The Eurozone Time-Bomb in Italy

Beppe Grillo, founder of the Five Star Movement

Wolfgang Münchau reports:

[N]o Italian political parties have promised serious reforms, and the two winning parties in the recent general election, Five Star Movement and the anti-immigrant League, have threatened to unleash the very opposite of fiscal restraint. So if the global economy turns down, it will take Italy with it....

Populist parties account for some 60 per cent of Italian MPs and senators. Their priority will not be to follow the fiscal rules of the EU. When governments are weak, parliaments are strong. The majority in the Italian parliament does not look as though it will approve yet another austerity budget...

Unless Five Star or the League agree to self-destruct, they cannot afford to let go of their election promises. Five Star promised a universal basic income; the League wants a flat income tax. Both intend to reverse pension reforms. These promises are simply inconsistent with adherence to the EU’s fiscal rules.

New elections would not solve the problem. They might produce the same result or an even larger share of the vote for extreme parties. There will still be no majority for economic reform and fiscal restraint. In other words: of all the feasible constellations it is hard to see one that offers compliance with the fiscal rules of the EU.

Robert Wenzel note: Not that EU fiscal rules are sound. They are designed by banksters to squeeze the populous but the big government, big spending proposals of the emerging Italian political parties are not the answer either. Smaller government just doesn't seem to be anywhere on the Italian agenda.