No one will dispute that the EU is a big story in the British media at the moment. Except, well, it is and it isn’t. A major crisis may be about to engulf the Italian economy because of EU economic policy, and it’s not being reported. It’s possible that both sides of mainstream opinion have their reasons for ignoring the story – UKIP-style Leave supporters are only bothered about what happens on “the continent” when it involves Brits who have moved to Spain, while the official Remain campaign are pretty much in love with the EU ruling class, and the fact that just these people are about to trash Italy is the last thing they want to hear.
The crisis has its origins in 2007-8, when Northern Rock became the first British bank to experience a bank run – where large numbers of depositors queue up outside a bank to get their money back – for 150 years. Lehman Brothers collapsed in the US, and Italian banks also began to suspect that many of the debts on their books would never be repaid. Their solution was, in the words of the Wall Street Journal, to “roll over loans whose borrowers weren’t repaying on time, hoping an economic upswing would take care of the problem.” Now, it’s often a mistake to compare a country’s economy with that of an individual – but this is the equivalent of spending more money than you earn on the assumption that you’ll get a better-paying job next year.
Brexit has made governments across the EU nervous. The Italian government feels it has to respond to the fact that the bad debts on the books of Italian banks amount to over €300 billion. Of course, the banks could just demand payment, and make debtors bankrupt if they can’t pay. Except – in the words, again, of the Wall Street Journal – “in many cases, the loan collateral is the family home of the owner of the business, or it is tied up in the business itself.” If the Italian banks demand what they are owed, social crisis follows as bourgeois Italians lose their homes and businesses close. If things get to the point where there are bank runs and banks close, there is the risk that savers lose their money. That happened to 100,000 investors in four small Italian banks which closed at the end of last year. In November, there was a political storm when a pensioner who had lost all their savings committed suicide.
The Italian government, therefore, would like to bail out its banks to the tune of €40 billion. But under EU rules which have been in place for the last two years, they are forbidden from doing so. European Commission officials echo the position of the German government, that Italy’s problems are its own fault – and here German electoral politics come into play. As the Economist puts it, “any system that allows member states to pick and choose which rules to comply with is bound to unnerve voters in Germany.” And so, Angela Merkel insists that the rules of the credit system have been agreed, and “we cannot change them every two years.”
No one knows how the Italian situation will end – if a dramatic crisis will arise, the bail-out will be permitted, or some compromise be found that kicks the mess further down the road. But we do know that it’s not just Italy. Portugal’s banking system is also riddled with debt – the country received an international bail-out in 2011. Spanish banks are still struggling with bad loans which, like Italy’s, go back to 2008, when the country’s real-estate bubble burst. The imposition of cuts on the Greek government is something we’re all familiar with.
There are two conclusions to draw from the situation in Italy. The first, regardless of how we responded to the difficult choice put before us in the Referendum, is that the EU is based on neoliberalism, on the assumption that markets will correct themselves without government intervention. The inability of governments to intervene in states with weaker economies benefits those states with stronger economies, Germany in particular. Far from bringing the people of Europe together, the EU turns them against each other by placing them in a competitive economic hierarchy.
Second, this has political consequences. In the context of austerity, for Germany to impose itself like this will lead to the rise of political forces which push back. That can happen from the left – as with the Greek OXI vote. But much of the time it happens from the nationalist right – and that’s not helped by Syriza’s capitulation to the Troika after winning their referendum. The political beneficiaries of such the crisis in Italy, as the Economist points out, are likely to be the populist right such as the Five Star Movement, who blame the euro and migrants for many of Italy’s problems.
All this, finally, is of relevance to Britain. I know lots of people who voted Remain by way of rejecting the racism and petty bigotry of UKIP. Good for them. But, just as we have to say to Leave voters that they are right to be angry at austerity and the political class, but they let that class off the hook if they scapegoat migrants, so to Remain voters we have to point out that the EU leaders are not out to promote equality and fight racism. Quite the opposite – they create a context of austerity and division where scapegoating and racism are likely to grow, as well an enforcing racist “Fortress Europe” border controls. I think that’s the only conclusion you can draw from the crisis threatening the Italian banks – but as I say, if you depend for your news on the British media, it’s not a crisis you’re likely to have heard much about.