The usual line about the grand coalition led by Enrico Letta is: “I do not like it. It is against nature. But it is a state of necessity, since no other governing coalition was possible”. I will not try to argue against this line which reflects the legitimate sentiments of most voters both in the […]
The usual line about the grand coalition led by Enrico Letta is: “I do not like it. It is against nature. But it is a state of necessity, since no other governing coalition was possible”. I will not try to argue against this line which reflects the legitimate sentiments of most voters both in the left and in the right. However I believe that we can and must turn a state of necessity into an opportunity. How can this come about?
To answer this question, let me first recall an episode that goes back to the 1970s and owes much to Richard Gardner, who is today with us and at the time of the Carter administration was an highly esteemed ambassador in Rome.
As he recalls in his memorable book of memories, in 1978 Richard managed to convince the US administration to give a visa to Giorgio Napolitano for entering the US. The political context in Italy was that of the governments of “national solidarity”, advocated by Aldo Moro, the prominent leader of the main Italian political party. During this trip, Napolitano had a private meeting at MIT with four leading economists, in the Keynesian – liberal camp: Robert Solow, Franco Modigliani, Lester Thurow and, last but not least, Paul Samuelson. Being an Italian graduate student at MIT, I was given the honor to take part in the meeting. Two things did strike me very much and may still be of some relevance today.
The first one, all those liberal economists were appalled by the amazing economic mess that prevailed in Italy: stagflation, high deficits, recurrent financial crises. They clearly pointed at a shameful lack of responsibility of political leaders and at a continuing illusion that a country can live beyond its means. Paul Samuelson was even more severe than usual, more than I had ever heard him do with Milton Friedman or Richard Nixon.
The second one, I was hit by Giorgio Napolitano’s response. He showed full awareness of the problems of Italy and argued that the left was ready to undertake at least some of the IMF – style reforms that were needed to save the country. That was the very sense of national solidarity governments, which meant that political opponents were willing to take on a common responsibility for the good of the country, setting aside the historical divide that had characterized Italy and many other countries after WW2. I had the impression that his arguments convinced the table.
It would be tempting to say that we are still there, though of course time never passes in vain.
Italy is still a problematic country, essentially because it tries to live beyond its means. This no longer takes the form of high inflation, but in the course of time it has taken two forms: 1) a high and increasing public debt and 2) a creeping inflation year after year that over the years has cumulated into an amazing loss of competitiveness vis a vis Europe, especially Germany. These are the two key problems of Italy today, which are at the root of both a deeper recession than elsewhere and high unemployment.
Giorgio Napolitano is still the one person that can effectively appeal to a sense of national responsibility to save the country. And, thanks to his action, we are once again engaging in a “national solidarity” government, that puts together political parties that until a few weeks ago regarded each other as “enemies”.
Will we succeed this time? Will the grand coalition government be able to solve at least some of the key problems of Italy?
To those who are understandably skeptic about it, both in the US and in Italy, I would offer the following two considerations.
1. The first consideration is that a wide political majority may have a easier time implementing difficult measures. This seems to be the lesson of many different countries and is also the lesson of the 1976-1978 governments of “national solidarity” in Italy: the mess had been done before and was going to be repeated afterwards (see Basevi and Onofri, Economia Italiana, 1997). Consider in particular the following three issues:
a. One of the key difficult things that need to be done is reforming the Constitution and the electoral law. We need to balance the principle of full representation with the need to have well defined majorities and governments that last the full length of a legislature and can take decisions. This is a typical problem that can be solved only with a wide consensus in Parliament.
b. Another very difficult challenge is to lend credibility to our commitment to stick to European rules concerning public finance. In this respect, it is remarkable that a few days ago Parliament has approved, with a very large majority, a resolution that commits the government to stay within the 3% limit in 2013. Whatever one thinks about austerity in general this was an essential step to avoid problems with the financial markets.
c. Italy badly needs to reduce tax pressure. This was the strong message that came out the February election. Of course to reduce taxes we must cut spending which is very difficult and very unpopular. If all major political forces agree on spending cuts and put their faces on them, then we can do it. No one wants to eliminate our European style welfare system. We want to streamline the public sector and make it more efficient. There is room to do it and we can do it. But we can only do in a bipartisan way.
2. The second consideration is that Italy has failed to do the necessary reforms (bureaucracy, justice, infrastructure, education, form of government etc.) not so much because the reforms were not approved by parliaments, but because they were not implemented by the succeeding governments or were explicitly abrogated, sometimes by popular referendum. So we have had “stop and go” reforms that at the end delivered almost nothing to citizens and companies. What we need a steady sense of direction and administrative capacity in order to implement over time what has been decided. If each government undoes what the previous government has done, we go nowhere.
We should stop this unfortunate state of affairs. We should put together all our shareholders and say we have a project for Italy for which we all take responsibility.