04 August 2016
Wolf At The Door
Trouble in store for Italy.
By Neil Tidmarsh
The wolf – the symbol of ancient Rome, the saviour of Romulus and Remus – is thriving in today’s Italy. It was given legal protection in 1971, when its wild population was down to less than 100, and in the following 45 years its numbers have increased dramatically. By 2005 the population had reached 500, and today it is reckoned to be over 2000.
A success story, but also a problem. Sheep farmers and dairy farmers in the north-west are complaining that wolves are threatening their livelihood and becoming a potential danger to the public. Regional authorities are doing what they can to help – compensating farmers who have lost livestock, installing electric fences, encouraging the breeding of sheepdogs big and brave and strong enough to see off the predators – but farmers are insisting that more drastic action must be taken before it is too late. This week, the environment ministry in Italy announced that it was considering a suspension of the wolf’s legal protection and authorising a cull.
Italy can sense the wolf at the door in more ways than one. Last week, the latest round of stress tests by the European Banking Authority suggested what many have feared for some time; that an Italian banking crisis is looming which has the potential to tip Italy back into recession and spread economic turmoil throughout Europe. Many Italian banks are carrying huge burdens of debt, but the world’s oldest and the third largest in Italy – the Monte dei Paschi di Siena – was found to be particularly fragile. Tested against a scenario of adverse economic developments, it was completely wiped out in the EBA’s virtual model. It was the worst result out of tests on 51 of Europe’s top banks.
Prime minister Matteo Renzi is trying to put together a package to inject capital into MPS, but it isn’t easy. It needs up to €6 billion. It has already had two failed bailouts and suffered a 75% drop in its share price. And in January the EU, having spent €1.6 trillion on bailouts in recent years, ruled that governments can only step in to help failing banks once investors and creditors have suffered losses of at least 8%. This ‘bail-in’ rule will hit Italians particularly hard, because investors there are typically small businesses and ordinary people, rather than large and sophisticated institutions as elsewhere in the continent. Besides, the MPS isn’t the only Italian bank with problems. Four small local banks had to be rescued last autumn, amid allegations of corruption and incompetence, and many small investors lost all their savings. The Italian banking system is carrying €360 billion in ‘non-performing loans’ (loans which can never be paid back in full), which is a fifth of all lending; over half of it is owed by borrowers already insolvent. At least €30 billion of capital is needed for rescue packages.
The Italian economy as a whole is in a fragile state. It has suffered a triple-dip recession. It has shrunk by 8% since 2008, and the IMF estimates that it won’t regain pre-crash levels until the 2020s. The government owes €2 trillion, which gives it the second-highest ratio of public-debt to GDP in Europe (Greece has the highest).
Prime minister Renzi has vowed to reform his country’s economy by making it more agile and competitive; but his attempts have been held up in parliament, as have his attempts to reform justice and healthcare. “The characteristic condition of Italian political life is the complex stalemate” says Tim Parks, the novelist and commentator on all things Italian. “Veti incrociati – ‘crossed vetoes’ – is the expression the newspapers like to use.” To overcome this political paralysis, Mr Renzi proposes to abolish the Senate (the upper house – unusually, it has the same power and function as the lower house). A bold proposal indeed. The appropriate Constitutional Reform bill has already been passed by parliament (the measure “effectively abolishes the Senate as an elected chamber, and sharply restricts its ability to veto legislation”), but it has to go to a referendum, which will take place this October. The polls are very close, and it seems that the vote will be taken as a chance to express confidence or no confidence in Mr Renzi, rather than as a valuable opportunity to lift Italian political life out of deadlock and thus enable much needed reforms.
The political consequences of defeat in the referendum could be almost as traumatic as the economic consequences of banking failure. Mr Renzi has said he would resign, and that would result in a general election which the populist, Eurosceptic, protest party Five Star Movement could win. This anti-establishment, anti-corruption party is level with Mr Renzi’s party in the polls, and has recently won elections for mayor in Rome and Turin. It has promised a referendum on Italian membership of the EU…
And then of course there is the migration tragedy. With the EU/Turkey agreement closing the Aegean down, the baton of this crisis has passed from Greece to Italy. Italy was already struggling to cope with migration across the Mediterranean from North Africa, but now the numbers are rocketing. In the last week, 8,300 migrants were rescued from the sea off Libya – 1,800 on Monday alone. There has been a 60% increase in the number of deaths – 3,120 this year.
Greece has largely vacated the headlines this year, but its place could well be taken by Italy before very long. And if it is, the consequences for Europe may be even more widespread and devastating.
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