Italy should take the high road to reclaiming sovereignty
Sovereignty is back as front-page news, with Italy’s three-month struggle to form a government attracting global attention. The influence of Brussels and Berlin on Italian politics in recent years managed to unite the left and right in common cause, and in parliamentary elections in March Italian voters strongly backed candidates supporting the return of decision-making powers to Rome.
Investors in European bonds and shares have been forced to consider whether Brexit is about to get a lexicographic companion in the form of “Quitaly”. This is the term being used on City dealing desks to describe a potential departure of Italy from the European monetary union. The government-elect’s nomination of a Eurosceptic finance minister was enough to scare financial markets already concerned about more than €2 trillion of Italian government debt. It is unlikely to be the last time they take fright this summer.
While the immediate risk of Quitaly appears to be low — by a ratio of three to one, Italians want to remain in the eurozone — it again poses the question of where responsibility should sit for big economic decisions. It is a question that politicians at all levels, across all countries, keep coming back to. Local, regional, national and supranational institutions will continue to face insurgent politicians seeking to take back control.
There is a good reason for these regular insurgencies. Across the world, there exists a patchwork of responsibility for making economic decisions. The decision about who pulls the levers to set interest rates, levy taxes, regulate markets and allocate public spending owes itself to a combination of historic military conflicts, natural geographic borders and ethnocultural alignments. If these collectively have resulted in an optimal approach for deciding big economic questions, it would be nothing short of pure chance. There is fertile ground for those who can identify, communicate and ultimately deliver a better way.
Unpicking often entrenched and long-dated alignments is tricky, though. Should it be Italy’s relatively recent accession to the eurozone, Britain’s rather more established place in the EU or Scotland’s multi-century place in the United Kingdom, advocates of an alternative approach need a plan. This makes the release last week of an SNP-sponsored growth commission report for Scotland all the more interesting. It has attracted too little attention south of the border, given what the report creditably attempts to achieve: a framework for an economically independent Scotland.
The commission has managed to do what Brexit advocates manifestly failed to do and Italy’s populists risk duplicating: it brings together a plan for reclaiming economic sovereignty. It takes a mature approach to a question that will remain perpetually open. The report has managed to annoy significant sections of the nationalist movement: that in itself should be a measure of success for Andrew Wilson, its chairman, and his fellow commissioners. A credible plan for reclaiming sovereignty is not one that aims to have its cake and eat it; rather it is one that highlights the trade-offs that come with taking back control and dispensing with the undoubted benefits of pooled economic sovereignty. As the report none-too-subtly points out: “[Scotland] has not had enough of experts.”
The momentum of Scottish independence stalled after the referendum of 2014. It became clear that gaps existed in the nationalists’ plans for currency and economic hegemony. Floating voters sensed, correctly, that precious little detail existed on what type of economic policy would be delivered by an independent Scottish government. Had the Yes campaign won in 2014, it would be facing similar challenges to those facing the UK government attempting to deliver Brexit. Namely, how do you appease a coalition of divergent views from across the political spectrum that temporarily suspended hostilities to achieve a common aim — a coalition that immediately and inevitably fractures once the campaigning shifts to implementation?
So the Scottish sustainable growth commission has countered this threat by setting out a blueprint for independence, including a path to a sovereign currency, estimates for appropriate divorce payments — cutely branded “solidarity payments” — and some of those trade-offs that would have to be accepted by taking back sovereign control from Westminster. By not presenting a socialist Shangri-La and advocating a period of fiscal discipline, alignment and sharing of services with the remainder of the UK, the commission drew a hostile reaction from some elements of the independence movement. That approach was necessary to make progress if not, ultimately, sufficient.
What is now required is for Nicola Sturgeon, the first minister, and her leadership either to own or disown the commission’s recommendations. Whether that will happen is, at present, unclear. Ambiguity and burying the trade-offs would show that the SNP has no credible plan for a second independence referendum. While economists are notoriously bad at political predictions, I would venture that the Scottish electorate would sense this, too.
So sovereignty insurgents from Italy to the UK, from Scotland to Catalonia, need a plan. Often in economic history Scotland has taken the high road, from Adam Smith to David Hume, and it has done so again. Should Italy’s march to reclaiming sovereignty have any chance of success they will need to follow suit.
A version of this piece was published in The Times.