Spain and Italy: Time for realism

Nicola Morfini

The last months of 2013 represented a short period of optimism for Spain and Italy. In October 2013, Spanish Finance Minister Cristobal Montoro declared that the crisis was over and that it was time for “recovery.” Together with him, others in the country expressed enthusiastic views about future economic scenarios. Emilio Botin, president of Banco Santander, stated that “it is a fantastic moment for Spain. Money is coming from everywhere.”

Not least Spanish PM Mariano Rajoy claimed that Spain would not only “survive” the crisis but that the country would become “stronger” than before. These statements were based on the positive trend of bonds, the increase of investment and the relative increase of credibility of the country in the international context. Foreign investments represented, in the eyes of many, the evidence that the country was providing reliable credentials of growth.

In fact, the increase of investments has been strongly affected by the instability of emerging countries such as Brazil, Turkey and India. Now that these countries are back on track, investment flow has reverted again in their favor. This sudden reverse of the trend points out a tremendous hazard of the evaluation of the systemic weaknesses of Spain and Italy.

Similarly to Spain, Italy experienced and is still experiencing a moment of deep euphoria (confirmed by the electoral triumph of PM Matteo Renzi’s center-left party in the European elections), although this euphoria has different bases vis-à-vis the Spanish context. The sudden success of the young politician Renzi wiped away the outdated establishment of the center-leftist Democratic Party.

This wave, however, also crashed against the right-wing party of the People of Freedom of Silvio Berlusconi. The People of Freedom has become the third political force, after having ruled the country for 20 years – although with a few and small intervals.

This represents a true revolution for Italy. The country has been the battlefield of a cold war that started in the aftermath of World War II and never really finished. Left parties were too compromised with the Soviet Union to take power. Hence Italy had one party in power, the Christian Democracy, between 1946 and 1992. After this followed two decades of Berlusconi’s governments.

Now Renzi, a well-regarded leader supported by a lot of optimism and good spin doctors, shares common programmatic points with the center-right and promotes deep and bipartisan reforms. The optimism over the dramatic improvement of the political scene, however, crashes against economic data. The sudden political spring did not correspond to a sudden economic spring. And it is not even sure that it will in the longer run. Spain and Italy are now dealing with the fragility of their optimism. These countries are just out of the eye of the storm and are back into the tempest. This does not mean that these countries will fatally face a double-dip, but rather that they will have to rethink growth and policies, being aware of the strong weakness of their national systems. Policies and strategies might differ, but the common slogan must be “accountability, accountability, accountability,” to be repeated as a mantra and implemented with severity. Only a deep rethinking of administrations and labor legislation will put Spain and Italy back on track again. The real challenge of these countries lies in the capacity to adopt measures that ease foreign and domestic investment without annihilating labor rights and democratic participation.

The solution to the crisis can only come from a constructive dialogue between national states and the European Union. The rigid policies of the union are seriously choking Southern European economies. However, Spain and Italy are not immune to critics: the lack of accountability created huge systems of clientelism. Reforms should not be synonymous with the cutting of public expenditures but should push forward legislation aimed at promoting accountability and thwarting interference from political parties.
The ongoing economic and social context requires answers to problems in the short term and the capacity to deal with change. Spain and Italy not only demonstrated that they did not have a credible answer to the crisis, but rather that the system as a whole is unable to provide answers in a globalized economy and society. From this rises the need for constitutional reform that should streamline the overwhelming public administration, implement accountability through a more direct participation of citizenship in check-and-balance mechanisms and promote policies that could ease the labor market without frustrating private initiative.

Nicola Morfini is a PhD candidate at the University of St Andrews (UK)