Is Europe in an existential crisis? Yes,
according to George Soros, who spoke at the European Council on Foreign Relations last week. Five days later, I heard him elaborate on this view at the Trento Festival of Economics in northern
Italy. For an Italian city to celebrate economics as a science is remarkable at a time when the economics profession has lost considerable credibility and trust. This was more so when the Italians finally managed to
form a government two months after the elections last March.
The coalition government is an unholy alliance of the populist Eurosceptic Five Star Movement and the right-wing League party that seems to want to set a minimum wage, reduce immigration, cut taxes and boost subsidies all at the same time.
Why is the political fracas in Italy so threatening to the existence of the
European Union and the euro zone?
First, Italy is the third-largest economy in Europe, pending the departure of
Britain under
Brexit. Second, its debt stock, at roughly 160 per cent of gross domestic product, is the third-largest sovereign debt in the world and Italian banks do have high levels of non-performing loans. Third, even the International Monetary Fund admits that, a decade after the
global financial crisis, Italian real per capita GDP is still below the level in 1999, when the euro was launched, 8 per cent lower than in 2007, and falling behind other euro-zone countries.
Italy is growing at 1.6 per cent a year, which is not good enough to address its growing debt, high unemployment and regional and generational inequalities. The electorate understandably rejected the establishment and voted in the populist parties.
