Italy, the Unpredictable

While Iranian Foreign Minister Mohammad Javad Zarif said on Wednesday that Tehran may act “unpredictably” in response to what he termed the United States’ “unpredictable” policies under President Donald Trump, the world was blindsided by the unpredictable Italians.

Italian Premier Giuseppe Conte announced his resignation on Tuesday, ending his government’s 14-month stint, plunging Italy into political crisis and ratcheting up uncertainty about the country’s economic viability.

Conte’s decision is the latest stage in a power struggle between his anti-establishment 5-Star Movement and Deputy Prime Minister Matteo Salvini’s euroskeptic, anti-migrant right-wing League party. Salvini has been maneuvering to unseat Conte, who castigated him for showing “grave contempt for Parliament” and putting Italy at risk for a “dizzying spiral of political and financial instability.”

Seated next to the premier during the resignation speech, Salvini smirked while Conte raged. It was the smirk of an ambitious politician whose party is No. 1 in popularity polls and openly seeking new elections.

What happens next — probably either asking someone else to form a ruling coalition, or dissolving parliament to prepare for new elections — will be up to President Sergio Mattarella, who will not have the luxury of hand-wringing. He’ll have to do something, and fast.

In editorials like this, it is de rigueur to mention how many governments Italy has had since World War II. The answer (now) is 63 — with the “3” sliding out of sight as a “4” slides into place to make it 64. It makes Israeli politics look stable and predictable by comparison.

All this could be shrugged off as just another kind of Italian opera, if the consequences weren’t so serious.

This isn’t just Italy being Italy, nor is it a European Union headache alone. It’s a global headache.

The timing of the Italian mess is inspired. It comes at the same time as the German economy has been slowing to a stop, and Britain has found just the man — in Boris Johnson — to lead Britain manfully into a no-deal Brexit, better known to some as the abyss.

Remember the agonized negotiations to bail out Greece and those middle-of-the-night jeebies when it looked like Greece might implode into nothingness and take the European Union with it? Well, the Italian economy is the third biggest in Europe, 10 times the size of that of Greece, yet it has the Eurozone’s second highest public debt-to-GDP ratio after Greece. And with a total public debt of more than $2.5 trillion, it is the world’s third largest sovereign debtor after the United States and Japan.

If those figures aren’t sobering enough, Desmond Lachman in an article for the American Heritage Institute explained this week how the political crisis feeds into the economic crisis.

“Italy desperately needs economic growth and low interest rates to dig itself out from under its high debt burden and strengthen its shaky banking system. Yet, especially in a worsening global economic growth environment, a renewed period of domestic political instability will put those conditions out of reach.” Burdened with other problems, the EU may not be able to offer Italy much help.

“As investor confidence wanes, the Italian economy is likely to succumb to another painful economic recession that will further compromise its public finances. That in turn is likely to induce yet another wave of Italian bond selling that will cause a further increase in Italian borrowing costs relative to that in Germany.”

With all this doom gathering, Italy needs all the political stability it can summon. Matteo Salvini has to be made of steel to read such things and carry on in his quest for power. But he’s a busy politician with a bright future. Probably doesn’t have time for reading.

And don’t think the broad Atlantic Ocean will protect America from the fallout. Globalization can bring the Italian cloud of financial poison to America’s shores faster than a North Korean ballistic missile.

Lachman warns that the debt crisis could trigger another chain of unforeseen events: It could heighten U.S.-European trade tensions that might further stagger an already weak European economy; ECB monetary policy in response might lead to a weakened Euro; which could elicit charges of currency manipulation by President Trump; who might then impose his threatened 25 percent import tariff on European autos in November.

Neither Tehran nor Washington have any monopoly on unpredictability. It is in the nature of things. And the complexity and interconnectedness of contemporary global markets are such as to multiply the effects of events unforeseen.

Is there a silver lining to all this?

Well, unpredictability can work the other way too. Positive things might happen to ameliorate the situation. Germany’s economy might have an uptick, Johnson might charm the EU into a better deal, the Italians might come to their senses.

And at least it lets you forget Brexit for a while. Almost.