The past decade has witnessed a sudden uptick in secessionist movements in Europe. The uptick started on the western side of the continent with the 2009 Belgian elections, where the New Flemish Alliance emerged as the largest party in the country; further to the east, we might point to the Russian invasion and partition of Georgia. Flemings, Abkhazians, and South Ossetians rarely fall in the same category for analysis. Nevertheless, there is something they have in common that warrants exploration. Moreover, that something is shared by the Scots, the Catalans, and the Russian-speakers in Crimea and the Donbass region.
The fast pace of change in Italian politics has left many observers outside the country struggling to catch up. This collection offers a quick overview in bullet points with links to recent articles I have written in case you have interest in learning more. I am going to list the material in reverse chronological order. Most people want to know what is happening and then figure out why. If you are one of those people who works the other way around, I advise you to follow the links from the bottom up.
The turmoil that struck Italian sovereign debt and bank equity markets on Tuesday, 29 June, is a stark reminder that the potential for another crisis is real, even if not imminent. Important parts of the firewall that separates banks from sovereigns remain incomplete – and central bankers remain vulnerable to political influence as a consequence. Two recent books help illustrate why. One, by former Cypriot Central Bank Governor and Leicester University Professor Panicos Demetriades, reveals the limits of central bank independence. The other, by University of Denver Professor Rachel Epstein, explores the interaction between banks and markets.
The United Kingdom’s exit from the European Union (EU) creates new opportunities for Europeans to unite around a common vision. The British played an important role in Europe both as a common market and as a political union. The challenge for the remaining member states will be to adapt to Great Britain’s absence. Last autumn, French President Emmanuel Macron launched an ambitious raft of proposals for reenergizing the European project. More recently, German Chancellor Angela Merkel forged a grand-coalition government with a different pro-European agenda. Macron’s vision is more centralist and involves more institutionalized solidarity; Merkel’s vision is more intergovernmental and places more emphasis on political responsibility at the national level. The success of either approach will depend upon how other European member states respond to the call for unity. The next Italian government will play a critical role.
Yesterday I had the opportunity to have an exchange of emails with one of Italy’s leading financial journalists. This is part of a longer conversation we have been having over the past few years about the state of European financial markets and the role of Italy within them. The difference this time is that he published the exchange in gli Stati Generali, which is a project created to allow journalists to share stories or rely on formats that might not otherwise find their way into traditional media outlets. Knowing the journalist, the Italian version of our exchange is much more articulate than the English-language original I am reproducing here. The questions are in bold; my responses are in regular text.
When Italy’s voters went to the polls on 4 March, roughly 32.5 percent voted for the Five Star Movement (M5S) and another 17.5 percent voted for the Lega. If we add in the 4.5 percent who voted for the Brothers of Italy, well more than half of the electorate supported openly Euroskeptical movements whose leaders have flirted with the idea of leaving the euro. ‘Europe’ did not play a prominent role in the public debate during the run-up to the elections; according to pre-election polling done by SWG – one of the major national public opinion polling firms – cutting taxes and throwing out the ‘ruling class’ were more important. But the two big winners from the contest strongly advocated policies like rolling back pension reforms (Lega) or introducing a basic minimum income (M5S) that would quickly bring Italy into conflict with the European Commission over fiscal consolidation. Moreover, any future Italian government will have to draw support from one or both of these parliamentary groups. The question is what this means for relations between Italy and Europe.
The German grand coalition agreement promises to breathe new life into the debate about European macroeconomic governance reform. The German Social Democratic Party (SPD) will hold the ministries for foreign affairs and finance; SPD leader Martin Schulz has made it clear that he is in favor of further integration; and the bullet-point version of the agreement includes a number of eye-catching suggestions that seem to cross over a number of previous German red lines. Although emphasis on risk-reduction (and national responsibility) remains prominent, risk-sharing, stabilization, and some kind of common backstop for banking resolution and deposit insurance seems more likely now than ever in the past. Nevertheless, I remain unconvinced. The problem is not whether the SPD rank-and-file will vote in favor of the agreement. That remains to be seen. My doubts arise from the categorical difference between engineering and ethics.