Question

How are the current political/economic “crises” in Italy and Great Britain different? Identify and briefly explain at least two differences.

Answer 1

The eurozone’s third-largest nation has plunged into deep political and economic crisis, which has become a concern for the European Union (EU) as well as for the global markets. At the end of Sept. 2018, the ruling coalition comprising the Five Star Movement and the Lega Nord announced their 2019 budget, which increases deficit spending to 2.4 percent of the GDP. The move has upset Italy's euro zone partners, who had been pressuring Italy to decrease its debt. This article looks at what Italy’s political and economic problems are all about and why it matters so much to the world economy.
In a nutshell, political chaos and failure to form a stable coalition government has caused the problems in Italy. Despite several weeks of prolonged discussions and negotiation, an agreement between a euro-skeptic populist group and pro-EU establishment lawmakers have failed to materialize, leaving the country in a deep political and economic crisis.

Italy has been without a proper government since the March polls resulted in a hung assembly. The populist Five Star Movement (M5S) emerged as the largest party; they attempted to join the far-right Lega Nord group to form a coalition government. While the two groups agreed on Giuseppe Conte, a law professor, to be their prime ministerial candidate, his surprise resignation over the weekend caused a stir. The development was attributed to President Sergio Mattarella’s refusal to accept a euro-skeptic candidate Paolo Savona as economy minister. Savona has been an opponent of the single currency in the past, calling it a “German Cage,” and also advocated for a “Plan B” alternative to EU membership.

Ten years after the financial crisis, the UK is facing another huge economic shock in the form of Brexit – this time it's self-inflicted

Globalisation was well under way by the time Lehman Brothers closed, but the scale and variety of the liabilities it left behind were a potent symbol of a new interconnectedness. None of that has changed, only the source of the dangers.

A decade on, and the hangover from the financial crash is still giving plenty of workers, governments, companies and financial institutions headaches. Understandably, after the biggest debt binge in history, the return to normality has been slow and painful, and, to the surprise of some, it is not yet over.

And to this, without labouring the point, we are seemingly about to administer another huge shock to the economy in the form of Brexit – an entirely voluntary, self-inflicted one, in stark contrast to the banking crash or previous economic dislocations. Brexit will be the mother of all unforced errors.
Most of the banks that were nationalised during the crisis – a course of action plotted by Mervyn King and Gordon Brown, and adopted globally – have been returned to the private sector, though Goodwin’s RBS, owner of NatWest, remains mostly in the hands of the British state. “Toxic” home loan books have sometimes turned out to be much better bets than they first appeared, when no one trusted any asset associated with the mortgage-backed security debacle. Calm has returned to the banking sector, though risks remain – from China in particular. The banks are, though, better prepared for any number of unwelcome developments – a major exception being the Italian ones, a timebomb under the euro.

Worries about the financial future, excluding Brexit, focus elsewhere. Emerging markets are volatile, and have been showing signs of weakness over recent months. In a mirror of the “search for yield” that characterised the run-up to the financial crash, investors have been piling into shares everywhere from India to Brazil, with mixed results. Few would rule out a sharp correction in Mumbai or Beijing, and it would reverberate globally.

If the world learned one thing from the financial crisis after 2008, it was that a crash in one market in a faraway land will swiftly make its presence felt across the world. Savers in Britain were hit by home loans in Florida going bad, the mismanagement of overextended Icelandic banks and the failure of institutions such as Fannie Mae (the US Federal National Mortgage Agency) they had never heard of.