On the surface, the eurozone crisis appears to be all about the fallout between national governments. It is creditor versus debtor, north versus south. At the last EU summit, the standoff between Germany and Spain seemed to epitomize that divide.
However, there is another, under-reported story here. It’s less about nation states than about regions within European countries being pulled apart through internal north-south conflicts. In Italy, Prime Minister Mario Monti has talked up his “grave concerns” about the default of Sicily, which Fitch rating agency believes is not “imminent.” Monti’s statement is part of an internal political attack on regional spending and the size of the government payroll in the Mezzogiorno, the Italian south.
There are already growing regional disparities of income within all the high-income countries of Europe. Now they are being driven apart further by the new problem of declining ex-industrial regions, such as the West Midlands in the UK or Walloon Belgium. Some countries are still struggling with the old problem of their laggard agricultural regions, such as Puglia or indeed Sicily in Italy.
Research shows that, on some measures, the internal inequalities are greater in northern countries such as the UK, than in southern countries such as Italy. If one looks at GDP per head for the most affluent region with more than 10 percent of the population (London, including outer London, in the UK, and Lombardia, including Milan, in Italy), the top to bottom inequality is worse in the UK. In Italy the poorest regions, such as Calabria and Campania, have half the income of top regions, while UK regions, such as Merseyside or south Yorkshire, do relatively worse. And 63 percent of the Italian population attains the mean national GDP or better, compared with 32 percent in the UK. These inequalities are growing, despite substantial internal transfers, and are driving the rise of a new regional nationalism all over Europe.
Countries in Europe have always been unhappy in their own way. What’s new is that it is no longer the poorer regions who ask for more, but the richer regions who demand to pay less. This “can pay, but won’t pay” politics was invented in two wealthy regions, Padania in northern Italy, and Flanders in Belgium. Insurgent populist parties Lega Nord in Italy and Vlaams Belang in Belgium mix regional identity politics with electoral opportunism. However, their economic agenda is consistently against metropolitan political elites, and against redistributive tax policies.
As austerity bites, internal distributive conflicts are now spilling over into mainstream politics, especially in federal countries such as Spain, where 17 regional governments manage schools and hospitals and account for more than half of public expenditure. In January this year, the center-right Spanish government made an 8 billion euros (US$9.2 billion) advance so that the regional governments could carry on paying their bills; by April, Prime Minister Mariano Rajoy was threatening to seize budgetary control of recalcitrant regions that were now being told to halve their deficits.
There are echoes of this tension even in Germany, where the regionally based center-right Christian Social Union party (CSU) in affluent Bavaria is learning the new rhetoric. German politics is about coalitions and consensus, which has encouraged external scapegoating of the Greeks. That same tendency has, in the past, discouraged any questioning of internal distribution to the formerly communist east: An issue that is now being raised noisily by the leader of the CSU, who challenges the legality of internal “solidarity transfers” that supposedly cost Bavaria 7 billion euros a year.