Italy wants to roll the dice on the euro all over again

  02 July 2019    Read: 821
Italy wants to roll the dice on the euro all over again

Brussels is acutely aware of Italy’s new-found spunk and how it can use its leverage on EU jobs.

Four days after his triumph in last month’s European elections, Matteo Salvini strode into the Italian Treasury with his most senior advisers and told Finance Minister Giovanni Tria that from now on he was going to be more involved in economic policy.


The 46-year-old deputy prime minister explained to Tria that he had a new sense of responsibility for the Treasury’s work after his pro-business League’s election victory, according to officials with knowledge of the exchange. As a signal of intent, he demanded to see the defense of Italian budget policy that Tria’s team was preparing for the European Commission.

It’s not just the League’s coalition partners in the Five Star Movement who’ve felt the impact. Officials in Brussels have noticed Salvini’s renewed assertiveness.

As European Union leaders struggle this week to find a candidate to lead its executive arm, Salvini showed he was very happy to stir the pot and throw his weight about. “ I told the prime minister that the president of the commission cannot be a communist, a socialist or a left-winger. Are we going to put a Socialist in charge of the commission to do Mrs Merkel a favor?” he blasted to supporters at one of his round-the-clock rallies.

It was the umpteenth warning to the rest of Europe of just how difficult Italy could become if pushed too hard over its finances. In Salvini's world view, Italy has leverage and wants to start using it.

But its financial problems remain: After a decade of crisis and catharsis set most of southern Europe on a sustainable financial track inside the euro, Italy’s debt – at 132% of GDP – is what keeps policy makers up at night. On Monday night, the government lowered its 2019 budget deficit to avoid sanctions.

Salvini and his allies in the nationalist League have long disavowed their talk of pulling Italy out of the euro. But they still have the potential to bring down the currency union if their budget plans spin out of control.

So the commission issued an ultimatum to Rome: narrow the deficit or face a potential fine of up to 9 billion euros ($10 billion).

Salvini is ready to call its bluff. He argues that the 15 billion-euro tax cut he’s got planned will jolt the economy back to life and set the country and its finances on the right track.

In Brussels, the fear is that without action to make the labor market more flexible and companies more competitive the country is more likely to remain in the doldrums with its debt spiraling ever higher.

But nor do they have much appetite for another fight, with the commission battle still to be resolved. The meeting on Tuesday to address Italy’s finances was pushed back as a special summit to decide the EU’s top jobs drags on for a third day, yet another example of how most things in Brussels are intertwined. 


The Bloomberg

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