by Peter Franklin
Monday, 16
August 2021
Chart
07:00

Italy has become an ECB dependency

Brussels is effectively in control of Draghi's government
by Peter Franklin
Democratic Party (PD) leader Nicola Zingaretti

Across Europe, once mighty parties of the mainstream Left have withered away. The standard explanation is that they alienated their working class supporters on social issues like immigration.

But that’s not the whole story. In some countries, the centre-Left has also lost the plot on bread-and-butter economic issues too. A case in point is Italy where the Democratic Party (PD) — the most conventionally ‘progressive’ of the four biggest parties — is the one seeking to cut benefits for the poor.

In a piece for Foreign Policy, Georgio Ghiglioni explains how welfare policies have become associated with Italy various populist parties, while opposition to those policies and support for budgetary restraint has become PD’s thing:

…the party’s anti-populist identity takes precedence over the party’s center-left identity, and this means it must oppose any measure that is perceived, rightly or wrongly, as populist.
- Georgio Ghiglioni, Foreign Affairs

In the smallest sense of the word, the progressive party is becoming ‘conservative’ — the primary supporter of the status quo. 

Of course, in Italy and elsewhere it’s important to understand what the status quo is — and that is a system of spending controls imposed on nominally sovereign states by the European Central Bank and other EU institutions.

Right now, one else apart from the Bank of Italy (i.e. the ECB’s local branch office) is buying Italian government bonds. Just look at these two charts, tweeted out by the economist Robin Brooks. What they show, for Italy and the US, is how much debt (in the form of bonds) is being issued by each country’s government — and who’s been buying it.

As you can see, in both countries, the central bank steps in at times of crisis to become the lender of last resort — literally creating money out of nothing and using it to buy up bonds. This allows governments to run bigger deficits. The key difference is the totality of the Italian government’s dependency. When things get rough — like during the Eurozone crisis and now with the Covid crisis — just about everyone except the ECB stops lending to Italy. 

The ECB, therefore, is in a supremely powerful position to dictate terms to the Italian government. Of course, it needs local agents — which is why the unelected Prime Minister, Mario Draghi (a former President of the ECB) has been installed as de facto viceroy. And it’s why the PD has emerged as the viceregal party. 

Support for institutions against rampaging populists provides moral legitimacy for this role. However, within the context of the single currency, these institutions have become instruments of foreign control — a state of affairs the populists can exploit as a never-failing fountain of resentment.

It is a deeply unhealthy situation — which should horrify progressives and conservatives alike.

Join the discussion


  • In what way is Italy any different from other EU countries, re the “branch office” of the ECB buying their bonds?

  • The underlying problem is the single currency, which prevents any eurozone country devaluing (or revaluing) against the others. It also raises the stakes of leaving the EU to sky-high levels and so binds eurozone countries into the EU (as intended). Italy could leave the eurozone but at the risk of triggering another world financial crisis.

  • Now that left-wing parties have aligned themselves with big business titans in order to promote fashionable woke causes, the people have no-one else to turn to except the far-right.

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