government wants to set a budget which breaches Eurozone rules. EU governments have demanded Italy submits a new budget by next week.

But Italy says it’s not moving. In fact, Luigi Di Maio, leader of the Five Star Movement which forms part of the government, said yesterday: “If the recipe works here, it will be said at a European level: we should apply the recipe of Italy to all other countries.”

But it’s Di Maio’s coalition partner, Matteo Salvini, leader of the fascist League party, who has most to gain from the confrontation. Salvini has positioned himself as Europe’s biggest rebel a crusader against the EU’s austerity machine which forces weaker European countries to drink a toxic medicine which only “heals” by killing the patient. He told his Facebook followers last week: “Italy will no longer be a slave and will no longer kneel down.”

Luxembourg foreign minister stands up against Matteo Salvini

If the EU’s officials – and the governments pushing them – are not scared, they should be. Europe’s people have had enough of austerity. They recognised many years ago that we were not “all in this together”, that austerity is not a programme for recovery, but for forcing the poorest to pick up the tab for the crimes of the financial sector.

But the confrontation should also shock Europe’s social democrats from their malaise. How is it that a far-right politician like Salvini, himself no enemy of big finance, can claim that he speaks for those opposing austerity, corporations and inequality? In short, because Europe’s traditional left has failed to do so.

Salvini’s primary concern, of course, is not the majority of Italy’s poor. The claim that this is a budget to “abolish poverty” is pure hyperbole. In fact, the disputed budget is a mish-mash of policies aimed at pleasing both parts of the Italian coalition’s social base. For the League, this mean tax cuts on small businesses and the middle class and protection of better-off pensioners. Five Star meanwhile, the gradual introduction of universal basic income is an important, and progressive, element. There’s also some investment – though not enough.

Why does the EU care? The crux of the problem is that Italy wants to spend more than Eurozone rules allow. It’s planning to run a budget deficit equal to 2.4 per cent of GDP, too high, say EU rules, for a government with a debt as big as Italy’s (currently over 131 per cent of GDP). These are the rules of the Eurozone laid down in treaties (but always open to interpretation when it’s convenient).

Any monetary union requires rules. On entering such a union, governments accept that they are giving something up – monetary policy – but gaining something else – in this case monetary stability, low interest rates, less exposure to the law of the markets. The problem in the EU is that the rules don’t work for the majority of European citizens, and they are particularly punishing to weaker economies.

After five years of 10 per cent unemployment and low or negative growth, Italy’s government says you have to spend and invest to repair a damaged economy. They compare their programme to that of the New Deal measures of President Roosevelt. This shouldn’t be controversial. But the Eurozone’s rules go in precisely the opposite direction – forcing austerity on stagnant and depressed countries in exactly the way the International Monetary Fund pushed austerity of dozens of developing countries in the 1980s and 90s. This result has been catastrophic in terms of human welfare.

Greece experienced the worst effects. It has experienced an economic collapse longer-lasting than the US’s Great Depression in the 1930s. GDP is still lower than it was in 2007. While unemployment has fallen from 30 per cent, it’s still at nearly 20 per cent, far higher in terms of young people. Wages and pensions have been slashed. Vast swathes of the economy have been sold (to the very financial sector which created the global financial crash), and debt is higher than ever, at 180 per cent of GDP, with payments due for decades into the future.

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Greece underwent a policy of economic torture. To sell this as a “necessary but painful recovery” to Greece’s people isn’t going to wash. In 2008, Europe’s leaders promised to discipline finance. Instead, it is Europe’s people that were disciplined. Little wonder that the Italians – a country that’s fared badly since it first joined the Eurozone – have had enough, or that the current government’s confrontational stance is polling well.

The EU will not survive unless governments push for fundamental transformation of the way the Eurozone works. Last week, economists Jeremy Smith and John Weeks wrote: “To prevent a new wave of fascism or ultra-nationalism, the EU needs to respond by ditching its bias to austerity.” They’re right. Just look at how migrants have been successfully, even if ludicrously, blamed for the woes of a Europe more than capable of absorbing their skills, their aspirations and their needs.

And a greater tragedy still is that social democrats, rather than leading the charge for this transformation, have often been blamed for it. In their desperation to preserve the EU, they have shied away from talk of transformation, and handed the leadership of the popular struggle to the far-right. Their strategy has failed utterly. Only radical policies can now save the EU, and the left needs to take up this challenge as their top priority.

Nick Dearden is the director of Global Justice Now

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