Madmen in authority

M5S leader Luigi Di Maio and League leader Matteo Salvini M5S leader Luigi Di Maio and League leader Matteo Salvini

In The General Theory of Employment, Interest, and Money, John Maynard Keynes famously worried that, "Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back."

Yet even without prescriptive theories, feigning "frenzy" or madness can also be a plausible, powerful, and rather contagious negotiating strategy. In the early 1970s, US President Richard Nixon adopted the tactic to convince the North Vietnamese that he had his finger on the "nuclear button," and that they had better negotiate a deal to end the war - or else. And in 1986, President Ronald Reagan met with Mikhail Gorbachev in Reykjavik and surprised him by proposing that the United States and the Soviet Union both destroy all of their nuclear weapons.

Whether a crisis is escalating or de-escalating, the madman strategy's effectiveness seems to depend on the extent to which a political leader's "insanity" is ambiguous - so much so that even historians won't know where to draw the line between sincerity and artifice.

With President Donald Trump's on-again, off-again approach to a nuclear summit with North Korea, along with his bluster over new sanctions against Iran, the madman strategy seems to have made a dramatic comeback. It is now being adopted by many other leaders, and quickly spilling over into new domains, including debates about reforming the European monetary and political system.

Recently, the eurozone debt crisis, dormant since 2012, has looked as though it could erupt again. With interest rates so low, the Italian government's massive public debt has appeared sustainable. But with financial markets increasingly jittery over political developments in Italy, it is easy to imagine a world in which interest rates rise and remain elevated, in which case the Italian debt could pose a serious threat to the eurozone, and even to the global economy.

Investors' fear of another eurozone debt crisis have been spiking since the populist Five Star Movement and right-wing League party failed to form a government after months of post-election gridlock. The M5S/League coalition, which won a combined parliamentary majority in the March 04 election, have clearly taken a page out of the Trump playbook, hoping to use Italy's debt to extract concessions from the European Union (EU).

Will it work? The first, and most basic, component of the madman strategy is an ability to introduce a level of uncertainty that is damaging to other countries. This is why the strategy doesn't really work for smaller countries, as Greece's new government in 2015 quickly learned after dabbling in brinkmanship with its European creditors.

Assuming a country is big enough to rattle global markets (as Italy clearly is), three other factors determine the success of a madman strategy. For starters, its government must be able to convince everyone else that it is being driven toward "insane" acts by voters. The idea is that it is actually irrational for a democratically elected government to act prudently if doing so means inviting punishment from voters who are committed to myopic but deeply felt positions. In the case of Italy, populists capitalized on voters' disenchantment with a centre-left party whose pro-European stance had failed to deliver results.

There must also be a visible division between "hawks" and "doves" within the madman government. In any negotiation, the other parties will offer concessions to strengthen the doves, knowing full well that a failure to do so will enrage the hawks, who will then move forward with their doomsday plans. With Trump, this dynamic exists within a single personality that is prone to violent, unpredictable swings between openness and anger. But it also exists within Trump's cabinet, with John Bolton, the hardline national security adviser, playing the role of the hawk.

In the case of the M5S/League coalition, a hawk was needed as a counterweight to Italy's pro-EU president, Sergio Mattarella. That is why the populists' choice for Minister of Economy and Finance was Paolo Savona, an 81-year-old economist whom the former Italian economy minister Vincenzo Visco has described as "radically and suicidally anti-German." When Mattarella rejected the nomination, the M5S/League quit the talks, precipitating the current crisis.

Finally, to succeed, a madman government needs to have a plausible war plan for causing a general disruption. For example, the M5S/League coalition suggested that it might issue a parallel currency, which lent further credibility to its threat of pursuing fiscal expansion in defiance of EU rules.

As more governments, parties, and leaders come to imitate the madman strategy, the scope for agreement in any negotiation will narrow, and will become more likely. In fact, hardline German economists have already responded to Italy's political crisis by circulating petitions to block any eurozone reform that could be regarded as a concession.

But exposing the dangers of the madman strategy will not be enough to defeat it. Voters also must be convinced that better alternatives are available, and that European integration can still safeguard their interests. In the months before Italy's next election and the EU parliamentary elections in May 2019, EU leaders will have some - but not much - time to show that European integration is about more than political paralysis and economic stagnation.

Otherwise, we might soon be reacquainted with the madman strategy's grim side. Before his abdication in 1918, German Kaiser Wilhelm II did not need to pretend to be unstable; he really was. With a penchant for sabre-rattling speeches and outrageous newspaper interviews, he had something in common with America's Tweeter-in-Chief.

In another disturbing historical parallel, he often boasted about his ability to reach agreements with the Russian and British monarchs, to whom he was related. In the event, as the crisis of diplomacy was escalating in July 1914, he suddenly announced a grand new peace initiative. But it was too late. The game of chicken had spread, and the world's leading powers hurtled together toward catastrophe.

Harold James is Professor of History and International Affairs at Princeton University and a senior fellow at the Center for International Governance Innovation.

Copyright: Project Syndicate, 2018.


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