League of its own? Italian politics

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Hello and welcome to the intelligence on Economist Radio. I'm your host Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world. Venezuela's state oil firm Pereveza is a well known caricature of mismanagement. But a look at the rest of Latin America's state run energy giants reveals a similarly sickly corruption, ineptitude, politicization and hands in the cookie jar. And a new generation of filmmakers is cropping up in an unlikely place. Siberia movies tapping into the identity of the Yakut, a local ethnic group are drawing notice at international festivals. But making films there is hard going. Temperatures can hit 50 below zero. First up though, Yesterday a long simmering political crisis in Italy came to a head. The Prime Minister Giuseppe Conte offered his resignation to the President. He was pushed into quitting after his rebellious right wing deputy Matteo Salvini called for a vote of no. In a speech to the Senate, Mr. Conte accused Mr. Salvini of political opportunismo politico. He said Mr. Salvini's Northern League party had showed grave contempt for the government. By forcing him to end his 14 month tenure. The Prime Minister had attempted to steer an unruly coalition of Mr. Salvini's Right Wing League and the anti establishment Five Star Movement. For his part, Mr. Salvini was defiant, saying the right outcome would be a general election so the Italian people could judge.

It's unclear whether Salvini's gamble will pay off, but if it does, it could mean that Italy gets a far right populist government that would be its most uncompromisingly hard right government since Mussolini.

Matt Steinglass is our Europe correspondent.

And it could put Italy's budget at risk at a moment when it's already under heavy pressure from the European Commission.

So why did Mr. Salvini make this move now?

The Italian government was a coalition between two populist parties that had very different constituencies and very different policies and was always somewhat fragile. When they ran the elections in 2018, Salvini's party, the Northern League, got about 17% of the vote. But Salvini has been practicing very effective politics in their first year in power. And his poll numbers have been rising steadily to the point where he's now at about 30%, 37% in the polls. So to some extent, he's just gambling that with his poll numbers high, if he can get a new election, he could get enough delegates to run the country himself.

So we certainly have a sense that the league and Mr. Salvini are right wing. But what else does the League stand for?

The Northern League started out in the 1970s as a right wing secessionist party of northern Italy, which felt that southern Italy was poor and they were wasting too much money subsidizing it. And it has evolved under Mr. Salvini in particular, into a right wing, populist, nativist, anti immigrant party of the kind that you find all over Europe.

So what has Mr. Salvini, what has the coalition done since they've been in government?

They've been extremely anti immigrant. Salvini is refusing to allow boats that rescue migrants coming from North Africa to Italy to dock in Italian ports, which probably violates international law. They're extremely Euro skeptic party. The party has always been somewhat Euro skeptic, but he has staked out a series of confrontations with Brussels, often over budget matters. They wanted to run a higher deficit than Brussels would allow them to. Eventually they backed off of that, but it allowed Salvini to profile himself as a fighter for Italy against the Eurocrats in Brussels. They're also a very pro Russian party. They lean towards allowing Russia to rejoin bodies that it's been kicked out of, such as the Council of Europe. This is something that plays very well in the northern Italian base of the Northern League because it's a manufacturing area. They Used to have very close economic relationships with Russia and would like to see those re established.

You said that the League has more than doubled its standing in the polls. What does that tell us about the political mood in Italy?

Partly, it tells us a lot about Salvini, actually. He's a very effective politician. He is professional. He's been in the game for a long time. He's a very solid, charismatic, populist politician. So he has spent the summer getting himself photographed on Italian beaches with his shirt off, being a regular Italian guy. Had some trouble pulling off that act in the south because the Northern League has a history of being anti southerner and they're now trying to rebuild their reputation in the South. Some people didn't buy it and booed him when he came down there, but for the most part he's just a very effective retail glad handing politician. And the anti immigrant line that the Northern League has presented is extremely effective at the moment in Italy. Italy is one of the frontline states for African migration or for migration from the Middle east, often through Africa, feel unfairly done by the European Union, which isn't helping them out enough to shoulder the load of accepting migration from North Africa. And they like his hard, uncompromising line.

And you said that all these developments could put further pressure having to do with Italy's budget. How do you mean?

Italy is the most heavily indebted large economy in Europe. Its gross national Debt is about 135% of GDP and that is a long standing risk to the solvency of the entire eu. So it has been operating under close restrictions from the European Commission. So they already got into a clash with the European Commission over their last budget. In the end, they backed off of some of their ideas. But Salvini is a classic populist. He would like to see the Italian government spend more money to pump up the economy. He subscribes to a theory that the main problem with the Italian economy is that not enough money is being spent and that if they simply open the taps, then the economy will perk up again. But most economists don't agree with him. And if they do need to run a general election, it will leave them only a few weeks for the government to prepare a budget which is a job that they normally spend the last three months of the year doing.

You mentioned the possibility of a general election. I mean, what happens now? And how do you see this playing out? How could all of this be reshuffled?

The next step is that the president, Sergio Mattarella, will give the parties a chance to form a new coalition. And the most likely new coalition would be between the Five Star Movement and the Democratic Party and probably some independents. The Five Star Movement would have some trouble cooperating with the Democratic Party because the Five Star Movement's roots are as a kind of a revolutionary Internet based party which promised to simply do whatever its supporters said it should do on any issue. And that makes it quite amorphous and a bit hard to pin down, but definitely anti establishment. So for them to cooperate with the Democratic Party, which is a classic center left, vaguely reformist, but middle of the road Italian party, would damage their brand. If they can't build a coalition, then it's conceivable that Salvini might try to salvage the current coalition. In his speech, responding to the Prime Minister's Prime Minister's resignation, he noted that he now supports the Five Star Movement's main reform proposal, which is to shrink the size of Parliament. And some people took this as a suggestion that he might be having second thoughts about blowing up the government and might actually want to salvage the coalition. But if neither of those work, then we'll have to go to a general election and see how the chips fall.

At which point we, and I guess the Italian people, would see whether Mr. Salvini's bluff was a wise move or not.

Exactly. And we have no idea how that will play out. If his polling numbers hold up, then he could emerge from this as Prime Minister with full powers, as he said in his speech, or it could turn out that his bluff was a bad idea.

Matt, thank you very much for your time. My pleasure. It's said that oil can bring a country both wealth and woe. For Latin America, recent years have brought more of the latter. The region accounts for 20% of proven oil reserves and around 10% of global output. As the oil industry contends with the effects of climate change and anticipates the prospect of peak demand rather than peak supply, Latin America's producers are stuck in.

Patterns of dysfunction Latin American countries, and indeed countries around the world that have large reserves of oil, have always struggled with the question of how to maximize the value of their reserves.

Charlotte Howard is the Economist's New York bureau chief and our Energy and Commodities editor.

The difference now is that this is taking place in an environment of heightened uncertainty, both because of a huge surge in American oil production as well as long term uncertainty about oil demand.

And what are the challenges that Latin American petro states in particular face?

When we looked across the region at the companies that have either complete or Partial state ownership. They are all struggling to figure out how to deal with some of the problems that have plagued them, not just in the past year or two, but for decades. So these questions include should they invite foreign investment or not? Should they maximize efficiency or try to create jobs within the oil industry? How much should they subsidize the price of petrol for drivers? Or should they let prices move with the market? How can they clamp down on corruption?

And you mentioned the question of state ownership. Is that a particularly pointed question in Latin America?

Well, oil is intertwined with politics and national identity in many of these countries. So in Mexico, you know, you have a holiday commemorating one of the anniversaries of an important date in the oil industry. Various politicians over time have shown their power by consolidating control over the oil industry. Hugo Chavez, memorably strong armed his international partner as well. He was president. So the relationship between oil and politics is absolutely intertwined.

But state ownership of oil concerns is not unique to Latin America.

No, of course you have most notably Saudi Arabia with Aramco. In Norway you have Equinor, which used to be called Statoil. But in Latin America you have different versions of state ownership. So Pemex in Mexico is a state owned monopoly. Petrobras in Brazil has listed shares, their listed shares in YPF as well as Ecopetrol. Venezuela has had a particularly rocky time. It opened to oil firms in the 1990s and then in 2006 took back majority control of their oil fields. Some companies stayed, others including Exxon Mobil, packed their bags and left. So you do have quite a variety within Latin America for how much to partner with foreign firms, how much to let foreign investors take stakes in state backed oil companies. And what's interesting is that despite having quite different structures within the region, there are a few common problems that many of the state backed oil companies share.

And what are they?

Mismanagement of cash in good times. So when the oil price was high, not enough investments, taking on too much debt, companies also were prone to corruption. And then lastly, this question of the entanglement between the management of oil companies and politics is something that countries continue to struggle with.

Let's take each of those in turn. What do you mean by mismanagement of cash in good times?

So Pemex, for instance in Mexico, they underinvested in oil production. And Brazil Petrobras, the state backed oil company there, took on too much debt. So there was a problem where when the oil price was high, they were not managing the money. Well, and then when it crashed, they found themselves in a very dangerous position.

And on the matter of corruption, how has that figured in?

Well, Brazil had the most famous corruption scandal in recent years, where you had construction firms paying politicians billions of dollars in bribes and padding of contracts to build refineries and so forth. And you combined the corruption with this mountain of debt and credit rate agencies downgraded Petrobras to junk. So it was really quite an implosion. Corruption was not confined though to Petrobras. So an arrest warrant is out right now for the person who led Pemex from 2012 to 2016. American prosecutors continue to file charges of bribery for those who were at Petro Ecuador under Rafael Correa. This is a problem that companies have continued to struggle with.

So if you had to pick out one country in the region that struggled the most, which would it be?

Well, the region's case study in dysfunction remains PDVESA in Venezuela. Venezuela has a very long and sad list of problems. It has, by some estimates, the world's largest oil reserves, but its citizens, of course, are starving and lacking basic food and medicine. Under Hugo Chavez, most of Pittauvesa's professional staff was sacked. You've had declining production over time. There's been a dramatic fall, particularly since January when America imposed new sanctions. And there's a long term question there for how you can get Venezuela's oil fields producing again and indeed whether you should. There are environmentalists who point out that production in Venezuela is particularly dirty and it's also not that cheap to produce. So there's a long term question about how Venezuela will fit into the world's oil market as demand for oil in the long term might subside.

But how might Venezuela, pdvesa and indeed all of these companies learn from elsewhere these problems? If they're not global, then somebody somewhere is doing it right.

In the long term. There is this question of whether state owned oil companies should look beyond what they have traditionally done. So Norway Stat Oil is now equinor and they're investing not just in oil projects, but in wind farms. And Saudi Aramco has made big bets on petrochemicals and refining, the demand for which should be pretty robust even if demand for oil begins to fall in the long term as people become more aggressive in dealing with climate change. And the issue in Latin America is that there are these older problems that so consume the region's state backed oil companies. They're not really ready to start considering some of these longer term challenges.

Charlotte, thank you very much for joining us.

Thanks for having me.

Russia is a nation with a rich cinematic history. Films such as the 1925 silent propaganda movie Battleship Potemkin have influenced filmmakers across the world. Its unflinching depiction of a brutal massacre on the Odessa steppes is burned into the minds of film buffs. And the Art House 70s sci fi flick Solaris provided inspiration to the cult classic film Blade Runner and the silent Hill video game series.

A new generation of filmmakers has started cropping up in an unlikely place. Siberia.

Noah Snyder is the Economist's Moscow correspondent.

I found myself not long ago in the hills outside Yakutsk, the capital of Russia's far eastern republic of Sakha, and met a group of young filmmakers there who were producing a film called Sete Khsir, or Cursed Land. These. These days, the film industry is booming in sacho, which is five times the size of France but has only 1 million people. It's an enormous expanse of tundras and steps which in local culture are believed to be filled with spirits and gods and all kinds of spooky stories which make for great material on screen. Half of all Russian movies made outside of Moscow and St. Petersburg are from Sakha, or Yakutia, as it's also known. And at cinemas in the capital, Yakutsk, local productions often outgrow even Hollywood blockbusters.

But why? Why has filmmaking moved to this remote part of Russia?

There's several reasons, but first and foremost is the tradition of Yakut folklore. So the Yakut people were a sort of nomadic herding community in Russia's far northeast, and they developed an elaborate tradition of tales tinged with fantasy and mysticism, otherworldly realms. As Stepan Burnashov, the director whom I was visiting in Yakuts, put it to me, it looks kind of like a proto cinema. The other piece is language. Yakut films and the Yakut film scene, they tend to shoot in Yakut language, which obviously is spoken almost exclusively in Sakha in the Yakut Republic. And for local audiences, seeing stories that draw on their history, their folklore, their traditions, and are shot in their own language has made these films a hit.

And what's it like actually making a film in this remote part of the world?

Well, it's bloody cold, for starters. There's a set of challenges that filmmakers in Yakuta have to deal with that no Hollywood director has probably ever come in contact with. As one assistant director, Anastasia Pitel, who's working on Mr. Brunisov's film, put it to me that the hardest thing to negotiate with is nature. So in the winter, temperatures can dip below minus 40 or even minus 50 degrees centigrade. Camera batteries will run out rapidly. Actors, understandably, will become impatient. And then in the summer, it's no better, because swarms of mosquitoes emerge from the swampy earth, the permafrost that melts in the Yakut region. And these mosquitoes are out in such large numbers in such clouds that, as Ms. Patel put it, when one buzzes in front of the lens, it looks like a horse is galloping across the frame. So camera operators always carry bug repellent with them and spray rings around their cameras. When actors and directors go out to shoot, they'll often make offerings to nature. So when we drove up out into the hills and to see Mr. Bernashev shoot, Seti Khsir, one of the leading actors, got out and stopped along the way to leave an offering of food at a tree that marked the entrance to the forest.

So it's clear these films have big audiences in the region. And you say also nationally. What about internationally?

Well, cinephiles from around the world have begun to take notice. Yakut directors have been enjoying a sort of a flowering on the international film festival scene. Yakut directors have popped up in the programs at Berlinale. They're quite popular in South Korea and elsewhere in Asia. So Yakut cinema is having a moment not only at home, but globally, too. I guess what I would say is if passion is any proxy for quality, they've got it in spades.

Noah, thank you very much for joining us.

Thank you for having me.

That's all for this episode of the Intelligence. If you like us, give us a rating on Apple Podcasts and you can subscribe to the economist@exterator.com radio. Offer 12 issues for $12 or 12 pounds. See you back here tomorrow. Sam.