The euro system may appear dysfunctional at a distance but the dysfunction is largely by design. Before the common currency, Southern European countries were not exactly stable democracies. Inflationary pressures, currency devaluations, coups and collapsed governments were very much the nom du jour before the common currency was adopted. To argue that Germany and the northerners are doing the heavy-lifting and that the southerners are hurting the common currency would miss the point of the euro altogether. Mediterranean countries provide much-needed inflationary pressures to the currency to balance out the deflationary pressures of the export powerhouses. For example, the bailout of Greece did very little to help Greece and everything to help its northern creditors. In other words, Germany has banked on Southern Europeans being, well, Southern Europeans.
While a little instability is good for the euro, there may be a point when too much instability is simply too much. Italy votes again on Sunday. With an average government lasting around 390 days, Italy votes practically every year. I am not sure how many columns I have written about Italian elections as a columnist, but if you think you have read several columns on the topic from me, you are probably right. What makes this time especially noteworthy is that in this election, Italy may experience a blast from the past. The best-case scenario for the country may be the election of disgraced prime minister and currently banned Silvio Berlusconi, and his Forza Italia party. Berlusconi is currently in the fifth year of a six-year ban following a conviction on tax invasion in 2013, and while he cannot be prime minister immediately, he will, it appears, take over when his ban runs out. How can this possibly be the best-case scenario for Italy? Are you sitting down? You should sit down for this.
The two other parties that are giving Berlusconi a run for his money are essentially bad cop and worse cop. The first is the Five Star Movement led by 31-year-old Luigi Di Maio. While on paper the party had started as an anti-corruption movement founded by a comedian and felon convicted of manslaughter – and thus unable to run in the elections – it has turned into Italy's version of Trumpism. Di Maio is not only very young and inexperienced, his policy suggestions include anti-vaccine legislation and anti-immigration policies. The party has galvanized normally center-right voters as did President Donald Trump in the U.S. and may steal away enough of them while appealing to the frustrations of the unemployed left to pull off a win. Currently, the Five Star Movement is in the lead followed closely by the previous governing party, the Democratic Party, led by former Prime Minister Matteo Renzi.
The worse cop to the Five Star Movement's bad cop is the North League led by Matteo Salvini. Salvini makes Di Maio look like Mr. Rogers. He is as close to a modern fascist as Italy has seen since Mussolini. He has called for a complete stop to all immigration and a "mass cleaning with strong methods" of the entire country. Salvini's populism appears to be a few notches above Di Maio's, and far more concentrated than Trump's. With continued unemployment, especially among the youth, Salvini has the potential in win many parliament seats.
While the Five-Star Movement and the Democratic Party do not appear to have enough support to govern, Berlusconi's party coupled with the North League could join in a center right-far right coalition. Currently, this team would garner 37 percent to the Five Star Movement's 28 percent, followed by a coalition of left-leaning parties led by the Democratic Party with a combined 27 percent.
Will fascism return to Italy on Sunday? Probably not, but it appears that fascists will undoubtedly have a seat at the table. If recent polls are correct for the election, Berlusconi will be the ultimate kingmaker and could very well appoint Salvini, despite losing the election, to govern as prime minister in his place until next year. In that case, fascists will have made a comeback. What does this mean for the euro and Europe's economy? The euro has been on a tear recently against the dollar, and perhaps this potentially catastrophic election and its depreciating effects are just enough instability to make Northern European exports more competitive.