Italy's Five Star Movement Is Reckless on the Euro
(Bloomberg View) -- Italy's Five Star Movement, which is on track to win the most votes in next year's election, likes to portray itself as the party of transparency and honesty, in contrast with the opportunism of the mainstream political forces. When it comes to Italy's membership of the euro, however, Five Star are showing the same kind of reckless expediency they attack their rivals for.
The anti-establishment movement has long said it would hold a referendum on whether Italy should stay in the single currency. Its politicians have typically refused to say how they would vote in such a plebiscite. This has led to some bizarre outcomes: Two weeks ago, Laura Castelli, a Five Star MP, did not want to say whether she would back Ital-exit because how one votes is a secret. She then added she did not know how she would vote.
On Monday, Five Star leader Luigi Di Maio seemed to come off the fence saying he would back the "out" campaign in the event of a vote. But then he quickly backtracked, saying a vote was unlikely, since he expected the rest of the euro zone to support a series of reforms of the monetary union which would favor Italy. He did not specify what reforms he was talking about, nor how a Five Star government would go about obtaining them. The overall impression was, once again, one of ambiguity.
This approach is foolish from a legal and economic point of view. According to the Italian Constitution, it is illegal to hold a referendum on an international treaty, including the Maastricht Treaty which created the monetary union. Even if there were to be a referendum, it would very likely spark bank runs and capital outflows. Investors would take their money out of the country, fearing a possible redenomination into cheaper lira.
The Five Star Movement should only back a vote if it is prepared to manage a departure. This is clearly not the case. The anti-establishment party has never been in government and has no coherent program for dealing with the economic shock of a referendum.
Five Star is clearly playing political games: According to the latest Eurobarometer survey, only 45 percent of respondents in Italy thought the single currency had been good for the country, while 40 percent think it has been bad. For the euro zone as a whole, it is 64 percent versus 25 percent. With carefully constructed ambiguity, Di Maio is clearly trying to appeal to both sets of voters.
This may pay off in the short term: Five Star looks set to be the largest party in Italy's forthcoming general election, which will be held in the first half of next year. Since Italy's electoral law favors coalitions over individual parties, and Five Star is reluctant to form alliances, this may not be enough to form a government.
In the remote case that it managed to form a government, the contradictions in the movement's impossible position on euro membership would become apparent. Di Maio would have to face severe financial turmoil on day one of taking office.
For a taste of what that means, Five Star need to look no further than Brexit Britain: Winning a vote is no joy if you are then unprepared to deliver on what you have promised.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Ferdinando Giugliano writes columns and editorials on European economics for Bloomberg View. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times.
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