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The crisis of the Italian ruling class

Giancarlo Elia Valori

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No political, decision-making and economic crisis is devoid of cultural and spiritual implications. Moreover, the traits of this new and so-called elite are superficiality; the absolute ignorance of the depth and complexity of problems; the true psychosis and obsession for “communication”, advertising and the often useless presence on the media.

Nevertheless some structural data can be noted in the shift from the First to the Second Republic: the new irrelevance of the Italian strategic position; the total lack of autonomy in the old areas where in the past Italy operated almost undisturbed, such as the Middle East; the aggressive behaviours of those whom it thought were allies and friends both in the Atlantic Alliance and in the European Union.

If, however, currencies do not find a temporary and rational balance and we operate only with fixed rates – as, indeed, happens also with the  European single currency – the adjustments are always and only made with the reduction of the production base.

Italy celebrated the arrival of the Euro by passively and supinely accepting a Lira-Euro exchange rate that was influenced by the previous six months, when the Lira value had been too “high”, and it privatized its main assets at costs often not consistent with values.

Until the year 2000, the amount cashed from privatizations and securitizations totalled 178,019 billion liras, equal to 91 billion euros.

The first element of continuity between the First Republic and the  current phase is the excessive and often irregular funding of the ruling class, that is not matched by an internal meritocratic selection not based on family, clan, political group or faction criteria.

As Ennio Flaiano argued, to frighten a group of Italians just shout the word “merit!”.

Hence, while in the past the political parties acquired resources from companies with regular “withdrawals”, later the large privatizations permitted a single, but much more significant flow of funding.

The Second Republic emerged on the basis of the large distribution of resources to politicians in the Enimont affair, as the First Republic had been based on ENI and its US dollar transactions.

What happened later? Once the great donations were over, the ruling class – as petty swindlers or minor felons – lived on wiles and stratagems, modest transactions and friendships on the fringes of legality.

Furthermore with the Euro you could easily get again into debt, while on the international markets the old Lira had been ending up like the  Argentine Peso.

In is in 1986, however, that Italy came to rank fifth among the G6 countries, thus overtaking also Great Britain by 46 billion liras of additional GDP.

Since the early 1990s, however, Italy has been gradually losing ground vis-à-vis France (-21%), Germany (-29%), Great Britain (-11%), Japan (-27.7%) and the United States (-25.8%).

The other EU Member States used the Indian Summer of the 1990s to make structural reforms, while our politicians wasted time with their self-centred approach.

In 1987 Italy entered the EMS and its GDP rapidly rose from 617 billion  to 1,201 billion US dollars in 1991, with the Lira revaluing by 15.2% against the US Dollar and devaluing by 8.6% against the German Mark.

From 1991 to 1995, however, the Lira devalued by 29.8% against the German Mark and by 32.2% against the US Dollar.

The lack of guidance, understanding and control of the economic system by the ruling class – that is already in a phase of “renewal” – is evident.

Trade and monetary wars? Certainly so. Political leaders who are incompetent and often ignorant? Even more certainly so.

By now, however, the ruins in Italy obstruct the passage.

Nevertheless the dismantling of Italy’s civil society, ruling class and companies began in those years and it is continuing relentlessly.

The destabilization of the political system led to the choice of ignorant Parliamentarians and government leaders, often unable to understand and even decide on the various issues at stake.

Furthermore, the crisis originated in the United States in 2007 – which is not yet over – definitively destroyed the Italian economic and political system.

Since then the Italian economy has shrunk by at least 10% and production has fallen down to the level typical of the previous ten years, while 15% of the industrial capacity has been destroyed.

Also the approximately 200 billion euros of bad debts of the national banking system are a consequence of the crisis.

Against this background, also the rigidity of the labour market and its excessive cost are looming large.

An engine only producing friction and attrition – in an international context where no one has any interest in helping or supporting a friend or an ally.

Another naive or incompetent trait of Italy’s current ruling class is the idea that there can still be political, financial and strategic “White Knights”.

Since the year 2000 Italy’s foreign policy has been a perfect example of masochism.

Between 2000 and 2013 we finally recorded the closing down of 120,000 factories and the loss of one million and 160,000 jobs.

Meanwhile, our politicians think they can grant bonuses or tax exemptions for obvious electoral reasons. What a great idea!

Bonuses are always too expensive, but tax exemptions are a scam: if there is no similar reduction in public spending, the tax favours granted to a  group are paid by another one.

Not to mention public debt, which is approaching 140% of GDP.

There is no point in our politicians resorting to American experts – just to be fashionable – who recommend the sale of public debt securities only to Italians (as in Japan) and the usual “political stability”.

Let us not cherish illusions. Italian investors have not enough money to absorb the whole stock of securities issued, but political stability is impossible, owing to the old and new mass poverty existing in Italy.

Hence, on the one side there is the ruling classes’ old strategy of  selectively buying votes with favours and support; on the other, it is  impossible to keep this pace of electoral spending – even in the short term.

The typical Keynesianism of ignorant or too wise guys.

Furthermore, at a time when the ruling class is structurally weak, we witness an increase of non-transparent mechanisms and the strengthening of the lobby groups, who often draw up laws and influence the debate.

By now, instead of the old political parties, there is an intricacy of balances and power relations that are hardly perceived by voters, but which are now essential to pay for electoral campaigns and create the “image” of candidates.

Moreover, in Italy we are currently faced with a society of rentiers, namely those whose money come from investment rather than work: for the Italian Statistical Institute (ISTAT), the “wealthy” are the “employees” (12.2 million people) and the “silver pensioners” (5.2 million people). Finally there is a “ruling class” with a 70% higher income than the national average, made up of 4.6 million people.

Scarcely productive work, much widespread income from investment rather than work, no market and too much State.

However, the lower middle class and the working class are over. The working class is now fragmented into the wide – and apparently varied – population with temporary, low and insecure income.

The middle class – Italy’s historic axis – is now composed almost exclusively of retirees, while the old “bourgeoisie” is polarized between  the new rich and the future poor.

Just think of how much political ideology is vanishing, while the social classes that have built the modern world disappear and the politicians live their short time of glory by adapting to the most predictable and antiquated fashions and myths of mass communication.

Another essential aspect to note is the vertical drop of the school quality and the loss of value and quality of university degrees – another factor for which the current ruling class shall be held liable.

Hence all the old so-called “social elevators” – education, the now proletarized professions, crafts and specialized activities – do no longer work.

With this ruling class, the “foam” of the 1968 movement has come to power.

Indeed, while the 1968-styled Marxism wanted the “proletarianization” – so that the new poor would make the “revolution” – today we witness  impoverishment and proletarianization without any revolt or rebellion.

Paradoxes of history.

It is worth recalling that since 2012 over 800 entrepreneurs have committed suicide – a case out of four in Italy’s former rich North-East region.

Hence there are two possible options: either the current ruling classes work for the King of Prussia – but they still have to be elected here – or it is real inability, as well as lack of culture and experience.

The issue does not lie in singing the praises of small and sometimes unlikely economic growth in the last year. The indicator of severe material deprivation has grown by 0.4%, while the unemployment rate has decreased very slightly at national level (to 11.7% from the 11.9% of 2015), but it has increased by two tenths in Southern and island regions, thus reaching 19.6%.

In the future we will probably not have a “Mexican” Italy, with a small share of advanced industry, a mass of illegal economic activities and an old network of legal firms which, however, survive with underpaid labor force, deprived of any protection.

Conversely Italy is likely to become a fully deindustrialized nation, with its neighbouring countries taking over the best companies, and a large mass of population surviving on illegal economy or on the service sector.

 It is but a short step from decline to poverty.

And Italy will make this step as its ruling class is unable to control the “value chains” of large German or US productions in the North-East region, nor it knows how to effectively manage the non-tariff protection of the luxury goods it sells well in the world. It does not know the current monetary and geopolitical schemes and plots underway and finally it is  unable to create such a training system as to allow the evolution and technological upgrading we need in a world characterized by fierce global competition.

Hence what can we do to avoid Italy’s evident decline? First and foremost we need to talk about it and later imagine the programme of a new ruling  class.

It is difficult, but not impossible.

Advisory Board Co-chair Honoris Causa Professor Giancarlo Elia Valori is an eminent Italian economist and businessman. He holds prestigious academic distinctions and national orders. Mr Valori has lectured on international affairs and economics at the world’s leading universities such as Peking University, the Hebrew University of Jerusalem and the Yeshiva University in New York. He currently chairs "La Centrale Finanziaria Generale Spa", he is also the honorary president of Huawei Italy, economic adviser to the Chinese giant HNA Group and member of the Ayan-Holding Board. In 1992 he was appointed Officier de la Légion d'Honneur de la République Francaise, with this motivation: "A man who can see across borders to understand the world” and in 2002 he received the title of "Honorable" of the Académie des Sciences de l'Institut de France

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Dayton Peace Accord 23 Years On: Ensured Peace and Stability in Former Yugoslavia

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For the past twenty-three years life has been comparatively peaceful in the breakaway republics of the former Yugoslavia. The complicated civil war that began in Yugoslavia in 1991 had numerous causes and began to break up along the ethnic lines. The touching stories and the aftermath effects of the breakaway republics of Bosnia- Herzegovina, Croatia and in Kosovo are still unfolding. Though the numbers of deaths in the Bosnia- Herzegovina conflict in former Yugoslavia are not known precisely, most sources agree that the estimates of deaths vary between 150,000 to 200,000 and displaced more than two million people. During the conflict a Srebrenica a North-eastern enclave of Bosnia once declared as a United  Nations  (UN ) safe area” saw one of the worst atrocity since second world war.

It has been estimated that more than 8,000 Muslim Bosniaks were massacred in Srebrenica and it was one of the most brutal ethnic cleansing operations of its kind in modern warfare. The US brokered peace talks revived the a peace process between the three warring factions in Bosnia- Herzegovina. For Peace in Bosnia and Herzegovina a United States (US ) -brokered peace deal reached in Dayton on 21st November 1995. In a historic reconciliation bid on 14 December 1995 , the Dayton Peace Accord was signed in Paris, France, between Franjo Tudjman president of the Republic of Croatia and Slobodan Milosevic president of the Federal Yugoslavia (Serbia and Montenegro), Alija Izetbegovic, president of the Republic of Bosnia-Herzegovina.

When conflict in Bosnia- Herzegovina, Croatia ended, the reconciliation began between ethnically divided region. The US played a crucial role in defining the direction of the Peace process. In 1996, North Atlantic Treaty Organization (NATO) -led 60,000 multinational peace enforcement force known as the Implementation Force (IFOR)) was deployed to help preserve the cease-fire and enforce the treaty provisions. Thereafter, the Court was established by Resolution 808 and later, Resolution 827 of the United Nations Security Council, which endorsed to proceed with setting up of the International Criminal Tribunal for the former Yugoslavia (ICTY) to try crimes against humanity . International Criminal Tribunal for the Former Yugoslavia (ICTY) was the first United Nations (UN) war crimes tribunal of its kind since the post-second world war Nuremberg tribunal.

In the late 1990’s, as the political crisis deepened a spiral of violence fuelled the Kosovo crisis between the Kosovo Liberation Army (KLA) and the Yugoslav forces. Unlike the Bosnia- Herzegovina, Kosovo was a province of Serbia, of former Yugoslavia that dates back to 1946, when Kosovo gained autonomy as a province within Serbia. It is estimated that more than 800,000. Kosovos were forced out of Kosovo in search of refuge and as many as 500,000 more were displaced within Kosovo.

Subsequent t hostilities in Kosovo the eleven week air campaign led by NATO (North Atlantic Treaty Organisation) against Yugoslavia in 1999 the Yugoslavian forces pulled troops out of Kosovo NATO. After the war was over, the United Nations Security Council, under the resolution 1244 (1999) approved to establish an international civil presence in Kosovo, known as the United Nations Interim Administration Mission in Kosovo (UNMIK). Nevertheless UNMIK regulation No 1999/24 provided that the Law in Force in Kosovo prior to March 22, 1989 would serve as the applicable law for the duration of the United Nations Interim Administration Mission in Kosovo (UNMIK).

In this  context reconciliation is a key to national healing of wounds after ending a violent conflict. Healing the wounds of the past and redressing past wrongs is a process through which a society moves from a divided past to a shared future. Over the years in Serbia, Bosnia- Herzegovina, Croatia and in Kosovo the successful peace building processes had happened. The success of the peace building process was possible because of participation of those concerned, and since appropriate strategies to effectively approach was applied with all relevant actors. The strengthening of institutions for the benefit of all citizens has many important benefits for the peace and stability of former Yugoslavia. Hence, the future looks bright for the Balkan states of Serbia, Bosnia- Herzegovina, Croatia and Kosovo.

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Hungarian Interest, Ukraine and European Values

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Diplomatic conflicts that have recently arisen between Hungary and its neighboring countries and the European Union as a whole most clearly show the new trend in European politics. This trend is committing to national and  state values of a specific  European country, doubting  the priority of supranational  interests within the European Union. Political analyst Timofey Bordachev believes that “the era of stale politics and the same stale politicians, who make backstage decisions based on the“ lowest common denominator,” are finally coming to an end. Politicians with a new vision of the world order come to power, such as Hungarian Prime Minister Viktor Orban, Austrian Federal Chancellor Sebastian Kurtz, or the new head of the Italian Interior Ministry, leader of the right-wing League of the North Party, Matteo Salvini ”.

It is not the first year that Hungary is trying to protect the interests of its citizens and the state from external influence, to protect the Hungarians in the territory of neighbouring states  by establishing for this  a special position (Commissioner  for the development of the Transcarpathian region of Ukraine), to determine relations with other countries on the basis of their attitude to the rights of Hungarians. This is how conflicts with the European Union arose, after Hungary refused to let migrants into the country, in the same manner, a conflict  arose with Ukraine, which is trying to build a state ideology, based on nationalism, which a priori does not provide for the proper level of realization and protection of the rights of non-titular nations.

In relation to Hungary, Ukraine follows the same policy as in relation to Russia – to initiate various accusations, to call for punishment, to talk about the inconsistency with European values of the Hungarian policy under the leadership of  Orban. Doing so Kiev has its multifaceted interest: cooperation with NATO and the EU, support  for any decisions of Brussels, the anti-Russian course, domestic policy based on the nationalist  ideology. And in all these areas  Hungary poses  a problem for Ukraine. In the description of relations with Hungary  Kiev even  uses the word “annexation“.

Hungary is hardly planning to seize any Ukrainian territory, but on what  grounds Ukraine falsely accuses Hungary of its annexation intentions in relation to Transcarpathia?  The Ukrainian side highlights several positions:

Issuing Hungarian passports  to Ukrainian citizens (ethnic Hungerians)

This  is an old story, it has come to light again recently due to the growth of Ukrainian nationalism. Moreover,  there are concerns about the implementation by Hungary of the “Crimean scenario” in relation to Transcarpathia.

The Hungarian government has created the position of  “Commissioner  for the development of Ukraine’s Transcarpathian region and the program for the development of kindergartens in the Carpathian region”.

Ukraine demanded an explanation. A note of protest was delivered to the Hungarian Charge d’Affaires in Ukraine, and the Foreign ministers of Ukraine and Hungary had a telephone conversation on the problem. Hungary continues to ignore the requirements of Kiev.

Ukraine fears further disintegration processes

At the same time, in Kiev there is no understanding  of the fact that combining the ideology of nationalism with the country’s national diversity and European integration is hardly possible.

Ukrainian experts note the growth of separatism in the Transcarpathian region, as well as the “strange behavior” of the governor, who plays on the side of Hungary. They also complain that “pro-Ukrainian ideology”(?) is not being сonsolidated in Transcarpathia, and this region is not controlled and monitored by  the Ministry of information. In a word, the state is losing control over the territory, which it neither develops nor controls. Such behavior of the governor and the region’s residents may indicate that the state is not sufficiently present in the lives of residents of Transcarpathia, and this a financial and humanitarian drawback they compensate with the help of Hungary, – experts believe.

Apparently, Ukraine is unable to reach an agreement with Hungary as relations are tense. In response to the Ukrainian law on education, adopted in the fall of 2017, which infringes the rights of national minorities, Budapest blocked another, the third, Ukraine-NATO meeting. Ukraine witnessed this embarrassing  situation  in April 2018.  At the same time elections were held in Hungary, in  which Viktor Orban’s party won a majority in the parliament. Such a tough stance of Budapest in relation to the Ukrainian educational policy Kiev considered to be just a sign of electoral populism. However, this was a mistake.

Viktor Orban’s victory in spring 2018 was convincing, and a convincing victory means obvious support of his migration policies as well as his support  for compatriots abroad. The party of Orban – Fides – not only won a majority but a constitutional majority – 133 of the 199 seats  in the National Assembly of Hungary.

There is no doubt  that Hungary has become Ukraine’s another serious opponent in the process of its European integration. And it is unlikely that either  country  will take a step back: there will be presidential elections in Ukraine soon, and in Hungary, the victory won by Orban, apparently, confirms the  approval of his independent  foreign  policy  by  the citizens.  So the conflict is likely to develop.

First published in our partner International Affairs

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Belt and Road Alternatives: The European Strategy

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The European Union (EU) has put forward a plan for enhancing connectivity within Asia, which has been dubbed as the Asia Connectivity Strategy.

The EU does not want to give an impression, that the Asia Connectivity Strategy (ACS) is a counter to the Belt and Road Initiative (BRI). Yet, senior officials of the EU, while commenting on the broad aims and objectives of the project, have categorically stated, that the primary goal of the Asia Connectivity Strategy, is enhancing connectivity (physical and digital) while also ensuring, that local communities benefit from such a project, and environmental and social norms are not flouted (this is a clear allusion to the shortcomings of the BRI). There are no clear details with regard to the budget, and other modalities of the project (EU member countries are likely to give a go ahead for this project, before the Asia-Europe Meeting in October 2018). EU has categorically stated, that it would like to ensure that the ACS is economically sustainable.

Other alternatives to BRI 

It is not just the EU, but even the US, along with Japan and Australia. which are trying to create an alternative vision to the BRI.

The US alternative to the BRI, is being funded by the recently created United States International Development Finance Corporation (USDFC) (an organization which will merge Overseas Private Investment Corporation and other Development Finance Programs) which came into being after the passing of the BUILD  (Better Utilization of Investments leading to Development) Act recently.

It would be pertinent to point out, that the US which has been accused of lacking a cohesive vision to counter China’s BRI has in recent months spoken, on more than one occasion, about greater the dire need for robust connectivity in the Indo-Pacific. In July 2018 US Secretary of State while speaking at the Indo-Pacific Business Forum committed an amount of $113 million for U.S. initiatives to support projects related to digital economy, energy, and infrastructure. The Secretary of State, while speaking about close links between US and Indo-Pacific, also spoke about the need for greater private sector involvement in projects in the Indo-Pacific. Pompeo off late, has also been reaching out pro-actively to a number of countries in South East Asia, and visited Malaysia, Indonesia in August 2018.

It would be pertinent to point out that OPIC  (now part of USFDC) has already signed with the overseas finance development arms of Japan and Australia, and is in talks with India to work jointly. Some of the areas being explored for joint investments are energy, infrastructure.

It is not just the US, even Japan has come with it’s own alternative, Partnership for Quality Infrastructure (PQI), to the BRI.

Potential Appeal of the Asia Connectivity Strategy

So the question then arises, why would countries seeking an alternative to China, not come on board the US’ connectivity initiative. The ‘Asia Connectivity Strategy’ may be especially acceptable to leaders, who do not want to be seen as blindly following US diktats, but who are also uncomfortable with Beijing’s economic policies, and want to avoid falling into what has been dubbed as Beijing’s ‘debt trap’ diplomacy. A perfect example being Malaysian Prime Minister, Mahathir Mohammad who scrapped projects worth 40 Billion USD, and also referred to the rise of a ‘new colonialism’ being promoted by China. The Malaysian PM has not shared a particularly cordial relationship with the US in the past. While addressing the United Nations General Assembly (unga), Mahathir made some interesting points, saying that Malaysians want a Malaysia, which seeks relations based on ‘mutual respect’ and a Malaysia, that is ‘neutral’ and ‘non aligned’

EU itself trying to strike a balance

EU Chief, Jean Claude Juncker, has been pitching for a more pro-active response to Trump’s insular policies, as well as China’s BRI. Given the fact, that EU has taken a divergent stand from US on the Iran issue, and has proposed a Special Purpose Vehicle (SPV) which will ensure that trade with Iran continues, even before the impending US sanctions to be imposed on Iran in November 2018. The SPV was announced, jointly with Russia and China, on the sidelines of the UNGA.

At the UNGA, French President, Emmanuel Macron disagreed with Trump’s views with regard to Iran, and supported the 2015 Vienna Accord. Said Macron: We know that Iran was on a nuclear military path but what stopped it? The 2015 Vienna accord.”

While it remains to be seen, if the SPV set up by EU works or not, but a number of countries which do not want to be part of the Chinese or American orbit would be attracted towards the EU, in spite of all the problems it is facing, due to it’s capacity to take an independent stand.

Asia Connectivity Strategy is not only about competition

It remains to be seen whether the Asia Connectivity Strategy can gain traction. In terms of connectivity, there may even be strong overlaps with the ‘Indo-Pacific vision’. France, which has strengthened strategic ties with Australia and India, is already seeking to play a pro-active role in the Indo-Pacific.

French President Emmanuel Macron had referred to the need for a strong Paris-Canberra-New Delhi axis, during his Australia visit, as a counter to China’s increasing assertiveness.

Interestingly, while there is a realization, that Asian Connectivity Strategy has a competitive element, and there are some clear differences between EU’s strategy and BRI, there are also some who believe, that there is space for collaboration between the Asia Connectivity Strategy and BRI. This point has been put forward by some policy makers and strategic commentators in EU, as well as sections of the Chinese media. Wang Wen Wen in an article for the Global Times, argues:

‘Asia needs Europe as much as it needs China. Since the EU and China are the two largest economic entities in Eurasia, it is vital that they steward the continent’s economic development agenda. Some programs in the BRI have carried out cooperation with the European side on technology and equipment procurement.’

In conclusion, the Asia Connectivity Strategy is an interesting idea. A lot will depend upon available resources and the response of potential stakeholders. But EU going ahead with such an initiative in spite of numerous problems within is truly laudable.

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