Rarely, if ever, have the normally glittering environs of Lake Como in Northern Italy looked quite so forlorn for this time of year as they do now. After months of drought, water levels are literally metres below where they ought to be, exposing grey shingle beaches to the unforgiving light of day. Great swathes of the lake's wooded hillsides have been prematurely turned an autumn brown by the lack of rain. Many of the trees are unlikely to survive.
It felt like a fitting backdrop to last weekend's annual Ambrosetti Forum, a gathering to discuss economics. Business people are on the whole an optimistic lot, and this particular group of attendees was no exception. Most run successful enterprises with uniquely favourable growth opportunities. Yet the overarching backdrop of economic and geopolitical challenges is now so daunting as to fill even the most positive of company bosses with gloom.
With the closure of Russian gas supplies to Europe now seemingly permanent, and the Euro sinking to a twenty-year low against the dollar, predictions of a long, cold and recessionary winter in Europe are now the presiding narrative.
Even the luxurious surroundings of the forum's venue, the eternally glamorous Villa D'Este, couldn't disguise the sense of fin de siècle, as we move – remorselessly and apparently helplessly – from an age of relative economic and geopolitical security and stability into one of profound insecurity and instability.
The old certainties of low inflation, low interest rates, and hyper globalisation, backed by rules based multilateralism, have gone. Never has trust between the developing world and the advanced economies of the West been as low as it is now. Not since the Second World War have the forces of national identity and self interest tugged so forcibly on the political psyche, and rarely has commitment to internationalism been so much in retreat.
Rewind to the fall of the Berlin Wall in the late 1980s: it marked the start of three decades of relative peace, prosperity, democracy and international cooperation. As many of the speakers here at Ambrosetti pointed out, we are far from that benign state of affairs today. War is back, inflation is back, social tensions are rising, debt is soaring, and democracy is confronted by resurgent autocracy, whether it be Russia, China or Turkey.
The ultra-hawkish views on China of Mike Pompeo, a US Secretary of State under Donald Trump and a possible contender for the presidency in two years time, found a ready audience on the shores of Lake Como, even among European leaders and decision makers who are usually more conciliatory. All countries must pick a side between freedom and authoritarianism, he has said, pointing to a growing bifurcation into separate trading blocs and spheres of influence.
Never mind that research by the World Trade Organisation estimates that a complete decoupling of trade between the West and China would knock 5pc of global GDP, this is increasingly the direction of travel as security concerns begin to trump the pursuit of economic growth.
Interconnected threats
Compounding this sense of disillusionment with the ancient regime, we see a fast approaching economic crisis that many pundits here at Ambrosetti think will be just as bad as the pandemic and the Global Financial Crisis, if not worse. In some quarters, there is still a tendency to see the current downturn as mainly cyclical: as energy prices stabilise, inflation and interest rates will soon abate, allowing a degree of growth to return.
But this view was not widely shared at Ambrosetti. What makes it different, according to Mohamed El-Erian, president of Queens' College, Cambridge, is "structural uncertainty", ranging from energy supply to globalisation and the ability of the financial system to spread and contain financial risk.
Nouriel Roubini, of Roubini Macro Associates, told me that hopes of a soft landing were fantasy, and predicted a "severe" downturn, especially in the UK, which he said had "shot itself in the foot" with Brexit. As a consequence, it will experience the worst case of stagflation of any advanced economy, he believes.
Deliberately misquoting Thomas Hobbes, who famously wrote that life for the common man was generally "nasty, brutish and short", he said the downturn would be "nasty, brutish and long". He also predicted that rising interest rates would create a "stagflationary debt crisis".
Bluntly dismissive of Trussonomics, he said the idea that Britain can become like Singapore was delusional. So too is the hope that the UK could follow Thatcherite policies, given current welfare expectations, was nonsense.
"The UK is a high welfare economy", he said, "so if you do that [unfunded tax cuts] you will either get high inflation or a debt crisis or both".
In a new book due to be published next month, "Megathreats; the ten threats that imperil our future and how to survive them", Roubini compellingly spells out an almost unprecedented mix of overlapping challenges confronting today's policymakers and business leaders, from mountainous debt to excessive money creation, superpower confrontation, serial pandemics, mass migration and climate change. He might as well have written the Ambrosetti Forum's entire agenda, for it was this bewildering array of interconnected threats that was at the heart of the event.
How high will interest rates need to go to fully contain resurgent inflation? Quite a lot higher than widely imagined, according to Peter Bofinger, Professor of Economics at Würzburg University, who insisted that real interest rates were way too low to address inflation if applying conventional "Taylor Rule" principles.
"There is a truth to this principle, in that when inflation goes up, you need at least to maintain real interest rates to control it. You don't need me to tell you that inflation has risen far more than interest rates, which means that real interest rates have fallen further into negative territory".
"You cannot have gas outages to households because cutting their gas off is technically dangerous, with a risk of explosion or poisoning when switched on again," he said. "So industry will bear the brunt of the pain."
Cracks are showing
Whether you accept Roubini's negative view of Brexit or not, there is little doubt about where the current extreme mix of "structural uncertainty" is at its most testing: within the eurozone. Already the cracks are showing. Geert Wilders, leader of Holland's ultra-right Freedom Party, said that inability to properly address the cost-of-living crisis was entirely down to the stupidities of the EU, which was "weakening rather than strengthening our national response".
Referring to the vast amounts of money that Italy is receiving under the EU's "NextGeneration" recovery plan, he asked: "Why are the Dutch having to pay for the Italians to have their houses insulated? I am elected by Dutch voters. Inflation is sky high and people are getting poorer by the day."
Once dismissed as swivel eyed loons, socially conservative voices such as Wilders are becoming increasingly influential in mainstream political thinking the world over.
"Instead of harming the country being sanctioned, we are harming ourselves, '' he said. “We need a European shield to protect business and families, as during the Covid pandemic," he told attendees. "But there is nothing".
"If we want to go ahead with the sanctions, let's do it, we want to protect Ukraine – but I would not want that to mean that instead of harming the sanctioned, we harm ourselves."
Wilders said much the same thing: "These sanctions are hurting our own people more than they are hurting the Russian war machine.”
Not that either of them seemed to have much idea of how you would do sanctions differently given Putin's whip hand on gas supplies. Yet the damage that sanctions are doing to Europe is indisputable.
As it happens, Salvini is something of a declining force on the Italian right, having been eclipsed by the rising star of Giorgia Meloni, another nationalistic firebrand, who if the polls are to be believed, is likely to become Italy's next Prime Minister after elections later this month.
Indeed, the ranks of the Italian press massed at the Villa D'Este seemed far more interested in Salvini's latest squeeze, now apparently his fiancée, than in anything he had to say. Italian voters appear to have no difficulty reconciling his supposedly socially conservative views with his notoriously varied love life, and as with Berlusconi, many of them seem positively to admire him for it.
In any case, he's as thick as thieves with Meloni, with whom he's expected to form a coalition government later this month. Sharing a platform at Ambrosetti, the two whispered conspiratorially to one another, Meloni covering her mouth with her hand against the possibility of lip readers in the room.
On the left, she's seen as a fascist, a reputation she does little to discourage. She has expressed open admiration for Mussolini on a number of occasions in the past. Yet scarcely anyone at Ambrosetti thought of her as such. There's been a big push in recent months to "sanitise" her image in preparation for power.
Her small state, low tax views might indeed put her more in Liz Truss territory than France's Marine Le Pen, and has lately gained quite a following in the Italian business elite.
"Like everyone on the Italian right, she's a nationalist, an anti-globalist, a eurosceptic and a social conservative", says one former Italian government minister. "But as for the economy, she is a pragmatist. She knows as well as anyone that her scope for action is extremely limited.
"Over the next several years, she is going to need the EU's NextGeneration funding, and she is going to need the European Central Bank's support in debt markets. Neither are cost free. Both mean subjugation to some se mblance of Mario Draghi's ‘National Recovery and Resilience Plan’ for modernising the Italian economy. She will therefore be in no position seriously to kick against the EU.”
Even so, the current weakness of the euro against the dollar – now at parity for the first time in twenty years – is in part a reflection of fears that Italy may yet cause monetary union to explode from within. This, I have to say, was not mainstream thinking at Ambrosetti.
Yes, politically, Meloni is going to have to return from her first confrontation with Brussels with some clear wins. In particular, she needs to make progress on migration and asylum seekers. The scale of Italy’s challenge makes Britain's problem with small boat crossings seem like a stroll in the park by comparison.
But unless the elites have badly misread it, she is not about to do a Greece and attempt to blow up the entire European project if, or perhaps when, she doesn't get her way.
In Greece's case, Alexis Tsipras threatened Grexit, but soon blinked and ended up not only buckling under but going fully native. That's not going to happen with Meloni, who has a sulky eyed demeanour and a slightly contemptuous smirk permanently printed to her lips.
Her utterances are not so much stream of consciousness as a raging torrent of discontent. The EU will not find her as easily dealt with as Tsipras. "She's a strong woman", says my taxi driver on the way back to the airport, "and our country needs a strong leader".
So it does, but it's not what the EU likes. Mario Monti, a former Italian Prime Minister, seemed to sum up the contradiction by saying that a Europe of separate sovereign nations is a fine thing, but for this continent of once warring tribes, you needed a "guardrail" of checks and balances against the ascent of extremist political forces.
Others might call it the subjugation of democratic politics to rule by managerial technocrats.
It is often said that the European Union is forged in crisis, but this latest one is already stretching the idea of solidarity among nations close to breaking point. It is true that the EU has made considerable progress towards a more unified approach to common challenges since the sovereign debt crisis a decade ago: on vaccine procurement, on a shared approach to the war in Ukraine, on sanctions against Russia, and especially on the issuance of common debt to provide fiscal support post pandemic. But each of these initiatives have raised serious questions as to whether alternative national solutions might have delivered better results.
It was the collective view of Ambrosetti that they would not. But that view may look backwards to an altogether more hopeful age than the one we are moving into.
