What do you call a country that has grown 4.6 percent—in total—since it joined the euro 16 years ago? Well, probably the one most likely to leave the common currency. Or Italy, for short.
It's hard to say what went wrong with Italy, because nothing ever went right. It grew 4 percent its first year or so in the euro, but almost not at all in the 15 years since. Now, that's not to say that it's been flat the whole time. It hasn't. It got as much as 14 percent bigger as it was when it joined the euro, before the 2008 recession and 2011 double-dip erased most of that progress. But unlike, say, Greece, there was never much of a boom. There has only been a bust. The result, though, has been the same. As you can see below, Greece and Italy have both grown a meager 4.6 percent the past 16 years, although they took drastically different paths to get there.
Part of it is that Italy, as the IMF points out, has real structural problems. It's hard to start a business, hard to expand one, and hard to fire people, which makes employers wary about hiring them in the first place. That's led to a small business dystopia, where nobody can achieve the kind of economies of scale that would make them more productive. But, at the same time, Italy had these problems even before it had the euro, and it still managed to grow back then. So part of the problem is the euro itself. It's too expensive for Italian exporters, and too restrictive for the government that's had to cut its budget even more than it otherwise would have.
This doesn't make Italy unique—the euro has hurt even the best-run countries—but what does is that Italy's populists have noticed. Why is that? Well, more than anything else, the common currency has given Europe a severe case of cognitive dissonance. People hate austerity, but they love the euro even more—they have an emotional attachment to everything it stands for. The problem, though, is that the euro is the reason they have to slash their budgets so much in the first place (at least as long as the European Central Bank will force their banks shut if they don't). So anti-austerity parties have felt like they have to promise the impossible if they want any hope of gaining power: that they can end the budget cuts without ending the country's euro membership. But as Greece's Syriza party found out, that strategy, if you want to call it one, only gives your people unrealistic expectations and Europe no reason to help you out. The other countries, after all, don't want to reward what, in their view, is bad budgetary behavior, if not blackmail. And so Greece was all but given an ultimatum: either leave the euro or do even more austerity than it was originally told to do. It chose austerity.
The lesson was clear. Don't elect anti-austerity parties, or things will get even worse for you. But, in Italy at least, the anti-austerity parties have learned the opposite lesson. Don't rule out leaving the euro, or things will never get better for you. Beppe Grillo, the comedian-turned-politician at the head of Italy's second-most popular party, the Five Star Movement, has gone from being a vague euroskeptic to an outspoken one. He wrote that Greek Prime Minister Alexis Tsispras' "refusal to exit the euro was his death sentence" and that Italy should use its debt "as an advantage that allows us to be on the offensive in any future negotiations." It's the old saying: if you owe the bank 100 euros, that's your problem, but if you owe the bank 2 trillion euros, that's their problem.
As far as problems go, that's a pretty big one. It wouldn't be quite so large, though, if Italy would actually start growing again. More income would mean less of a debt burden, and, in turn, less need for austerity. But it's just hard to see how that would happen. Italy's government still has to cut its budget, and its companies still have to cut their costs to become more competitive, both of which will hurt growth in the short-term. And, in the meantime, Italy's anti-austerity party is the only one in Europe willing to point out that the emperor has no growth.
People might notice that it's true.