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Hiding in plain sight

Matteo Renzi is a quick learner. The Italian Prime Minister has been quietly forging alliances across Europe – and has emerged as an influential voice in the crisis.

Italy is slowly carving a new role for itself in the European crisis: A role that may prove very successful in the months to come. Last year, Italy’s premier Matteo Renzi tried to quietly team up with France’s François Hollande – with the aim to convince Angela Merkel that the current version of “austerity” is a no-go. It was soon clear that a frontal attack against Germany was also a no-go and the discussion was quietly dismissed.

Yet the latest realization in Rome is that Germany may need Italy more than the other way around. This is due to the political development of the euro crisis in the last six months. The two main events have been the decision of the European Central Bank to adopt a new “quantitative easing” policy, i.e. to print a vast amount of money. The second has been the Greek turn to the left: for the first time since the onset of the crisis, a country in economic turmoil does not flirt with the extreme right but turns to the left – and the left was eventually granted the leadership.

Successful at home

In a nutshell, these two episodes mean that Germany is growing politically isolated, and this is something that Merkel cannot afford. Moreover, the ECB’s decision shows that after years of taking a “German” way, adopting the traditional austerity solution, Europe has definitely taken the Italian way. Currency devaluation (a consequence of money printing) belongs to the tradition of the Italian lira, more than the German mark.

This shouldn’t surprise the most, as the talk in Rome is that Matteo Renzi’s style calls for closing alliances with different stakeholders depending on the issue, seizing an advantage for himself in the end. Italy has not expressed any “concern” about the rise of Syriza in Greece, but also hasn’t expressed any frantic form of approval. Italy will profit from the QE, but Renzi lets ECB’s President Mario Draghi do all the talking.

Just to make the situation more clear to foreigners, we should mention Renzi’s domestic record over the last few days. He managed to secure a first Senate approval for a “Civil Unions” law (in Catholic Italy!) through an alliance between his Democratic Party and post-comedian Beppe Grillo’s “Five Star Movement”. At the same time, Renzi managed to team up with the center-right to start the process of reforming the labor and pensions sectors (the latter being the real danger for Italy’s finance in the years to come). More is coming: The electoral law is going to be changed, and Italian public broadcaster RAI is being restructured.

At the center of the crisis stage

Renzi’s domestic ability is also visible abroad. The Italian Prime Minister is a quick learner: having soon realized that his first approach was not working, he quickly reshuffled his cards and opted for a different strategy. Changing alliances actually isn’t new in Italy; for forty years after WWII the political equilibrium relied upon a delicate game between five leading parties. Renzi deals with three, including his own, and this seems to be an easier task. That is why Renzi is considered the heir of the purest Italian political tradition.

Renzi’s success does not mean that Germany has “lost” the euro crisis. Allow me to say some harsh words: Renzi’s success saved Germany from itself. An Italian like Renzi knows better than foreigners what works for his country and what does not, and the purest form of “austerity” would have never been approved. Politically, it led to the emergence of populist parties such as the aforementioned “Five Star Movement” and the renewal of the “Northern League” by a bombastic Matteo Salvini (last December, he posed for some bare-chested pictures for a magazine. Lots of hair). Economically, austerity was sucking up resources to introduce reforms.

The ECB’s quantitative easing is providing fuel for those reforms. Germany’s fear was that if the control of finances became less strict, Italy would once more engage in the 1990s strategy of building up new debt whilst claiming that everything was all right. In this sense, Renzi is serving as a grantor for reforms, who is building up an alliance with Germany out of necessity.

In other words, Italy is gaining the center of the crisis stage, between the ECB, Greece, Germany and possibly France. Most interestingly, all this happened without Europe even noticing it.

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