Commedia della Senato

March 11th, 2013

by Eric Schaefer

Peer Steinbrück, the former German finance minister and the likely standard bearer for the Social Democratic Party in the German autumn elections, was undoubtedly echoing Chancellor Angela Merkel's thoughts when (discussing the results of the recent Italian election) he observed, "…two clowns won the election." Herr Steinbrück and Frau Merkel, normally on opposite sides of the political spectrum, are in agreement on this point: the election results pose a real set-back to the progress made in taming Europe's sovereign debt crisis.

The two clowns referenced by Peer Steinbrück are Silvio Berlusconi and Beppe Grillo. While Pier Luigi Bersani's center-left alliance prevailed in the lower house, it came second behind Berlusconi's coalition in the Senate. The comedian Beppe Grillo's Five Star Movement came in third in the Senate race. The two factions — Berlusconi's and Grillo's — can impede any economic reform bills which pass the lower house, the Chamber of Deputies. This is the reason why the FTSE MIB Index declined 5.9 percent on Tuesday (February 26th) as the votes were tallied and it became evident a legislative stalemate was likely.

On the face of it, Berlusconi and Grillo hardly seem kindred spirits; never-the-less, one should not discount marriages of convenience (connivance?) in politics. Both share an apathy — one probably genuine, one obviously calculated — to Brussels and the Franco-German entente which sets the agenda for the European Union (EU). Remember, the enemy of my enemy is my friend.

Such is the logic of politics everywhere. But this being Italy, what is on the surface masks the brittle state of the Italian nation. Regionalism in Italian politics is never far removed as a motivation. In the election just past, it was the support of the Northern League that gave Berlusconi's rag-tag coalition its Senate victory. So readers should not be surprised if there is more earnest talk of federalism on the Swiss model as a quid pro quo for supporting further rounds of austerity.

The markets fear Italy is too big to fail, but too big to bail. While this observation may be true, we suggest the fundamental problem is, Italy — in its current incarnation — is simply ungovernable. Nor, do we believe, is there any fervent desire to make it less so.

Italy has existed as a nation for just over 150 years. Before it was a nation, the Italian peninsula was populated with a number of republics, kingdoms, principalities and city states. So while Italian unification created a single, sovereign entity, the state's effective jurisdiction has always been somewhat circumscribed. In the north (the regions of Lombardy, Piedmont, Trentino and Emilia-Romagna in particular) have always been somewhat ambivalent about the practicalities of unity. While the Mezzogiorno (Italy's southern regions) is not without its charms (the Amalfi Coast prime among them) to Italians in the north, it is in their estimation ungovernable, corrupt and a sink hole for northern tax dollars.

A tourist to either Valle d'Aosta, Trentino or Lombardia could easily mistake these Italian regions as a canton or province in Switzerland, France or Austria. Increasingly, the citizens of the north look across their borders and find they have more in common with their Swiss, French or Austrian counterparts than they do with the inhabitants of the Mezzogiorno. To them, a bailout of the central government is tantamount to a bailout of the south. In this regards, Italy is a reflection of the European Union's current woes. For these reasons one cannot dismiss the possibility that the northern regions might decide to strike out on their own. Certainty the EU already provides the essentials in the form of a common currency and a common market. In this calculus, the Italian state may thus be rendered superfluous.

In Rome, the drama is far from over, but the circus has come to town.

Notes on Sources and Methods:

Nominal gross domestic product (GDP) is a widely used measure of the total goods and services produced (consumed) by a nation (or, state) over a period of time. Nominal GDP reflects the value of the aggregate goods and services at current price levels. Per capita income is the ratio of nominal GDP divided by the region or nation's population.

The FTSE MIB (Milano Italia Borsa) Index measures the performance of the 40 most liquid and capitalized stocks on the Milan stock exchange. It is for Italians what the Dow Jones Industrial Average is for Americans. As such, the MIB is the most quoted equity index in Italy. Remember you cannot invest in an index.

(Sources: Italian National Institute of Statistics; Lipper; AIFS estimates.)

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