Italy and Lebanon: Intertwined histories, Tumultuous Presents, Uncertain Futures - Part 2
Analysis by Francesco Pitzalis, Staff Writer and Sandro Joseph Azzam, Staff Writer
February 6th, 2021
The previous article delineated the historical compositions of the two countries which comprise the modern states. As you can imagine, the political culture of both Lebanon and Italy are reflective of their respective histories: fractured, diverse, incoherent.
Italy and Lebanon’s antiquated electoral systems feed into imbalanced political cultures. Italy has wrestled between full proportional representation and a combination of proportional representation and first past the post. In Lebanon, the electoral system was enshrined by the 1990 Ta’if accord which mandated equal representation between Christians and Muslims. Deputies are then elected to the Lebanese parliament via proportional representation.
The respective electoral systems have provided a mandate for the fault lines within the states themselves. This has precipitated an endless stream of tenuous, oddly formed political alliances. In Italy, politicians flit from right to left searching for allies and powerbrokers; be it nationalists with socialists, or far-right Eurosceptics with Europhiles. An astonishing example is that of Matteo Salvini, the anti-immigrant, Eurosceptic leader of the Lega Nord who recently backed former European Central Bank head Mario Draghi for the Italian premiership. In Lebanon, although the cake is divided amongst religious confessions, the picture is not too different. Take current President Michel Aoun for example: a staunch opponent and military adversary of the Assad regime, turned Hezbollah-ally, which, in turn, left him in Assad’s good books. Indeed, stalwarts of the Italian/Lebanese political elite need to master their inner Machiavelli to keep the ball rolling.
The consequences of such ‘politics of convenience’ are fragile modes of governance that can be brought down in an instant. Italy was described by the Economist as a “flawed democracy” and for good reason; it has had 70 governments since the second world war. This was exemplified poignantly in recent weeks, after the government of Giuseppe Conte was torpedoed by the withdrawal of former PM Matteo Renzi’s tiny “Italia Viva” party. Despite polling at a mere 2% of the electorate, Renzi was able to sink the cabinet on a whim and usher in a new premier more to his liking.
In Lebanon, national unity government after national unity government have conjoined two diametric poles of the regional chessboard and resulted in blow-up after blow-up. Since the resignation of Saad Hariri in 2019, numerous PM candidates have been catapulted into the Lebanese political washing machine. The result: a short-lived and arguably technocratic government under Hassan Diab, only for Hariri to reassume the premiership a year after he resigned.
Then there is the issue of technocrats. In both Italy and Lebanon, a technocratic government has been wheeled out in moments of crisis. Whilst the long-term efficacy of technocratic governments is debatable, Lebanon and Italy have both had their fair share of instability. Their “technocrats” have taken different paths towards alleviating the crises.
In the midst of the European sovereign debt crisis of 2011, Italy faced a serious threat of a default. Enter Mario Monti, an academic, statesman and most importantly, an economist, to lead the government. Monti appointed a panel of technocrats and implemented sweeping reforms and austerity measures to cut-back on the previously bloated Italian budget. He reformed pensions, clamped down on tax evasion and made it easier for companies to do business. Despite pension cuts causing massive internal backlash, Monti has since been lauded for saving the Euro. His leadership not only removed the possibility of an Ital-exit but also provided a model for fellow Eurozone countries to save their ailing economies. Instead of reinstating the Lira and printing more money to alleviate the debt, Monti stood tall to challenge the adversity. Needless to say, Mario Draghi’s hope that the eurozone would discipline Italian policymakers went unrealized.
In October 2019, Lebanon took to the streets demanding a massive scale resignation of all elected officials. The ensuing government was led by Hassan Diab, who unlike Monti, was a computer engineer rather than an economist. Diab repeatedly promised a technocratic government but his subsequent cabinet was far from that. Whilst it included some experts, practically all of them had a political affiliation, severely compromising the cabinet’s independence. Ministries were also allocated to individuals lacking the appropriate expertise: the minister of defense has a degree in marketing. A few months later in March 2020, Lebanon declared its first ever sovereign debt default. This is usually a very bad sign in an economy but as long as you have a plan to manage the bankruptcy, there is light at the end of the tunnel. In typical Lebanese style, a plan was not drafted, and the sovereign debt default led to 50% absolute poverty, an 80% currency devaluation at time of writing, and effective bankruptcy of all of the nation’s financial institutions. Let’s make something clear though: Diab shouldn’t be the only one to take the blame. The pilots flying the plane for the past 30 years sent it into a nosedive and instead of bracing for the crash, Diab decided to order a coffee.
Lebanon’s governments have, for the past few years, drafted disastrous budgets that would rely on lending in foreign currency. Foreign currency lending paired with decades of double-digit budget deficits led to the country’s decline. The Lebanese central bank was left with no option but to raise its interest rates to monetize government debt which in turn led to businesses shuttering and caused the real economy to shrink at an unprecedented level.
Lebanon’s policymakers would draft unbalanced budgets with the hope of Lebanon’s oil and gas reserves shoring up the funds needed to pay off the debt. This was unfortunately nothing more than wishful thinking as Lebanon’s oil and gas rigs leave much to be desired. Other Lebanese economists hide behind austerity. They consider the purely Keynesian models in which high government spending leads to higher GDP.
In the case of both Italy and Lebanon, this couldn’t be farther from the truth. Yes, it is true that every single economist in history except a handful are probably outraged by such a statement but Francesco Giavazzi, Carlo Favero and Alberto Alesina (dec.), 3 economists from Bocconi University and Harvard, seem to have cracked the code. The trio find that raising taxes and lowering spending is not always the kiss of death to political careers. They find that austerity triggered by increasing taxation leads to a decrease in disposable income for consumers which in turn leads to a massive recession. On the flip side, austerity achieved through reduced government spending has a very limited impact on a nation’s debt burden which means that a country would benefit from keeping taxes low (to spur output) but should also refrain from maintaining an unused atomic energy committee and a national railway administration. Whilst the Monti government adopted an austerity regime in line with these findings, Lebanon’s economists ignored them entirely and went down the route of increasing government spending to boost GDP essentially making the ballooning debt problem even worse. Italy tackled the problem with a government of experts- Lebanon didn’t. The results speak for themselves.
Nevertheless, Italy currently finds itself with a new “emergency” pseudo-technocratic government under Mario Draghi. Draghi has appointed a joint cabinet of politicians and experts in order to deal with an Italian economy and state that has faltered severely in light of the COVID-19 pandemic. This begs the question whether technocracies are the solution or simply a method to patch over the cracks and remove political culpability from the ruling class when things get rough. The implementation and removal of technocracies can become cyclical in Italy and Lebanon if the two countries are not careful. Certainly, one of these authors believes in systematic change rather than ossifying broken systems with technocracies. However, this is purely speculative and as such will be left for article three in the future.
https://harvardmagazine.com/2019/01/austerity-when-it-works-giavizzi-alesina-favero
https://standpointmag.co.uk/the-bocconi-boys-vs-keynesians/
http://www.dt.mef.gov.it/en/debito_pubblico/_link_rapidi/debito_pubblico.html
https://www.ft.com/content/224562f3-ba73-4db7-acac-e9d8032d430e
https://www.ft.com/content/03ef519c-44c3-4f73-a2e0-a79ff23a88ba
https://www.tandfonline.com/doi/full/10.1080/08913811.2020.1842004