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European Union (EU) is a prominent example of eco-political unification through which 28 sovereign states have come together for the facilitation of commerce and to foster security. However, lately, EU has been riddled with a lot of economic challenges which its constituent nations seem to face. The southern European states have unstable economies, with Italy, Spain, Portugal, Greece and Cyprus each plagued with their own set of problems forming a pattern with their failing economies. The problems faced by these countries are multifaceted, though they basically stem from the same lack of competition in the market leading to less capital generation in the market.

The economic problems have further divided the north and the south states into being the creditor and the debtor respectively. The appeasement of its northern states (which also happen to be politically and economically more stable) by the EU at the cost of its southern states has always been a slightly sore topic.

Economic Complications: Italy to be specific, at the moment, seems to be one of the biggest economic concerns of the European Union. Italy is the third largest economy in the EU and the ninth largest in the world; however, it is still reeling from the Great Recession of 2008. In fact, even before that, Italy’s economy was underperforming at an average of about 1.2 % between 2001 and 2007.[i] So it would be obvious that a feeble economy like that could not ideally cope with the recession. After 2008, the country has again faced a triple-dip recession leading to the growth of GDP being almost stagnant and the economy underperforming despite two austerity packages introduced later.

Italy has an economy traditionally based on the services and manufacturing; 65% of the population is engaged in services.[ii] The industries in Italy are generally family-owned small to medium sized businesses. There are very few huge businesses in the country. This essentially means that though there is a generation of capital, it isn’t satisfactory. And the existent business cannot compete globally with their limited resources. Another set of problems would be that the investment in Italy poses to the entrepreneurs: very high tax regime, rampant corruption coupled with red-tapism and tedious regulations. This has ensured that there is a comparatively low inflow of capital in the country.[iii]

Italy’s financial sector, too, does not fare well in terms of stability. The banks are swamped under a colossal amount of non-performing loans. The total impaired loans are almost 360 billion dollars out of which 200 billion are nonperforming loans, constitute a major problem for further lending and keeping the capital flowing from good, profitable projects to bad projects.[iv] Looking at the financial sector as a whole, the Italian banks haven’t been strict with their business; lending to ventures without any prospect of earning a profit. The Italian banks might be seen to have more of a community-oriented approach rather than a profit-oriented one. It seems now that the latter might have turned out for the better.

Another part of the problem would be Italy’s national debt. In 2013, it was about staggering 132.6% of the country’s GDP. The only country with a higher ratio is Greece. It is a common knowledge that it didn’t turn out well for Greece and they had to be bailed out through austerity packages. High national loan translates into more burdens on taxpayers and later into recession (which did happen and is happening).

Administrative Complications: Good governance might have led to better and sound economic policies for Italy. However, after taking into account its very unstable government, it is a Herculean task to be achieved. In the last 70 years, it had 64 governments. That is almost one year for every government ever appointed! This disrupts any smooth administration in the state’s economy since no stable policy could be followed to tackle the festering problems.

Socio-political Complications: Italy had started falling out of love with EU long before the economic complications had begun. When Italy joined EU, people were discontent because it tripled the prices overnight as conversion was made from Lira (former currency) to Euro (current currency). Initially, Brussels was hailed as a solution; however, the warmth has reduced significantly now. This is due to a number of reasons. The Italians are dissatisfied with EU and the way it has treated Italy. Italy just wants to be “appreciated” now. EU failed to take care of Italy during its failing economy. The refugee crisis also puts a strain on Italy’s battered economy. Having forced to take more than its fair share of immigrants and refugees, Italy might have overshot its capacity to sustain them and that too with little help from outside. Europe, which earlier was seen as a haven of economic prosperity, in the eyes of Italians has failed to deliver what it promised. The austerity packages proposed by EU hardly served their purpose. The common people saw them as an unfair baggage at their expense instead of the financial institutions.

People witnessing the failures of the government in managing the economic crisis tend to generally lose their faith in the political institutions as well as the political ideals guiding the same. The reason for the upsurge of populism in Europe and USA is due to these exact reasons. Just like a political crisis has tremors in the economics of a nation, in the same way, an economic crisis can spill over to politics.

It wouldn’t be wrong to assume the same about Italy. The 5 Star Movement (M5S) founded and lead by Beppo Grille, started about in 2009 enjoys popularity and might be the one to come to power in the next elections to be held after Matteo Renzi’s resignation. M5S is rallying under the agenda of separation from Euro. While Euroscepticism was already present within the Italian society, M5S is actually in a position to secure enough power and public support to put that into action. The rejection of Renzi’s constitutional reforms itself is enough of a proof of Italian discontent. If Italians start seeing EU anymore as the hindrance for their achievement of economic stability and prosperity, then it wouldn’t be difficult for a euro-skeptic party to rise up in power exactly like the M5S. So regardless of what party takes over the agenda of Euroscepticism, until the economic problems hounding Italy are addressed in a way that ensures some tangible solution, there would always be a serious probability that Italy might follow Britain with its

 

[i] http://www.focus-economics.com/countries/italy

 

[ii] http://www.focus-economics.com/countries/italy

 

[iii] http://www.independent.co.uk/voices/why-italy-s-economy-is-about-to-collapse-a7091221.html

 

[iv] http://www.telegraph.co.uk/business/2016/07/16/why-italys-banking-crisis-will-shake-the-eurozone-to-its-core/

 

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Written By Vinit Wadhavkar

Meh.

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