Italy – which stands at the border between Europe's prosperous north and crisis-ridden south, and between an open Europe and one seized by atavistic nationalism – will play a pivotal role in determining whether the EU survives long enough to reform itself. The coalition government that emerges will prove crucial.

NEW YORK – More than ever, the European Union needs unity to assert its values and interests in an age when US global leadership is on the verge of collapse, China is ascendant, and Russia wavers yet again between cooperation and confrontation with the EU. Divided, the EU is a mere helpless spectator to geopolitical upheaval. United, the EU can play a critical global role, as it uniquely combines prosperity, democracy, environmentalism, innovation, and social justice. And whether the EU regains unity of purpose, or instead spirals into disarray, will depend on what happens now in Italy.

Italy’s pivotal role stems from its position at the geographic divide between northern Europe’s prosperity and southern Europe’s crisis, and the intellectual and emotional divide between an open Europe and one trapped again by nationalism, prejudice, and fear. Italy stands also at the political divide, with an insurgent new party, the Five Star Movement (M5S), sharing the political stage with the right-wing, anti-immigrant, and anti-EU League party and the pro-EU but greatly weakened center-left Democratic Party.

The insurgent M5S finished first in the March 4 parliamentary vote with an astounding 33% of the vote, compared to 19% for the Democrats and 17% for the League. The implications of M5S’s strong victory are a topic of heated debate in Italy and around Europe.

Throughout the EU, traditional center-left and center-right pro-EU parties are losing votes. Just as in Italy, anti-EU nationalist parties like the League are gaining votes, and anti-establishment insurgencies like M5S – for example, Podemos in Spain, and Syriza in Greece – are either winning power outright or holding the balance of power between traditional pro-EU mainstream parties and anti-EU nationalist parties.

There are three reasons for Europe’s changing politics. The first, and perhaps least recognized, is a generation of disastrous US foreign policy in the Middle East and Africa. After the Cold War ended in the early 1990s, the US and local allies aimed to establish political and military hegemony in the Middle East and North Africa through US-led wars of regime change in Afghanistan, Iraq, Syria, Libya, and elsewhere. The result has been chronic violence and instability, leading to massive refugee flows into Europe that have upended politics in one EU member state after another.

The second reason is Europe’s now chronic under-investment, especially by the public sector. Under former Finance Minister Wolfgang Schäuble, a self-satisfied and economically successful Germany blocked European-wide investment-led growth, and turned the eurozone into a debtors’ prison for Greece and a dispiriting zone of stagnation for much of southern and eastern Europe. With the EU’s economic policy limited to austerity, it’s not hard to see why populism has taken root.

The third reason is structural. Northern Europe innovates, while southern and eastern Europe by and large do not, or at least not nearly at the same rate. Italy straddles the two sides of Europe: a dynamic north, and chronic malaise in the south (the Mezzogiorno). This is an old story, but also an ongoing one. It helps to explain the frontlines of EU politics. The M5S was triumphant especially in Italy’s stagnating south.

My political predilections lie with social democracy. I blame conservatives like Schäuble for driving voters into the arms of populist parties. Yet too many mainstream social-democratic leaders went quietly along with Schäuble. I also fault Chancellor Angela Merkel and other European leaders for failing to speak strongly enough against the US-led wars in the Middle East and North Africa. European leaders should have been much more energetic at the United Nations in opposing America’s hegemonic policy in the Middle East, with its catastrophic effects, including mass displacement and refugee movements.

Advocates of a strong and vibrant EU – and I am firmly among them – should be rooting for the insurgent parties to join forces with the weakened traditional social-democratic parties in order to promote sustainable development, innovation, and investment-led growth, and to block anti-EU coalitions. Or, as in Germany, they should urge the grand coalition of center-left and center-right parties to become much more dynamic and investment-oriented at European scale, both for the sake of economic good sense and to combat far-right nationalists. Or, as in France, they should cheer the amalgamation of pro-EU traditionalists and insurgents in President Emmanuel Macron’s La République En Marche ! Such pro-EU alignments give the EU time to reform its institutions, stake out a common foreign policy, and initiate investment- and innovation-led green growth in place of austerity and complacency.

Traditional social-democratic parties mostly shun the new insurgent parties, viewing them as populist, irresponsible, opportunistic, and dishonest. Such is the view in Italy on the part of the Democrats, with key politicians rejecting a coalition with M5S. That is understandable: the upstarts thoroughly defeated the Democrats at the polls, often with outsize populist promises. Yet the social democrats have been flaccid and even silent in the face of Schäuble-style austerity and irresponsible US-led wars. The traditional social-democratic parties will have to regain their dynamism and appetite for risk-taking to win again at the polls as true progressive parties.

The stakes in Italy are high. With Europe politically and geographically divided, Italy’s politics could tip the balance. A pro-EU Italy governed by an M5S-Democrat coalition could join with France and Germany to reform the EU; regain a clear foreign-policy voice for EU vis-à-vis the US, Russia, and China; and implement a strategy for green, innovation-based growth.

To forge such a coalition, the M5S would have to adopt a responsible and clearly defined economic program, and the Democrats would have to accept being the junior partner of an untested insurgent force. A possible key to mutual confidence would be for the Democrats to hold the crucial finance ministry, while M5S appoints the prime minister.

It is not surprising that US President Donald Trump’s utterly reckless former adviser, Stephen Bannon, rushed to Italy to encourage M5S and the League to form a coalition that he called the “ultimate dream,” because it would break the EU. That by itself should remind Italians of the importance of a pro-EU coalition that rejects such miserable nightmares.

https://www.project-syndicate.org/commentary/italian-politics-and-future-of-europe-by-jeffrey-d-sachs-2018-04