Europe's Italy problem: and, as a result, are monetary union and the euro in serious trouble?

• Author: Connolly, Bernard

In April 2000, Foreign Affairs published an article by the then-recently deceased Federico Mancini, Italian judge on the so-called European Court of Justice. Mancini applauded the 1990 decision of Mitterrand and Kohl to ordain "the immolation of the deutsche mark on the altar of a common European currency." Mancini gloated that while the Germans thought the Maastricht bar for entering the euro--in particular the budgetary criteria--had been set high enough to exclude Italy, "The effort made by Italy was not just extraordinary; it was superhuman ... The Italians won their bet and stunned Europe." Mancini was clearly just as credulous about Italy's budgetary "achievements" as anyone who naively thinks the revolutionary tribunal on which he sat, the ECJ, has any respect for the principles of law. Five years later, Italy is in recession and its budget deficit next year is likely to be close to 6 percent of GDE There is even talk of Italian withdrawal from monetary union. What has gone wrong? The answer is obvious to anyone less credulous than Mancini: Italy got into monetary union in the first place.

The French referendum debate on the so-called EU "constitution"--a blueprint for an anti-democratic superstate with no demos, an imperialist and specifically anti-American telos, and an effectively totalitarian ethos in which the European state is deified--was full of envious reference to Britain's long period of economic prosperity (admittedly now facing a challenging time). While the composition of demand has been less than ideal, Britain's growth, inflation, and employment record--its stability--puts the Continent to shame.

French angst about British success has largely focused on the implications of Britain's Thatcherite inheritance. Yet thirteen years ago, with Margaret Thatcher already shamefully cut down by treacherous Tory Europhiles and their co-conspirators in Brussels, Paris, Bonn, and Rome, Britain appeared to be in the same boat as Italy; or rather, the two countries shared the same pond as sitting ducks for speculators.

The parting of the ways came in September 1992. While it is true that France--like Italy--has lacked a Thatcher, that is only part of the story. Italy in particular lacked a Chancellor of the Exchequer like Norman Lamont and suffered the presence of too many such as Home Secretary Kenneth Clarke (even one would have been too many). At the crucial moment when Italy too could have seized the chance of economic success after the sterling and the lira had withdrawn from the Doomsday Machine of the ERM, Lamont fought off the outrageous attempt of his europhile cabinet colleague Clarke to prevent a cut in British interest rates below German rates. Both men knew that such a cut would make it politically impossible for Britain to rejoin the ERM. But while Lamont famously declared that he "sang in the bath" when ERM exit gave Britain the hope of freedom and prosperity, Clarke's most notorious comment was that he had never bothered to read the Maastricht treaty and its nightmare vision of monetary union but knew it was right!

Lamont's patriotic triumph was the key to subsequent British success: Lamont gave Britain a policy framework that was wholly domestically oriented. In the dreadful Major government dominated by such as Clarke and Heseltine, this of course condemned him to the political wilderness. Reduced interest rates and a depreciation of the sterling allowed Lamont to begin the work of genuinely repairing public finances that had been ravaged by ERM membership--and, just as important, created conditions that have made it impossible even for someone as contemptuous...