EU in flux as US alliance creaks, populist government rise in Italy

Situation is worrying, it could escalate: trade chief

FRANKFURT, Germany, June 2, (AP): Certainties Europe has relied on for decades seem to be crumbling: that the US is a reliable trade partner, and that the founding members of the EU all remain committed to the bloc.

On Friday, US President Donald Trump imposed tariffs on European steel and aluminum, dismissing Europe’s pleas, and an anti-EU populist government took office in Italy. Added to Britain’s expected departure next year from the European Union, the milestones show a region entering a new state of flux, with potential implications for the prosperity of its people and global relations.

“Germany and France should very quickly show joint political leadership now,” said Daniela Schwarzer, director of the German Council on Foreign Relations.

That role would belong in large part to Germany’s Angela Merkel and France’s Emmanuel Macron when it comes to strengthening Europe’s currency union. Collectively, the EU could seek to ease worries about trade by strengthening commercial ties with other partners like Japan, China and countries in South America.

But the trade relationship with the US is the biggest in the world, and will be hard to make up for, if the US and EU escalate their spat by imposing counter-tariffs on each other. US trade helped Europe recover from the devastation of World War II and enriched US companies that sold consumer goods to the continent. A souring in relations could also have implications for cooperation in other spheres, like security.

“The situation is worrying, it could escalate,” said the EU’s trade chief, Cecilia Malmstrom, adding that the tariffs could hurt global economic growth. “The United States is playing a dangerous game.”

The EU officials were far more cautious in their reaction to the political situation in Italy, for fear of further

provoking supporters of the new government led by the anti-establishment 5 Star Movement and the anti-immigration the League. But they were likely not less worried, having seen European financial markets plunge this week on Italy’s political chaos.

Law professor and political neophyte Giuseppe Conte was sworn in Friday as the head of Italy’s populist government. The two parties plan tax cuts and more spending, including a basic income for the poor, that would likely clash with EU limits on deficits. An initial failure to agree with President

Sergio Mattarella on a government led to a sharp sell-off in Italian markets Monday and Tuesday.

Italy, one of the original signers of the 1957 Treaty of Rome that created a common market and paved the way for today’s European Union, has the second heaviest debt load in Europe after Greece, at 132 percent of annual economic output, and the market tremors underlined the currency union’s ongoing vulnerability after a 2010-2012 debt crisis.

The parties’ rise to power in Italy will be a blow to supporters of the EU,

as it could embolden anti-EU parties, which have won elections in some countries in Eastern Europe, like Hungary and Poland. And it comes just as the EU enters a key six months of negotiations with Britain on the country’s exit from the bloc.

To stir things up a bit more, Spain’s government lost a no-confidence vote Friday and conservative Prime Minister Mariano Rajoy was replaced by socialist Pedro Sanchez.

The developments leave other EU leaders looking for a strategy ahead of a summit on June 28-29.