Italy Recovery

15.08.20 Publication:

One of the great paradoxes of the covid-19 crisis is this: the United Kingdom, where a
charismatic prime minister, Boris Johnson, recently won a powerful Parliamentary majority,
now has a government and leader that thanks to its incompetent handling of the pandemic
looks weaker and less in control by the day, while Italy, where a dull, unelected prime
minister, Giuseppe Conte, leads a government whose Parliamentary majority is fragile and
deeply divided, is drawing praise for the clarity, coherence and competence of its response.
Of course, governments and politicians often look worse to their own citizens than
to naïve outsiders. Moreover, one main method used by Prime Minister Conte, the
emergency powers that have enabled him to draw up and implement regulations quickly
and effectively, has rightly drawn criticism for its undemocratic nature.
Nevertheless, some of the praise is justified: compared with Britain and the US,
government policy in Italy has been consistent, effective and well-communicated, and it
appears also to have been quite well co-ordinated with regional governors, especially in the
north but also the south. That good co-ordination with regional but democratically elected
institutions has meant that the most penetrating criticism of the emergency powers has so
far been constitutional and legal in nature, rather than based on the way the powers have
bypassed Parliament.

The next crucial task for Mr Conte and his weak coalition will be that of making
effective use of the approximately €200 billion in loans and grants due to come from the
European Union’s ‘Next Generation’ fund. It would neither be democratically justifiable nor
politically sustainable for this to be done under new emergency powers, for the task will
take several years. So how can it best be used? Let us return to the comparison between the
British and Italian political situations.

Britain has one of the most centralised economies and political systems in Europe.
London dominates Britain even more than Paris dominates France, and despite the formal
devolution of power to our national regions of Scotland, Wales and Northern Ireland that
was implemented by Tony Blair in 1998, the Westminster government retains overwhelming
financial control. Our problem during covid 19 has been that we are over-centralised while,
thanks to our political nervous breakdown called Brexit, our national leadership is weak and
overly ideological.

Italy’s situation is almost the opposite. Except under emergency situations, the
power of central government to create policies and then to implement them is weak. This
has many causes, over many decades. One big reason is that the huge public debt gravely
weakens what should be the central government’s main form of leverage, namely finance.                                Also the existence of so many layers of regional, provincial and city government, with often
competing regulatory powers, plays a big part. This is why the opening in August of the new
San Giorgio bridge in Genoa just two years after the tragic collapse of its Morandi
predecessor was such a miracle: only by treating the situation as an emergency and by
centralising or sharing powers could the normally complex and time-consuming layers of
decision-making have been circumvented.

As is frequently commented, the EU’s Next Generation fund will provide the country
with a big opportunity. Depending on how you evaluate it, the injection of money into
Italy’s economy is large: grants of a net €70 billion represent more than 4% of this year’s
forecast GDP, while if loans are added the combined injection stands to be more than 10%
of annual GDP, albeit spent over a number of years. It is certainly needed, after the huge
shock caused by the pandemic. But the question is whether this money will just serve as
economic life-support or whether it can be used in a way that is transformational.

There is no shortage of excellent plans for how to transform Italy’s economy
following the past two decades of stagnation. The difficulty lies in actually implementing
them. Here the decentralisation of governmental power and the lack of political agreement
at a national level create the obstacle. All transformation creates discomfort and losses for
some people and powerful entities. Typically, by obstructing and delaying, such forces can
buy time until the political mood and probably the government itself changes.

Prime Minister Conte and his well-respected economy minister, Roberto Gualtieri,
will now face the task of overcoming such obstructiveness, even while leading a weak and
divided national government. The government also faces a situation in which a growing
majority of regional governments are run by their opponents on the centre-right.

Mr Conte’s best hope lies in the fact that, for once, he will hold a considerable
amount of financial leverage. In theory, this should allow the government to use money to
compensate some of those who risk losing from a structural transformation. In practice, the
best hope will be for Mr Conte to make his main partners in deploying the EU funds the
regional governors and city mayors rather than his own national coalition. They have a
democratic legitimacy that he lacks, especially as many will have been elected in 2019 and
2020, more recently than the 2018 national elections. Despite many being from the centre-
right opposition they have an incentive to collaborate: they need the money while in Rome
Mr Conte and Mr Gualtieri will often need the regional governors’ help to design and
implement projects, particularly for public investment.

In Britain, the resentment between Scotland and the Westminster government
would be too deep to allow such an effort to work, and Scotland’s governing party anyway
wants to achieve national independence. But in Italy, with its weaker central government
soon to benefit from a sudden influx of funds, this has a chance to work. Something like it
worked for Genoa’s new bridge, after all.

Image by Gerd Altmann from Pixabay