Facing into its biggest crisis since the Second World War, Italy became on Thursday the country with the most coronavirus fatalities in the world, higher even than China.
While tackling the human cost of this health emergency is the first and foremost priority, the economic damage will also be massive too with the country already likely in its fourth recession in around a decade.
The nation has already taken the most restrictive mobility measures in Europe since the 1940s with Italians in effective lockdown conditions. Not only are people forbidden, in theory, from migrating across the country, shops (with the exception of supermarkets, food stores and chemists) are shut down, while firms must close all their departments that are not essential to production.
Italy’s bustling, world famous cities — which have long been tourist magnets — are becoming unrecognisable with the famous piazzas in Rome, Florence, and Venice empty.
Rome’s Catholic churches were ordered to close this week due to the pandemic, in a move potentially unprecedented in modern times. Yet despite this, the death tolls are growing at a still alarming pace.
To put this in perspective, Italy has witnessed nearly 60 per cent of the deaths recorded outside China since the epidemic first started spreading from Hubei province in the middle kingdom. Italian hospitals have become increasingly overwhelmed by the crisis, with doctors forced to make life-or-death decisions about who gets access to intensive care.
This latest bout of instability, which Prime Minister Giuseppe Conte has called the country’s “darkest hour”, is not just unsettling for Italians. Internationally too, there is mounting concern about economic contagion given that the country poses perhaps the biggest threat to the Eurozone, but also the physical spread of coronavirus too with many new border checks springing up to stop the virus spreading across borders.
On the economic front, while Italy is less globally systemically important than China, it is nonetheless a key G7 nation with the third largest Eurozone economy and perhaps its single weakest link, right now. It also has the second biggest debt load in the single currency area at well over 100 per cent of GDP, and its banking sector is under significant stress with massive underperforming loans.
And this renewed economic angst comes in a wider context of public worry over corruption, the nation’s migration crisis, and continuing fragility of the economy with double-digit unemployment and low growth. Indeed, only Greece has fared worse in the Eurozone in the last two decades which has fuelled the political success of anti-establishment politics in the country.
Taken overall, the latest bout of Italian instability could yet herald a critical turning point in the nation’s post-war history that triggers a period of political and economic reform
Reflecting the coronavirus challenge, the Italian government last week announced a €25 billion (Dh98.8 billion) stimulus package, a similar size to that the European Union announced for the entire 27-nation bloc the same day. Rome also announced it “will use all available instruments on the EU front” to counter the challenge, including asking Brussels to allow the Italian government to increase 2020 deficit spending to €20 billion from €12 billion.
Yet, early forecasts indicate that the economy could shrink dramatically not just in the first quarter, but also the second too, and declining business confidence was showcased in the losses on Milan’s stock exchange as investors fret over the cost of the coronavirus lockdown.
And with schools, universities, theatres, cinemas all closed, and the tourism industry locked down, the Italian government has decided to suspend mortgage payments for its quarantined citizens.
Chronic political instability
The economic chaos, which may mean that the banking system cannot stay solvent or liquid in the current national lockdown, comes even before Italy’s chronic political instability is factored in. The nation has seen over 60 post-war governments and it remains unclear whether the current coalition can last the course in current conditions.
The fear is not just that the administration is unstable — let alone incapable of securing the longer-term structural reforms that the country badly needs in the 2020s. But also that the government could collapse requiring fresh elections with the uncertainty this would bring and the prospect of further political paralysis.
In the event that new elections are held this year, a strong majority government is unlikely to emerge. In part, this is because of the introduction of a relatively new voting system that is two-thirds proportional representation, and one-third first-past-the-post, to make it harder for any one single party winning an outright majority.
The threshold for any single party having a working majority is now around 40 per cent of the vote which no party has come close to securing in recent years.
Taken overall, the latest bout of Italian instability could yet herald a critical turning point in the nation’s post-war history that triggers a period of political and economic reform.
However, more likely therefore is that the nation will only muddle through its biggest crisis since the Second World War with uncertain governance which precludes the stability and, ultimately, structural reforms that the country badly needs.
— Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics