May 16, 2018
... and by the way: we are leaving the eurozone
The Huffington Post Italia had an extraordinary scoop last night when it got ahold of a 39-page draft document setting out a coalition agreement between Lega and Five Star. It is unbelievably extreme - right out of the 1930s. The copy of the contract is dated 14 May at 9.30am. It precedes Monday’s discussions between the party leaders and President Sergio Mattarella, and the parties have already said that it is out of date. It may be, but the document gives a good reflection of the sheer radicalness of two parties.
The three most important headlines are, from our perspective: an exit clause from the eurozone; a partial cancellation of Italian sovereign debt; and a parallel governance structure that would reduce the role of the prime minister to that of a junior technocrat. There is a lot more in the draft, but we focus on these more extreme ideas which reveal something many Italian liberals have hitherto refused to believe: these two parties want to change Italy beyond recognition. If this coalition came together, it would herald a real challenge to Italy’s liberal democracy, and to the eurozone as a whole.
The parallel governance is probably the single most important, and hitherto unknown, proposal. We translate its name as a Reconciliation Committee, and its role is to adjudicate when there is a conflict between the two parties inside the government. Since such a committee is not foreseen in the Italian constitution, it would only have an informal role. But, as Huffington Post Italia rightly points out, the creation of such a committee would undoubtedly give rise to inter-institutional conflict, and possibly even to a constitutional crisis. The committee would take formal decisions in areas such as international crises, natural disasters, law and order, and public health. It would comes together whenever any of the parties requested it. Its members would be the prime minister, the presidents of Five Star and Lega, the political leaders of the chamber of deputies and the Senate, and any ministers relevant to a particular decision.
The draft agreement also contains a eurozone exit clause, on page 35. The two parties commit to introducing (our translation)
"specific technical procedures of an economic and legal nature”
to allow the country to leave the euro, or to obtain an opt-out if there is a popular majority. The article points out that this clause questions the principle of the euro's irreversibility. We heard a comment from the two parties yesterday that this clause is no longer in the current draft.
The draft agreement also sets out a request for an EU treaty revision with a radical revision of the stability and growth pact, to allow countries more fiscal leeway to meet their social needs. The two parties also want a significant reduction in Italy’s contributions to the EU budget.
On page 38, almost at the end, there is a reference to the cancellation of the stock of Italian sovereign debt held by the ECB.
And, finally, the draft agreement favours an opening to Russia, a relationship that should not be characterised by threats but by partnership in economic and trade relations.
Ansa reports this that the two parties reacted strongly to the warnings from Brussels that the EU expects Italy to continue to focus on deficit and debt reduction. The two leaders complained about unelected eurocrats interfering in national politics. Luigi Di Maio, the leader of Five Star, wrote on Facebook that the admonitions by the EU reflected the European establishment's fear of change.
We noted a comment in Lavoce by Massimo Baldini and Leonzio Rizzo, who did the maths on the flat tax compromise between the two parties - of a 15% lower band and a 20% higher band. The found that the costs of this tax change would be €50bn. We presume that this number relates to an annual shortfall in fiscal receipts, rather than over the entire budget year. This would equate to about 3% of GDP, which seems a plausible order of magnitude for such an extreme tax cut.
There can be no doubt that Five Star and Lega are following a radical agenda even if this draft agreement were to be rendered a little flatter in subsequent revisions. Whoever leaked this succeeded to give us an insight into the state of mind of the two parties. What worries us even more than the tough language on the eurozone, and the ludicrous request for debt cancellation, is the attempt to undermine the Italian constitution through parallel structures. This is the method by which fascists and communists in the 20th century managed to usurp democracies from within. Coalition committees to adjudicate conflicts about legislation are a normal thing, but a committee with formal executive powers is a completely different animal.
The only line of defence against the constitutional recklessness of the two parties is President Sergio Mattarella, who left no doubt about his intention to uphold the constitution. But history has shown that this formal power matters little in practice when the radical parties have sufficient majorities - as is quite possibly the case here. While the president has the power to call new elections if the talks fail, he could inadvertently trigger an even more radical counter-reaction if the radical parties were to win more votes at the next elections. We would at this stage consider new elections riskier than allowing the two parties to form a government, especially since their majority in the Senate may not be sufficiently large for some of the more radical proposals.