Elections: How and Why a Direction Should Be Taken
OPINION |

Elections: How and Why a Direction Should Be Taken

ELECTORAL SYSTEMS, CANDIDATES, MEDIA EFFECT: WHAT DOES THE RESEARCH SAY AND WHAT IMPACT WILL THE FUTURE ITALIAN GOVERNMENT HAVE (INCLUDING IN EUROPE) AFTER ELECTIONS

by Francesco Giavazzi, Dept. of Economics
Translated by Jenna Walker


Unpredictability is what makes life interesting. One year ago, the vote in favor of Brexit was unforeseeable, and bookmakers paid out 25 to 1 for Trump’s election. Then, when many people were already resigned to populism, elections first in the Netherlands and then in France surprised us again: the populists lost and electors, especially in France, voted for a President that made European commitment the cornerstone of his electoral campaign.

After years of pessimism, it was unpredictable that a window of opportunity for Europe would open. Yet we could be close to a turning point. Like always, the advance comes from France and Germany, rarely so in sync with EU reform topics. In Paris, Emmanuel Macron must follow up on the promises made during the electoral campaign. And I believe that in Berlin, Angela Merkel goes to sleep thinking, “What could I do to make history like my mentor Helmut Kohl?” There is only one thing she can do: after contributing to saving the Euro in the 2011-2012 crisis – a sideways look would have been enough when Mario Draghi said “Whatever it takes” for the Euro to split – placing the foundation for a fiscal and therefore political union. Anyone who believes that nothing in Europe will happen before the German elections on 24 September is wrong. Of course, nothing official will happen, but French and German working groups have been formed and the calendar of meetings is already packed. It’s a great opportunity for Europe. For us, it’s a missed opportunity.

At the beginning of this year, the Italian Constitutional Court declared Italicum unconstitutional. This electoral law, passed by a large majority (334 yeses, 61 nos and 4 abstentions in the Chamber, 184 yeses, 66 nos and 2 abstentions in the Senate) in 2015, called for a run-off between the top two lists if 40% of votes was not reached in the first ballot. According to the Court, the run-off is unconstitutional because “a list can participate even having obtained a slim consensus and win nonetheless, with twice the number of seats it would have obtained based on the votes during the first ballot.” In France, Emmanuel Macron’s party won 28% during the first round and after the run-off it controls an absolute majority in the National Assembly: 308 members of parliament, 20 more than the absolute majority. En Marche MPs in the Assembly represent approximately twice the “slim” 28% obtained during the first ballot. If Italicum had not been largely annulled, we probably would have voted in June and today we would be participating in those European meetings. Of course, after the Court’s sentence, we could have approved a new law, but the vote on Italicum was the product of a lucky but short political season, which is practically impossible today.

What are the issues on deck for Europe? To understand, we should start with the fault lines of the monetary union. There are four: (i) the Eurozone’s ability to endure another crisis similar to the one in 2011, that is, a banking crisis or an unexpected drain on the financial flows between Euro countries: not enough progress has been made in six years regarding this point; (ii) a definition of the conditions needed for the “no-bailout” clauses that Germany insists upon to be credible; (iii) the completion of the banking union: to understand how much headway still needs to be made, one needs only to look at how the bankruptcy of two Veneto banks were managed (well, in my opinion, but taking advantage of a loophole allowed by the EU Directive on banking liquidations); (iv) lastly, an instrument to govern aggregate demand in the Eurozone, especially when monetary policy becomes inefficient because the lower limit (zero) for nominal interest rates has been reached.

These issues can be summarized into two proposals currently under discussion: the completion of rules for sovereign default and the reform of the European Stability Mechanism (ESM). For the former point, an important step was taken in 2012, with the introduction of the so-called CACs (Collective Action Clauses) in new issuances of government bonds, rules which define the rights of sovereign bond holders in the event of a default. CACs, however, are a weak instrument because in the event of litigation, the national courts decide: a national law is therefore enough to thwart it, as occurred in Greece. Removing jurisdiction over sovereign bonds from national legislation, for example by moving it to the European Court of Justice, means transforming our public debt into “foreign debt” for all intents and purposes. This would be a radical change for a country where debt represents more than 130% of the GDP.

We run greater risks, however, regarding the reform of the ESM. The plans being discussed include the transformation of the ESM into an institution similar to the International Monetary Fund, but with more wide-ranging policy areas. It would not only complete interventions in case of a financial or banking crisis (thus substituting OMTs, Outright Monetary Transactions, the instrument created by the ECB to tackle similar crises that has so far never been used), also manage aggregated demand. This is all thanks to the issuance of bonds guaranteed by members of the ESM itself (called “safe bonds”). If, along with these functions, there is the idea that controlling the ESM is a “Ministry of European Finance,” the proposal is configured as the first step towards a real fiscal and political union.

But under what conditions would Germany and France become guarantors of ESM debt? There are two proposals. The first is with a mechanism analogous to OMTs: a country can access this financing only if it undergoes a strict “conditionality,” that is, if it accepts that a European “Troika” sits alongside the Prime Minister. But, as was seen in Athens, the presence of the Troika does not prevent a sovereign Parliament from refusing to vote on agreed upon laws: this is too risky for France and Germany. The alternative is to limit access to the “new club.” Here is the heart of the problem. The new ESM could be created without Italy. This does not mean that we would automatically leave the Euro, but we would risk being expelled at the first crisis, as soon as the markets realize that there is no longer a network of European protection for our debt, which is what the ECB currently offers through the chance to activate OMTs.

The government that is created after the next elections will find the plans that France and Germany are negotiating at the first European Council. The only chance to change them will be through exercising a veto, a terrible way of negotiating. In short, if we were out of the Euro, perhaps the Court would regret a decision founded on the sacrosanct, but actually dangerous, principle that “the legitimate pursuit of the objective of government stability (…) cannot justify a disproportionate sacrifice of the constitutional principles of representation and equality of the vote, artificially transforming a list that boasts a consensus that is limited, and theoretically even slim, into absolute majority.”

Read more about this topic:
Vincenzo Galasso. Experts and loyalists are the candidates that get onto the electoral lists
Marco Percoco. How tv news reporting affects voter decisions
Massimo Morelli. How voter turnout varies, and why
Tommaso Nannicini. How the choice of candidates changes under different electoral systems
Francesco Passarelli. The psychology of voting and protesting
Guido Tabellini. why extremist parties do not win runoff elections
 

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