“Whatever it takes”:

by
Claudio Grass
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In the case of Italy, it will take a whole lot more – Part I of II

When the collapse of the Italian government was officially announced, on July 21, many political observers both in Europe and across the rest of the West, were aghast. If Mario Draghi, the central banking messiah of the entire Old World, the man, the legend, the hero who rescued the Eurozone and its precious made up currency from the brink of complete annihilation, failed to govern Italy, then those “crazy Italians” must be completely ungovernable.

For the rest of us however, those few that still respect or even remember the concept of the governed having at least some say over who gets to order them around, the collapse was equally, if not more, surprising for very different reasons: How on earth did it not come sooner and why was it politicians and not the public anger that triggered it?

A quick refresher on how “Super Mario” came to rule Italy

Italy is no stranger to political dysfunction. In fact, unnatural political coalitions and subsequent government collapses is by now something of a national pastime for the Mediterranean country and its citizens are used to this drama, as they are to “colorful” political figures. They endured the reign of the larger-than-life, convicted tax fraudster and human caricature that was Silvio Berlusconi, they became accustomed to Matteo Salvini and his spectacular, but largely pointless, demonstrations of “hard-right” power, and they casually watched the rise and fall of the “Five Star” protest movement, as its core message of direct democracy and honesty, put there by Beppe Grillo, was summarily dismantled in order for the movement to be transformed into a “respectable” political .

In this context, yet another collapse was really nothing to write home about, especially since the coalition that crumbled was the result of a previous collapse in January 2021, after Prime Minister Conte resigned from office. After a quick round of failed efforts to build a new functioning government, Italian President Mattarella “called upon” Draghi to save the day. On February 3, Super Mario very demurely and very humbly agreed to bear the weight of the crown that was just handed to him, surely one he never wanted, but took anyway for the love of his country, and swiftly proceeded to form a new cabinet and to secure support for this reign. 

In case any of the readers missed it, it’s worth highlighting that throughout this process, Draghi didn’t have to go through any the hassle of announcing a candidacy to the public, presenting his ideas, debating any opposing views and being judged by the ballot box, none of all the time-wasting rituals of democracy that most politicians have to endure. No Italian citizen was consulted on the matter and their new State ruler was simply announced to them by the State itself. 

A pre-destined failure

There was no shortage of opinion pieces and “expert analyses” celebrating Draghi’s ascent to power. The great man had been appointed to rescue and to steer to safety the Titanic that was the Italian economy, and the mainstream press had high hopes for him. He was parachuted into Italy as an unelected savior, a role familiar to him, as he played it before, as President of the ECB. Back then, in the height of the Eurozone crisis, his famous “whatever it takes” stance meant that he took extreme and unprecedented measures to “save” the euro and the same was expected from him in the case of Italy.

Of course, for those of us who understood what his first “triumph” was really all about, his “second act” as Italy’s leader was pretty much predestined to end in tragedy. After all, his much-celebrated efforts to rescue to euro gutted whatever was left of the Eurozone economy and doomed entire generations to financial misery. He broke the laws of basic economics and of common sense, with policies like negative interest rates, with flagrant disregard for what that would mean for the future and he flooded the economy with freshly printed cash to “solve” a short-term problem without considering the carnage he would leave behind once he left office. Well, in that regard, perhaps he was always a better politician than a central banker.

In the case of Italy, however, his ambitions were far too grand and it was clear from the start that the same “magic trick” he employed while heading the ECB would not work there. Italy’s economy has been on the brink of collapse for over a decade and the only reason it’s still standing, on the surface at least, is the constant flow of patch-work “solutions”, mainly based on accumulating even more debt and getting support packages and “emergency” aid from Brussels. 

Structurally, the problems run so deep that it can be argued that real, organic growth can never come about without first dismantling and reorganizing how the entire system is set up. Corruption, decades of crony capitalism, extremely burdensome regulations and a destructive tax regime ensure that the country can never benefit from the advantages of a true free market and of real competition.

From a cynical perspective, one might argue that Draghi abandoned the ship just at the right time. As the ECB finally began to hike rates, Italy’s job of supporting its enormous debt burden is about to become almost impossibly onerous. He already saw Italian borrowing costs rise considerably during his 17-month premiership, and that is a bomb that is now set to explode, so, from the “great savior’s” perspective, perhaps it is better that it does so in the hands of the next leader. As Reuters recently pointed out, “The deeper issue is that Italy is big enough to bring down the rest of the euro zone periphery as its 2.5 trillion-euro ($2.52 trillion) government debt pile is larger than those of the other four countries combined and too big for a bailout.”

Claudio Grass, Hünenberg See, Switzerland

———END OF PART 1

In upcoming second part, we’ll look at the wider implications of the Italian crisis for Europe and for the rest of the West.

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