EU Crisis

with so much focus on Brexit, the UK leaving the European Union, you might be forgiven for thinking that this is the only crisis the UE faces But there are many more. The EuroZone, the area using the Euro currency, remains fragile. And one of the biggest fragilities is Italy.

Italy's national debt is 133% of GDP. And whilst government spending has bee curtailed recently the debt keeps on growing. In 2015 Italy actually recorded a 1.5% surplus (excluding interest payments). But the debt continues to grow.

After World War II Italy adopted a constitution which divided power among various organs of state. This was deliberate. They wanted to ensure that it would be impossible for another dictator to take control of the government. But it has led to political gridlock and makes structural change almost impossible.

Last December there was a referendum on proposed changes to the constitution. The plan was to limit the power of the Senate, the upper house of the Italian Parliament, so that it would be easier to pass reforming legislation. The referendum produced a 'no' vote though. People seemingly voted 'no' more to exxpress their displeaure with the ruling elite than because of the proposed reforms.

But whatever the motivation, the result is more political deadlock for Italy. And the effect is devastating, Teke home pay is lower in real terms than it was in 1999. High costs and wages make Italy uncompetitive. Italy is in danger of stagnating.

So where is the EU in all of this? Italy's economy is eigth times the size of Greece's. It cannot be bailed out in the way Greece was (and that was devastating for ordinary Greeks, who saw their savings stolen by the government in the EU bail in).
Even if German Chancellor Angela Merkle (the real real ruler of the EU) could square her colition partners in Germany (as Germany foots the bill for all the madness of the EU) an EU bailout of Italy simply isn't possible.

So what is the solution for Italy? It has not escaped the notice of many Italians that membership of the Euro and the one size fits all all (but it doesn't) of the Eurozone. That, for Italy, is, of course, the problem, not the solution.

Some Italian political parties, including the poplist 5 Star Movement, are calling for a referendum on Italy's membership oif the the Euro. The 5 Star Movement could easily be part of a coalition government after Italy's next General Elections in earky 2018.
If Italy quits the Euro and returns to the Lira the EU will face an existential crisis. The Euro currency would lose most of its credibility and the whole European project would be in doubt.

But has there ever been a sucessful monetary union without a political and fiscal union? The responsibility for this hubris lies with politicians who drove this mongral programme.

Meanwhile ordinary Italians, ordinary Europeans, suffer.