Italy: This Time is Different

Seasoned observers of Italian politics will tell you that there is a fairly consistent pattern to political crisis. The pattern starts with infighting among the governing coalition; it accelerates suddenly when one of the coalition partners ‘pulls the plug’ on the government; and then things slow down again as the various stakeholders realize how much is at stake for them personally if they let things fall apart. Parliamentary seats are prestigious, the salaries are high, and the pensions are generous provided the members just stay in post long enough to qualify. More important, real crisis comprises a lot of work with very uncertain pay-offs to be gained from an often-fickle electorate. Meanwhile, bad things can happen to the country’s economy, particularly vis-à-vis the banks and bond markets. In such a context, it is only reasonable to expect that cooler heads will prevail. Given the possible threat that an Italian meltdown would pose for the future of the euro (and hence also the European Union), we should all hope these observers are right. Nevertheless, there are four good reasons to believe that this time is different.

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Sovereign Debt Restructuring and Debt Mutualisation in the Euro Area

The euro area lacks a framework for sovereign debt restructuring and it lacks a common risk-free asset. Both issues are important in looking ahead to the prospect of any future crisis. Of the two, however, the creation of some kind of sovereign debt restructuring mechanism appears to attract the most political attention. This briefing note outlines the issues that would need to be addressed to bring greater stability to the euro area.

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Europe’s Complicated Democracy

Europeans are heading to the polls now in one of the world’s largest and most complicated democratic experiments. Moreover, these European elections are probably the most consequential we have seen since Europeans started voting directly for members of the European Parliament in 1979. This is a good opportunity to think hard about how Europeans are represented, how they make their decisions about voting, and what kind of Europe is on offer. Three recent books suggest new and important lines of argument. Christina Schneider shows that much of the responsiveness of Europe to the voters actually takes place through the Council of the European Union; Jennifer Fitzgerald reveals how votes on the extremes are more likely to be local than national, even if they have an anti-European tinge to them; and Sergio Fabbrini argues that many of the tensions we see surrounding the European project could be resolved if we just changed the way we think about constitutional federalism. These arguments are challenging and sophisticated in ways that much of the commentary that surrounds the European elections tends not to be; they are also counterintuitive. Now that everyone is focused on Europe, it is a good time for some well-grounded, lateral thinking.

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Populism and Economic Policy

On 28 September 2018, Lorenzo Forni of Prometeia invited me to give a short comment on the relationship between ‘populism’ and economic policy-making.  Although, I hadn’t thought about that relationship before, I came up with four things I think we might want to consider (in addition to what we might useful think of as ‘populism’ in the context of the question Lorenzo asked).  My argument was that populists bring new people into the policy-making process.  They also bring a healthy dose of unpredictability.  Their messaging on policy issues is not great, which causes problems in a world defined by rational expectations, and they tend to be skeptical toward independent agencies like central banks.  Finally, populists are disinclined to international policy coordination.  The combination is not wholly bad — sometimes change is for the good! — but the results are often below the promises that populists make to the electorate.  The text of the presentation follows.

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Catching Up with Italian Politics

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.

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Lessons from Rome

Steve Bannon came to Italy and was greeted with a full-page interview this Sunday (3 June) in the center-left daily newspaper, La Repubblica. The journalist, Antonello Guerrera, seemed determined to find Bannon’s influence behind the unlikely union of Matteo Salvini’s Lega and Luigi Di Maio’s Five Star Movement (M5S). Bannon would have none of it. Although he admitted to having spoken with both gentlemen and having had prior contact with the M5S, he insisted that the two groups came together because sharing the government between them was ‘the logical conclusion’. The two parties’ leaders were ‘heroes’ for having ‘overcome the concepts of left and right’. That was the only way to meet the demands of an electorate, the majority of which voted ‘against the establishment’. ‘Italians should be proud.’ Now Rome is ‘the center of world politics’. The question now is whether the lessons from Italy’s experience are at all in line with what Bannon expects.

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