Corona chaos is not what Italy needs

Corona chaos is not what Italy needs

Italians take part in a flashmob from a balcony over Turin's Isonzo street on March 14, 2020 as the Italian government continued restrictive movement measures to combat the coronavirus outbreak. (REUTERS/Massimo Pinca)
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Facing its biggest crisis since the Second World War, Italy has become the first country other than China to have more than 1,000 deaths from the new coronavirus.  While tackling the human cost is the priority, the economic damage will also be massive, with the country already probably in its fourth recession in about a decade.

Italy has already taken the most restrictive mobility measures in Europe since the 1940s, and is in effective lockdown. Bustling cities that have long been tourist magnets are becoming unrecognizable; famous piazzas in Rome, Florence and Venice are empty. 

Nearly 60 percent of deaths outside China since the outbreak began have been in Italy. Hospitals are overwhelmed by the crisis, with doctors forced to make life-or-death decisions about who gets access to intensive care. 

Prime Minister Giuseppe Conte has called this Italy’s “darkest hour,” and it is not just unsettling for Italians.  There is mounting concern about economic contagion in the eurozone, and the physical spread of coronavirus too.

New border checks are in place to stop the virus spreading. Austria has halted flights and trains from Italy, Slovenia has begun imposing controls at its border, and nine Swiss border crossings have been closed.  

Economically, while Italy is less globally important than China, it is a key G7 nation with the third-largest eurozone economy, and currently perhaps its single weakest link. It has the second-biggest debt load at well over 100 percent of GDP, and its banking sector is under significant stress with massive under-performing loans.

This latest bout of Italian instability could yet herald a critical turning point in the nation’s postwar history that triggers a period of political and economic reform.

Andrew Hammond

All this comes in a wider context of public worry over corruption, the migration crisis, and continuing fragility of the economy with double-digit unemployment and low growth. Indeed, only Greece has fared worse in the eurozone in the past two decades.

The government announced a 25 billion euro stimulus package, similar in size to the EU’s proposal for the entire 27-nation bloc.  Rome will also ask Brussels for permission to increase 2020 deficit spending from 12 billion euros to 20 billion. 

However, the economy could shrink dramatically. And the economic chaos, which may mean that the banking system cannot stay solvent or liquid during a national lockdown, comes even before Italy’s chronic political instability is factored in.  The nation has had over 60 postwar governments and it remains unclear whether the current coalition can last the course. 

The fear is not just that the administration is unstable, let alone incapable of securing the longer-term structural reforms that the country badly needs, but also that the government could collapse this year — requiring fresh elections with the uncertainty this would bring, and the prospect of further political paralysis.

In the event that new elections are held this year, a strong majority government is unlikely to emerge. In part, this is because of the introduction of a relatively new voting system that is two-thirds proportional representation, and one-third first-past-the-post, to make it harder for any single party to win an outright majority.  The threshold for any single party having a working majority is now around 40 percent of the vote, which no party has come close to securing in recent years.

This latest bout of Italian instability could yet herald a critical turning point in the nation’s postwar history that triggers a period of political and economic reform.  However, it is more likely that the nation will only muddle through, with uncertain governance that precludes the stability and, ultimately, structural reforms in the 2020s that the country badly needs.

• Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics.

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