Italy, between market confidence and a new 'lockdown' leading to social rebellion

As October draws to a close, major changes are taking place across the European continent as a result of a more than obvious resurgence of the coronavirus epidemic. In the case of Italy, there is a double paradox: on the one hand, the government had been able, at least until now, to reverse the serious initial situation and get economic activity back on track, which has had the immediate consequence of an increase in market confidence in the form of a very possible change in the rating of the various credit rating agencies; on the other hand, a genuine social rebellion is looming in Naples, the capital of Campania, its fundamental epicentre. Once again, macroeconomic reality is being contrasted with microeconomic, which is quite different.

Let's start with the very sudden resurgence of the coronavirus in the transalpine nation. Unlike in neighbouring Spain, summer in Italy was much more placid, with the country constantly moving between 500 and 1,500 infections. This made it possible to hold the double election day on September 21-22 at the height of normality in order to decide on the government of seven regions, some 1,000 municipalities and the reduction in the number of national parliamentarians. However, two consecutive days of voting were necessary (Sunday and Monday), although in the case of Monday the polls closed at 15:00 instead of 23:00 as usual. 

But, after two weeks, everything began to worsen. On October 7th, a total of 3,678 infections were reported; on the 11th, the figure was already 5,456; and this same Monday there were more than 19,000. In little more than two weeks the country has gone from 354,000 positive cases to some 546,000. And once again Lombardy is in the lead, with almost 6,000 cases, followed by Campania, Piedmont, Tuscany, Lazio, Veneto and Emilia-Romagna. In contrast, as it also happened more than half a year ago, the less populated regions, such as Molise, Basilicata, Valle d'Aosta, Umbria and Calabria.

So the second Conte government, which had already approved the continuation of the state of emergency until the end of January, has decided to set in motion, once again, a hard and forceful "lockdown" throughout the country, which means that most of activities (including restaurants, sports centres and cinemas) will end at 6pm, regardless of whether it is a weekend or not (although restaurants will be allowed to open on Sundays, but not beyond 6pm). The Executive's justification is that anything must be done to save the Christmas campaign, which is key to economic activity in the last quarter of the year. The so-called "curfew" has been avoided, at least for the time being, although it has been allowed for regions that wish to apply it, which is already the case in Lombardy, Lazio, Calabria, Campania and Sicily.  

All these measures have gone hand in hand with the approval of the Draft Law on General State Budgets, which has been very well received by the markets. The various rating agencies (Fitch, Moody's, Standard&Poors) must review the rating given to the Italian public debt (remember that it is the highest in the whole of the European Union) and the tax reductions foreseen in the draft PGE, as well as the strong investments in digitalisation, are being taken into account by these agencies, which have already noticed the good evolution of the Gross Domestic Product in the third quarter of the year.

But one issue is the macroeconomic situation, which between June 2018 and September 2019 had been very worrying for the Community authorities, and another is the microeconomic reality. And once again, the umpteenth conflict between northern Italy (which is much more developed and industrialized) and southern Italy (where the underground economy is far greater than normal in the various European Union countries) is on the horizon. Gone are the days when the now defunct Christian Democracy (DC), which dominated the entire national political scene between 1945 and 1992, set up various development poles in cities such as Brindisi and Taranto (in the Puglia region), Agrigento (Sicily) and Cagliari (Sardinia). Now, instead, there is only a continuous migratory flow not towards the northernmost part of the country, but towards other countries (at the end of 2019, some 700,000 Italians lived in the United Kingdom alone, mostly young university graduates). 

Not surprisingly, last weekend there were serious public order incidents in two major cities, Rome in central Italy and Naples in the south. And the most worrying thing is that the opposition to the government includes not only many mayors (led by Antonio Decaro, Bari's mayor and president of the National Association of Italian Municipalities (ANCI)), but also some regional presidents. This councillor said: "In the coming weeks we are at risk of seeing a growing social divide, the first signs of which are already visible. The mayors are aware of this and will do everything they can to keep communities together and extinguish any violent reactions to such a difficult situation. Let's unite or everything will fail".

This whole situation will once again test the strength of the current government coalition, where once again Matteo Renzi's Italia Viva sets the discordant note, because it considers that a hand must be opened in some of the activities considered non-essential. Opposing them is once again the centre-right led by a Matteo Salvini who is in his element amidst social unrest, giving free rein to the populism and ultra-nationalism that led him to become deputy prime minister and head of the interior. For the time being, the current government majority ("maggioranza") is not at risk, as the four formations of which it is composed (Five Stars, PD, Italia Viva and LeU) know that going to early elections would mean putting the nation's government on a plate with the centre-right. However, one thing is for power to be "as glue" and another, quite different, is that economic and social reality is the one that ultimately rules. So, after a few months of truce, the greatest of the conflicts is back. Henceforth, we must wait to see what happens, but the situation is once again very difficult for the Italian government. 

Pablo Martín de Santa Olalla Saludes is a researcher at the "Civismo" Foundation and author of the book "Italia 2013-2018. Del caos a la esperanza" (Italiy 2013-2018. From chaos to hope") (Liber Factory, 2018).