Analysis. Draghi's resignation ‘astonishes’ Gentiloni. ‘If there isn’t a government with a very large majority right now, what is needed is to invent one. Creating different scenarios certainly does not favor our country.’

The Italian ‘polycrisis,’ slow growth and Draghi’s legacy

Russia’s war in Ukraine, the speculation on energy and food commodities, COVID lockdowns in China, the euro being crushed by the ascendant dollar, the ECB raising interest rates and closing monetary policies, the deliberate choice of the ruling classes to create a recession to stop the highest inflation in 40 years – this combination of many global crises into one, which has been called a capitalist “polycrisis,” has thrown the European Commission off balance as well.

When the crisis of the Draghi government was declared in full force on Thursday afternoon, EU Economy Commissioner Paolo Gentiloni confessed that he was following the events “with worried astonishment.” And then he invoked once more the “law” that cast one person, namely Draghi, in the role of the fulcrum on which the whole universe is balanced: “We are sailing in troubled waters and we could be facing a storm, so it’s time for stability and national cohesion,” said the former PD prime minister, now in Brussels. “If there isn’t a government with a very large majority right now, what is needed is to invent one. Creating different scenarios certainly does not favor our country.”

Considering the situation, Gentiloni’s prescription confirms the crisis of the political system. Despite the implosion of a government “without political formulas,” the idea that led it to fail remains the guiding principle – the same one that solved nothing during the sovereign debt crisis (2008-2013). And it is one which will be pushed again and again in the coming years. That is what EU Commission President Ursula von der Leyen made clear. She was keen to emphasize “the close and constructive cooperation with Prime Minister Mario Draghi.”

While an entire edifice is teetering towards collapse, the hope is to put it back together with a view to a strategy, the National Recovery and Resilience Plan (PNRR), which was guaranteed by Draghi himself. And which as of Thursday was in danger of being made irrelevant by the current crisis.

For the EU Commission, Thursday was economic estimates day. Gentiloni admitted that we are moving from a slowdown to a full-on brake. For now, growth in the Eurozone is expected to be 2.6% in 2022 and 1.4% in 2023. In the entire 27-member bloc, GNP will grow by 2.7% this year and 1.5% next year.

In 2023, there could be a full-blown recession if Putin cuts the gas. In any case, even if this doesn’t happen, according to the Commission’s estimates it still seems certain that next year Italy will lose 1% of the growth that had been estimated only two months ago: GDP growth is now expected to stop at 0.9% compared to 1.9% in the previous May projections. Signs of a slowdown were already recorded in the last quarter, with negative growth at minus 0.1%.

Thanks to an economy that is destroying local territories through untrammeled mass tourism, the next quarter is expected to be positive. By virtue of this extractivist-type economic model, based on hyper-precariousness and plunder of the resources of the land and nature, GDP growth should be kept alive artificially in the third and fourth quarters, with 0.2% each.

Should these figures be confirmed, they would be proof of the failure of the policy entrusted to Draghi.

As time passes and the context of the polycrisis is understood, it becomes more and more evident that the “growth” celebrated in Italy after the first year of COVID was actually a “technical rebound” following the economy’s most resounding collapse in Europe (-8.9%). Meanwhile, none of the structural problems, starting with real progressive welfare reform, has been addressed. On the contrary, it has all been made worse by the gas war, exploited by the Russians to blackmail European countries, starting with Germany and Italy, opening up unprecedented scenarios. Also playing a role is the contradiction that these countries, dependent on the Russians, adopted U.S. policy that was bound to get Europe into trouble and went to clash with Putin without an immediate safety net. The search for alternative supply will be finalized only in two or three years. That’s too late.

This situation has merged with the capitalist polycrisis: the return of COVID, commodity speculation, inflation at a 35-year high: 7.6% in the Eurozone, 8.3% in the EU. The Commission hopes it will fall to 4% and 4.6% in 2023, but there is little certainty about this. European inflation is different from U.S. inflation (at 9.1%): it is influenced by energy prices. The surge, after years of deflation, has pushed prices up to levels that “objectively, no one had predicted,” Gentiloni admitted.

There are many who fear the impact of the – albeit modest – increase in interest rates by the ECB. The risk is creating a recessionary spiral that will hurt both employment and wages. “Available data for the first quarter indicate some increase in wages, but we still expect them to decline in real terms and we expect household purchasing power to fall,” Gentiloni said. In addition, “employment growth,” which is still precarious anyway, “should weaken.”

The restriction of monetary policies will not allow the financing of public debt. This will push governments, starting with the Italian one, not to make social policies and investments other than the futuristic ones of the PNRR, which is in any case built on a logic that has been rendered outdated by the new polycrisis. This means that the governments will have their hands tied even more, and will limit themselves to adopting “targeted and temporary social measures.” These are entirely useless in addressing the problems, as the bonus policies have shown.

The EU Commission is also caught up in this contradiction. Gentiloni confirmed the path chosen, which will only worsen the crisis, in a manner not unlike what was already done with the sovereign debt crisis between 2008 and 2013: “The ECB has started on a path that is absolutely necessary,” he said. This view is the problem – with or without Draghi.

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