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Italy is facing a delicate political and economic situation. Once a centre of the Western Civilization, it gradually lost its centrality throughout the centuries. More recently, it plunged in a severe recession following the global financial crisis, and it has shown signs of recovery only in the past few years. Yet, it remains the Eurozone’s third largest economy and fourth in the EU as a whole, and it remains one of the most influential countries in the Union, of which it has been a supporter for decades. However, the current coalition government formed by the Five Star Movement and the League is casting doubts over Italy’s commitment to the EU, and notably over its budgetary rules. This in turn raises concerns over its own economic recovery and also on the tenure of the EU as a whole, which is caught between two diverging views of European integration.
The Italian Peninsula was first unifed under a single political entity by the Romans, whose legions ultimately conquered a vast Empire centred on Italia. But after a long decline, it ultimately fell during the 5th century AD. Yet, it left an immense cultural heritage, itself a product of the contacts with conquered peoples, first and foremost the Greeks; without which modern-day Western civilization would not be the same.
But after the demise of the Roman Empire, Italy has been divided for centuries. Yet, it continued having a huge influence over Europe in cultural, economic and also political terms. The Italian Maritime Republics played a pivotal role in trade, and following the Crusaded they established outposts in the Outremer that became one of the main vehicles of contact with the more advanced Islamic world. Italy was also an important manufacturing centre, and modern finance finds its roots in its economic activities, notably those of Venice and Florence. This, of course, had a political spillover. The Fourth Crusade, which ended with the occupation of Constantinople for nearly sixty years, was largely driven by Venice’s economic interests. A family of businessmen, the Medici, managed to transform their wealth in political influence and took power in Florence. Italy’s northern cities played a central role in the long struggle between the Papacy and the Holy Roman Empire, and their quest for autonomy kept the latter busy for decades. As a result of this economic prosperity, culture flourished: be it in literature, art, philosophy or other fields. In Europe, only the cities in the Flanders and those of the Hanseatic League could rival the Italians. As for the South, it was the setting of intense cultural interchanges, especially with the Byzantines and the Arabs; which made of Sicily a major cultural centre that, along with Spain, allowed the reintroduction in Europe of many Classical works that had been forgotten. All this gave a fundamental contribution to the period of cultural and economic revival known as the Renaissance; which left an immense heritage to today’s Europe.
Yet, Italy was politically divided. Various city-states rose and fall, but none of them could become powerful enough to unify all the land, as others always formed a coalition to block its expansion; often with the aid of foreign powers that frequently invaded the Peninsula. Starting from the XVII century, its economic and cultural prominence also started declining in favour of the rising nation-states like France, Spain and England.
Reunification & World Wars
After centuries of division, Italy was finally unified in the 19th century following a long process known as Risorgimento. Under the able statesmanship of Cavour, the Kingdom of Sardinia (whose centre was actually in Piedmont) managed to unify most of the Peninsula; thus proclaiming the Kingdom of Italy in 1861. The new state soon started a modernization process that marked its rise among Europe’s main powers; even though it never got close to France, Britain, Germany or Russia. Its industry developed, and with it the military. With time, it also managed to gain some colonies in Africa.
Italy fought alongside the Allies in WWI, and was among the victorious powers. But right after the conflict, Italy found itself in a troubled economic situation due to the huge costs of the war. In the early 20s, the country was in social turmoil. The socialists and the recently-created Communist Party were gaining influence; resulting in mass demonstrations during the “Red Biennium” of 1919-1920. Fearing a revolution, the government attempted to exploit another movement to counter the left’s rise: the Fascists led by Benito Mussolini. However, the situation soon went out of control. In 1922, the Fascists marched in arms on Rome; and with a decision that would later cause much debate, the King appointed Mussolini as head of the government to avoid a civil war. Soon, Mussolini dismantled the democratic order and established a dictatorship. Its legacy is highly controversial, notably as it ended up allying with Nazi Germany and collaborating with it during the Holocaust; but in terms of power politics Mussolini managed to extend Italy’s territory, to strengthen its armed forces and to make of Italy one of the main players in the international politics of the time. Yet, as before, the country remained globally weaker when compared to other powers.
Yet, the overall balance of the fascist regime is definitely negative. In 1940 it brought Italy in a conflict it was unprepared for and which ended up in a catastrophic defeat. Additionally, since September 1943 Italy was split in two: the south, liberated by the Allies, joined them in the war against Germany; while the north and centre of the country became a puppet state controlled by the Nazis. This resulted in a civil war; not only between the two states, but also between the partisans on one side and Fascist supporters plus the German troops on the other. This conflict left a deep mark on post-war Italy and on its national identity.
When WWII ended, Italy was in ruins. After a complex political process, it became a Republic in 1946 and adopted a new Constitution two years later. Like Germany and Japan, this also included provisions meant to avoid that the country may undertake once again an expansionist policy; but it was still authorized to have its own armed forces for strictly defensive purposes. The Christian Democracy became the party around which Italian governments would be formed for the decades to come. In foreign policy, Italy joined NATO in 1949 and the European integration process in 1951. But in spite of its alignment with Western powers, the Communist Party was very strong, and it remained the main opposition force until the 90s. In economic terms, Italy soon experienced an extraordinary GDP growth: during the 50s, its size grew of almost 6% per year on average, and this figure was constantly higher in the five years between 1958 and 1963. This expansion was equal or superior to that of most European countries, and it completely transformed Italy by making of it one of the continent’s main economies. The factors behind the “economic miracle” are multiple; and include the large and cheap labour force, foreign aid received via the Marshall Plan and the advantages of economic integration with fellow Western European countries.
Yet, with time this growth slowed down, and Italy was surpassed by other economies. Again, there are multiple reasons. The oil shocks in the 70s hit the country, as it was (and remains) dependent on energy imports. But Italy also lost its competitive advantage as salaries and costs grew. To counter this, the governments used to devaluate the lira to make exports cheaper; but this was just a short-term and ineffective solution, because it soon caused inflation which in turn had detrimental effects on competitiveness and on foreign debt. In the end, also in the optic of adopting the Euro, starting from 1987 Italy decided to respect the communitarian monetary rules and stabilize the Lira, thus ending decades of devaluation-inflation cycles to appreciate the currency, reduce inflation and converge with other countries. But a series of factors caused a crisis of the Lira in 1992, which resulted in a severe devaluation. Still, after implementing corrective measures, the path towards adopting the Euro continued. Italy tried to align its macro-economic parameters with those of fellow countries and to respect the rules on debt and public deficit. So, in spite of the scepticism of other states (notably Germany) and of not respecting completely the convergence criteria, Italy was allowed to adopt the Euro in 2002.
In the meanwhile, significant changes also occurred in international and domestic politics. Right after the dissolution of the USSR and the Warsaw Pact, the Italian Communist Party was dismantled. But the Christian Democracy was also fundamentally shaken by a series of investigation on corruption, and it disappeared as well. The political order that had lasted since the late 40s was over, and even though the Constitution was not modified, this marked the passage to the “Second Republic”. In the new context, media magnate Silvio Berlusconi rapidly became a prominent politician by exploiting his wealth and the very media he owned. Another emerging political force was the North League: evoking the struggle of the northern cities against the Empire during the Middle Ages, it advocated for secession of the rich regions of the north or at least for more autonomy. Yet, Italy continued to experience political fragmentation and frequent changes of government.
In 2011, the country was shaken by the debt crisis that had begun in Greece, itself a consequence of the US financial crisis of 2008. The government in charge resigned and was substituted by a “Government of Experts” chaired by economist Mario Monti, who soon adopted austerity measures to restore financial stability. Still, the economic recovery was sluggish. This, combined with the immigration crisis, finally led to the victory of two populist and Eurosceptic parties in the 2018 elections, namely the Five Star Movement and the League (which had unofficially dropped the label “North” in an attempt to become a nation-wide party). After a long deadlock, they formed a coalition government whose orientations have created concerns in Brussels, especially over economic policy.
The Italian government has recently presented a budgetary manoeuver that is considered too risky by the EU, and this has led to a vivid political skirmish between the two sides.
The Italian executive wants to implement expansionary policies to boost domestic consumption and consequently economic growth. These include tax cuts and a much-debated basic income for the lower classes. But this would bring the public deficit to 2.4% of the GDP; which, even though it does not exceed the legal gap of 3%, is considered too high by the EU. As a matter of fact, the Commission fears that the stimulus will not be sufficient to foster growth and that the only result would be to put further strain on Italy’s public debt, which is already at almost 132% of GDP against a limit of 60% demanded by EU rules; thus damaging its financial credibility and nullifying the progress it has struggled to make in a decade of austerity. But the Italian government has rejected the requests to modify the budgetary manoeuver, on the basis that it is up to Italians to decide and that they are not compelled to respect the demands of EU institutions, often portrayed as a diktat in the executive’s discourse. Italy has also found some international support, notably from US President Donald Trump, who in August had offered to buy Italian bonds. While it is legally possible, considering that Italy is now challenging the EU, the Union’s institutions may perceive this as an unnecessary intromission.
Assessing what will happen to Italy is hard, but the government’s economic policy does present some risks that may harm the country’s growth, which may result in new EU-backed austerity measures. But the greater danger is political: if the feud continues escalating, unpredictability will damage both parties and in the worse scenario may even lead to Italy’s exit from the EU, which would be another severe blow to the European integration project in a moment where Brexit is also unfolding along with vivid discussions between the Visegrad countries and the EU institutions. As we examined in another video, this divergence over the nature and the powers of the EU is the kind of “civil war” that may ultimately threaten its tenure, with unpredictable economic and political consequences.