A Tale of Two Italies

The European debt crisis has exacerbated the north-side divide that has characterized Italy since unification.

Silvio Berlusconi has gone but he was just one of Italy’s problems. The country is drowning in debt and struggling to regain a competitive edge it never really had. Perhaps the greatest long-term challenge facing Italy is the north-side divide that’s existed since the beginning of the republic in 1861.

Italy was a divided country for centuries before the wave of nationalism that swept Europe during the nineteenth century culminated in the unification of the peninsula between 1859 and 1861.

The effort was not without hardship. Especially in the south, which had been unified in the Kingdom of the Two Sicilies in 1816, there was considerable, even armed resistance against the northern unification movement. The imposition of northern laws and dialect was unpopular and no orchestrated effort was made in subsequent years to turn both halves of the country into an economic and political whole.

Up to this very day, the south remains impoverished and is generally regarded as backward by most northerners. The region north of Rome is home to the nation’s industrial base whereas the south’s economy is largely agricultural. Corruption and organized crime are impediments to growth in the north as well but especially pervasive in the rural south. A considerable amount of economic activity is confined to the informal sector there although estimates vary.

Southern Italian provinces, including Sardinia and Sicily, are classified under the European Union’s convergence objectives because gross domestic product per capita there is 69 percent of the European average and industrial development lacking. In the central and northern provinces, by contrast, incomes are much higher, ranging from 116 to 126 percent of the EU average.

Insular and southern Italy are home to 21 million people, or 35 percent of the population, but constitute just 23 percent of the national economy. Structural unemployment in the south hovers above 10 percent. In the north, before the recession, jobless rates ranged from less than 4 percent in the region around Venice to 6 percent in the central provinces.

Breaking up the republic may seem fantastical in an era of European border stability but it’s not unheard of in Italy. The Lega Nord, Berlusconi’s coalition partners who resisted the deep budget cuts and pension reforms he was forced by enact by Europe, has championed northern autonomy if not secession for two decades. The party enjoys roughly 10 percent support nationwide but is quite popular in the northern provinces.

There are movements for autonomy in the south as well but they are less popular. The part of the country is, after all, enormously dependent on the north for economic subsidization. If there is to be a dissolution of the Italian Republic, the south won’t like it. On itself, the southern economy and government might not even meet European membership criteria and most certainly, in wake of the continent’s sovereign debt crisis, would not be admitted to the eurozone.

From the northern perspective, there are huge advantages to secession. It would rid itself of millions of unemployed and welfare dependents overnight and significantly improve its growth prospects.

According to the Italian central bank, the government needs to improve its budget balance by a mere 2.3 percent in order to stabilize its debt obligations. With northerners relatively more likely to pay their taxes and less likely to draw a government paycheck, the need for austerity and reform is far less pressing there than it is in the south. Hence Lega Nord‘s opposition to deep budget cuts.

In the short term, unless there is economic catastrophe across the eurozone, Italy probably won’t dissolve but regional autonomy could increase. The Lega Nord champions fiscal federalism to enable northern provinces to finance themselves and only themselves. If the south were no longer subsidized, it would have little choice but to rein in spending at the local government level and make it a more attractive environment for business activity and investment.