The Italian coalition government of Mario Draghi has become the latest political victim of the cost-of-living crisis. The government’s collapse at the end of July triggered a fall on the stock exchange and a rise at one stage to up to 3.7% in the ‘yield’, the difference that Italy has to pay to service its debt compared to Germany: 2.5% is considered the ‘danger zone’. This has raised fears amongst the European capitalist classes that economic and political instability in Italy could trigger another sovereign debt and Euro crisis, ten years after the last one following the 2007-2008 global financial crash, which opened up social and political crises throughout Europe and potentially could have blown the Euro apart.
The trigger for the government’s collapse was the populist Five Star Movement (M5S) voting against an economic package that would have given some aid to those struggling with rising prices, arguing that the help was not enough. This was total political opportunism. In 2018, at the time of the last general election, M5S emerged as the biggest party with 33% of the vote. Now, according to the polls, it will struggle to get 12% in the elections scheduled for 25 September. A recent split in its parliamentary ranks, the latest of many, resulted in its former leader Luigi di Maio breaking away and taking 60 MPs with him. Now the party is desperately looking to try and channel anger and frustration at rocketing inflation to rebuild its social and electoral base. Given its record in the three coalition governments since 2018 this tactic is doomed to failure.
Following in the wake of the M5S, the two main right-wing parties in the coalition, Matteo Salvini’s Lega and Silvio Berlusconi’s Forza Italia (FI), refused to take part in a confidence vote on Draghi and his government. This was for their own opportunist reasons. Both have been losing votes on the right, particularly the Lega, to Giorgia Meloni’s far-right Fratelli d’Italia (Brothers of Italy – FdI) which has its roots in the post-war fascist MSI. Staying out of Draghi’s coalition, FdI has gone from 4% of the vote in 2018 to 23% today, making it the biggest party, ahead of the Democratic Party (PD), which has been inside the government. Although nothing is ever certain in the crisis-ridden Italian political system, the polls point to a victory in the election of a right-wing coalition comprising the Lega, FdI and the Brothers, with ‘post-fascist’ Meloni as prime minister.
The collapsed coalition was cobbled together in 2021 as a ‘national unity’ government to try and deal with the aftermath of the Covid crisis. The fact that the Italian ruling class had to resort yet again to a ‘technocrat’ who is not an elected politician as prime minister is an indication of the deep crisis of political representation they face. An ex-Goldman Sachs banker and former president of the European Central Bank (ECB), Draghi was dubbed as ‘Super Mario’ because during the 2011-12 crisis he said he would do “whatever it takes” to save the Euro, launching the ECB’s quantative easing programme (QE) – buying up the debt of EU governments on a mass scale.
The idea was that the man who had supposedly saved the Euro would now save Italy: bringing in deregulation, privatisation and the neoliberal reforms that the EU, the ECB, and sections of the Italian capitalist class, have been pushing for many years. In return, Italy would get €200bn from the EU Covid Recovery Fund (the largest amount of any EU country) which, if paid in full, would be the equivalent of 12.5% of GDP over five years. Despite Italy’s debt at 150% of GDP being the second biggest in the EU (after Greece) and the fourth biggest in the world, the cost of servicing that debt did go down temporarily to its lowest level for many years. But now, after just 17 months, the ‘saviour’ has resigned and the illusions of stability have been shattered.
The dire economic and political crises of Italian capitalism could only be temporarily papered over before again bursting to the surface. Even before Covid and the war in Ukraine, the Italian economy hadn’t grown for 20 years. It’s once again on the verge of recession. And if Russia was to totally switch off gas supplies to Europe, which is entirely possible, it is estimated that Italy’s GDP would fall by 5%. Whichever parties form the next government, they will inherit an economy in crisis and burning anger at the soaring cost of living. A Meloni government, in particular, could act as a spur to struggles of the working class which, the European capitalists fear, could put the neoliberal ‘reforms’ that Draghi had only just begun at risk.
The situation is not at the level of ten years ago when the yield went as high as 7% but, given the severity of the economic problems, a new sovereign debt and Euro crisis is entirely possible if the markets lose confidence in the sustainability of Italy’s debt. Of course, it would not be an exact rerun of the last crisis, but potentially could be even worse, because in the current economic conditions the EU doesn’t have access to the same tools as before. When QE was introduced inflation and interest rates were at zero. Now the ECB has just increased rates for the first time in eleven years and inflation in the Eurozone is approaching 9%. Mass bond buying now would risk fuelling hyperinflation.
The EU has just agreed a new tool, the ‘Transmission Protection Instrument’ (TPI), clearly designed with Italy in mind, that allows the ECB to selectively buy the government bonds of a country deemed “unjustifiably” targeted by the markets – in order to avoid “fragmentation”. But for TPI to go into effect various conditions would have to be met by the ‘targeted’ country – which means it may never actually be implemented. Germany, with its own economy in crisis as a result of sanctions and the war in Ukraine, and under pressure from its own working class, is more likely to argue that what is happening in Italy is entirely ‘justified’. At the time of the last Euro crisis, when Greece was at the epicentre, Socialism Today pointed out that Italy, with a GDP ten times that of Greece, is “too big to fail but too big to save”. German, Austrian and Dutch capitalism would not be prepared to transfer the enormous sums that would be necessary to bail out Italy in a similar situation to ten years ago. It would therefore be extremely difficult to stop contagion spreading to the rest of the Eurozone, with potentially Italy forced to leave the Euro.
In Italy, it looks as if the far right will be the electoral beneficiaries of the current crisis. That a country with the history and traditions of the Italian working class could end up with a ‘post-fascist’ prime minister will seem incredible to many people. The blame lies with the failed policies and approach of the left. Rifondazione Comunista (RC) was one of the first new left formations – in this case a significant reference point for workers and youth – to emerge after the collapse of Stalinism. It was also the first to go into coalition with capitalist parties, leading to a rapid decline in its credibility and votes. As a result, the Italian working class has effectively been without a political voice for over a decade.
That will unfortunately remain the case in the upcoming elections. Without anything like the same social base, an attempt by the rump of the RC, the small Potere al Popolo (Power to the People) and the former mayor of Naples Luigi De Magistris to ‘do a Melenchon’ – and recreate the success of the NUPES electoral coalition in the France – will go the same way as the now forgotten ‘Tsipras list’ created for the 2014 European parliament elections, that once hoped to emulate Syriza in Greece.
Building a new left party with roots in the workers’ movement that can represent their interests on a mass scale will come from the class and social struggles. The last Euro crisis showed how rapidly events can change, with the creation of Podemos in Spain flowing from the indignados movement and Syriza propelled from around 4% in the polls to government, following more than 30 general strikes in Greece. Although both, like the RC, went on to betray the interests of workers once in office, the new crisis will lay the basis for renewed struggles and workers rapidly learning the lessons of the need for any new party to adopt a socialist programme that can actually defeat capitalism.