By: Caroline D. Rose
As the coronavirus pandemic has taken hold of Europe, the deep divide between northern and southern states has intensified.
The outbreak has spurred a recession.
The International Monetary Fund forecasts a 13 percent bump in eurozone debt this year alone, with indebted southern countries such as Italy, Spain, Portugal and Greece taking the largest toll.
This will be the second recession to hit Southern Europe in a little over a decade, as countries are still recovering from the eurozone sovereign debt crisis and the 2008 recession.
The popular belief is that northern countries will likely experience faster recovery rates, widening the wealth gap between northern and southern economies as Southern Europe shoulders heavier long-term debt.
Tension between the European Union’s northern and southern members is not new, and GPF has examined the north-south divide before.
Now, the coronavirus and its accompanying recession have intensified north-south disagreements over debt issuance and financial assistance, emerging as a potent threat to not only EU consensus but the European project itself.
Italy Appeals to the EU
Southern Europe has grown increasingly loud in its demands for unconditional EU financial assistance and medical supplies in the wake of the pandemic.
At the helm of southern demands has been Italy, one of the countries affected most by the coronavirus and the EU's economic paralysis.
Italy’s battle with the coronavirus has exacerbated a series of cracks in the country’s foundation: regionalism, political factionalism, constituent mistrust and chronic infighting.
These intensified internal disputes have limited the government’s ability to wage an effective crisis response.
Italy’s coalition government under the leadership of Prime Minister Giuseppe Conte is on war footing. The Italian parliament has always been a theater for domestic squabbles, but the shifting coalitions and power struggles have further fragmented Italy’s government as it fights the coronavirus.
The coalition government, led by the Democratic Party and the populist 5-Star Movement, is shaky, plagued with chronic infighting and significant ideological differences. And it’s also had to face an opposition, the far-right League party, committed to obstructing nearly every policy the government proposes; the League even opposed Conte’s 7.5 billion-euro ($8.1 billion) national stimulus plan in favor of a 50 billion-euro emergency package in early March.
The League’s recalcitrance almost drove Conte to resign back in June 2019, and its role as the rock in Conte’s shoe now prevents the political unity typically demanded during a national crisis.
Conte has come under fire for his handling of Italy’s northern provinces. He was sluggish to respond to Italy’s first coronavirus case on Feb. 18 in the Codogno, Lombardy region. And he was slow to ramp up measures to stricter levels, as requested by parties such as the League, because he was wary of inflicting economic and psychological damage on Italians.
Conte also received heat from southern provinces after news of a lockdown in Lombardy was leaked to Italian media on March 8, prompting over 90,000 southern Italians working in the north to defy curfew and travel restrictions to flee back to the south.
The medical structure in southern Italy (particularly Calabria and Molise) is underprepared and has experienced a severe deficit of personnel, funding and personal protective equipment in local hospitals.
Conte has adopted a more hardline position in recent weeks, closing schools, nonessential shops, bars, restaurants and public meeting spaces, and imposing police-enforced quarantines nationwide.
The regional tension has driven the Italian government into a tight corner. At this point, Conte must balance his squabbling coalition parties and deliver crucial assistance to regions like Lombardy and Veneto while still keeping political distance as northern Italy has transformed into a liability.
Facing demands and pressure from all sides, Conte has turned beyond Italy’s borders to the European Union, hoping to receive a larger baseline of support. But it has had little luck.
Italy’s fervent bid for European support, joined by other hard-hit countries like France and Spain, has met resistance from more fiscally cautious countries like Germany and the Netherlands, compounding a north-south divide that has troubled the EU since the eurozone debt crisis.
While certain parties have pointed fingers at the Italian government, many citizens have recognized the split coalition government’s limitations and have also begun directing their frustration at Brussels. Polling in Italy reveals narrowing support for all political parties and an overall more fragmented political landscape.
But perhaps more significantly, polls have indicated that anti-EU feelings are on the rise among Italians. Euroskepticism was already brewing in Italy, particularly following the eurozone crisis, which left many Italians feeling ignored by Brussels.
At the end of 2019, an EU poll recorded that just 37 percent of Italians saw EU membership as a “good thing,” while 17 percent saw it as “bad.” Now, even some of the most pro-EU factions within parties, such as the Democratic Party, are voicing criticism of the bloc’s agenda and its response to Italy’s coronavirus crisis.
In a survey conducted in March by Tecne, 67 percent of Italians said they believed belonging to the European Union was a “disadvantage” for their country, up from 47 percent in November 2018.
And another survey recorded that, in late March, 72 percent of Italians thought the European Union had not contributed “at all” to pandemic assistance, with those trusting the EU declining from 34 percent when the pandemic first arrived in Italy to 25 percent.
Italy’s divergence with the European Union’s wealthier, northern members during the coronavirus crisis has enabled a euroskeptic platform to seep into the mainstream as Italians feel increasingly abandoned by Europe and demand a more self-reliant Italy.
More than 22 percent of Italy’s population is older than 65 — the second-highest level in the world — and behind the country’s eyebrow-raising death toll is particularly acute economic devastation.
Italy is no different from other countries in that this pandemic has paralyzed its economy; businesses are closed, workers are laid off, and consumer spending and demand are dangerously low.
But Italy was barely treading water before the coronavirus hit, making this oncoming recession an even more severe blow to the Italian economy.
Recent polls show one in three Italians fear that they will be laid off and fear for the future of the economy — and they have reason to be concerned. Italy’s lack of liquidity has posed a problem for citizens seeking to buy groceries at the beginning of every month, with 22 percent of Italians saying that they have difficulty shopping.
And with Italy’s rescue package potentially amounting to as much as 50 percent of the country’s gross domestic product, experts expect its debt-to-GDP ratio to grow past 155.7 percent (it is currently 135 percent) after the crisis.
The EU’s Inadequate Response
Hesitance among northern EU members such as Germany and the Netherlands to issue financial assistance outside existing EU mechanisms has provoked ire from southern states — particularly those heavily overwhelmed by COVID-19 like Spain, France and, of course, Italy.
Italy, already the slowest growing economy in the bloc, has forecast a 3 percent hit to its economy this year due to COVID-19. (And that’s a conservative estimate; the International Monetary Fund predicts a 9 percent drop in GDP).
Conte, recognizing Italy’s upcoming economic predicament, pleaded to the European Union earlier this month: “What will we tell our citizens if Europe does not prove capable of a united, strong and cohesive reaction in the face of a symmetrical, unpredictable shock of this historical magnitude?”
The European Union, however, has stalled in its financial and medical response to members hit hardest by the virus. When Italy first appealed to activate the EU Civil Protection Mechanism, which depends on member states to give assistance, no member state offered operational assets, relief items or experts. Simultaneously, many European states began implementing protectionist policies by banning the export of medical equipment, inflaming tensions in northern Italian hospitals overwhelmed with patients.
Conte has led the charge in proposing EU joint debt issuance to keep afflicted members’ borrowing costs low, first in a proposal popularly known as “coronabonds,” supported by eight other member states: Spain, Greece, France, Portugal, Belgium, Ireland, Slovenia and Luxembourg.
The reluctance of Germany and the Netherlands to agree to the coronabonds proposal led Italy to change tack, pushing for EU-issued, unconditional grants to struggling European countries.
Heavily hit countries like Spain (still recovering from its 2008-14 recession) and France have joined Italy in advocating a common fund for all European states that would allow wealthier, less-affected countries to underwrite the costs for less-fortunate EU members.
The eurozone does already have an emergency rescue fund, the European Stability Mechanism (ESM), but Italy favors unconditional financial assistance, believing the ESM would come with conditions that could hurt Italy’s political and economic systems in the long run.
Countries including the Netherlands have advocated a loan-based system, but Italy and Spain have come out with fresh demands that the European Union provide 1.5 trillion euros to member states as real budgetary transfers in the form of unconditional grants.
The European Union has started recognizing its slow-paced response to the coronavirus pandemic; European Commission head Ursula von der Leyen even apologized for not acting sooner. And Brussels has begun to make amends, suspending budget deficit limits and easing rules governing state aid.
The European Central Bank (ECB), meanwhile, launched a hefty 750 billion-euro Pandemic Emergency Purchase Program and suspended some of its own rules so that it can prioritize buying Italian government bonds to keep borrowing costs low.
And after weeks-long discussions involving tense Italian-Dutch disagreement, European leaders reached consensus on a recovery plan that European Council President Charles Michel called an “unprecedented investment effort.” European leaders are now considering raising the European Union’s budget ceiling to generate 1 trillion euros in investment (though leaders in the European Commission suggest a release of 2 trillion euros to protect the single market’s integrity).
But even though the European Union has attempted to rise to the occasion, it may be too little too late. Europe’s initial delay in response has scarred Italians, driving increasing calls for a more self-reliant Italy outside of the EU framework.
When Italian hospitals initially swelled with patients, with few European aid offers outside of the ESM, Italy depended upon assistance from outside the Continent: Chinese, Russian and even Cuban contributions of masks, ventilators and test kits. China, in particular, was active in sending medical personnel to advise Italian caregivers working on the frontline.
This galvanized euroskeptic Italians; some hospitals in Lombardy have hung the Maoist flag next to the Italian tricolor, while a social media trend has emerged of Italians recording themselves burning EU flags while repeating “we save ourselves.”
A second EU investment package is underway, but the road to north-south unity remains long. Germany and the Netherlands have traditionally been opposed to debt mutualization because they saw it as violating long-respected EU laws that prevented individual member states from financing each other.
Northern countries have viewed the coronabond debate as an unnecessary distraction, asserting that the ECB package has been effective on its own in underwriting Italian and Spanish debt and that existing alternatives like the ESM would be the best move.
Additionally, northern European taxpayers would be expected to shoulder the burden in the long term, an uncomfortable prospect for countries like Germany and the Netherlands as they brace for their own ugly recessions.
While EU members have agreed on the premise of an investment package as part of the bloc’s 2021-27 multiyear budget, Spain, Italy, Germany and the Netherlands are still bickering over some of the most basic elements of the plan, such as the amount of funding and whether to issue money through grants or loans.
Northern European countries’ reluctance to reach further into the union’s pocketbook has incited criticism from much of Southern Europe, particularly inflaming Italians. Many Italians have even accused the European Union’s de facto leader, Germany, of moral absence, making analogies about Germany’s debt forgiveness from the Nazi era after WWII and its disciplinarian reputation in the bloc.
But Italy’s objections are not just personal jabs at northern countries. They are expressing larger questions about the European project itself.
The longer the European Union has hemmed and hawed over emergency response, the more Italians have bought into a narrative asserting that the bloc is ineffective.
Their rationale: If it can’t fight this, what is the use of the union?
Will Italy Quitaly?
Does this mean an Italian departure from the European Union is imminent? Not necessarily.
Since the eurozone debt crisis, the concept of an “Italexit” has been thrown around in far-right circles, but with little potential for coming to fruition — especially considering the declining support for the League party.
An Italian exit from the European Union and eurozone still remains unlikely; in the short term, after all, Italy and Europe must continue to battle a viral outbreak and an oncoming financial crisis.
But the trauma Italy has experienced during the coronavirus pandemic has lent momentum to greater north-south divergence in the union and is encouraging an Italian movement to more forcefully resist certain EU policies.
For many Italians, times are about to get tough. And in hardship, the public searches for someone or something to blame. As the Conte government tries to keep its coalition government together while facing allegations of mismanagement, the prime minister has turned to Europe to place responsibility.
While we may not be seeing an Italexit on the immediate horizon, Italian bitterness with the European Union will only widen Europe’s north-south divide and put further pressure on the already fragile European project.
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