Salvini may be dis­taste­ful, but the EU should not push Italy to the limit

The Observer - - Analysis -

En­ter the Fo­rum in Rome and you step back in time. And, like so many politi­cians, Mat­teo Salvini wants to time-travel back to an age when Eu­ro­pean economies grew quickly and the peo­ple got richer ev­ery year. This week Salvini, the far-right deputy leader of Italy’s rul­ing coali­tion, will pre­side over a rule-bust­ing bud­get that seems in­nocu­ous at first glance – it only pro­poses a 2% deficit in the com­ing year – but nonethe­less breaks the Eu­ro­pean Union’s deficit rules.

Brus­sels will ex­am­ine the de­tails of the bud­get over the fol­low­ing two weeks and prob­a­bly ask for re­vi­sions. At this point, un­less some­one has suc­ceeded in bring­ing down the po­lit­i­cal tem­per­a­ture, Salvini and prime min­is­ter Giuseppe Conte will prob­a­bly de­clare war on Brus­sels and dare Euro­crats to stop them.

Salvini’s eco­nomic prob­lem is that the bud­get is a cob­bled-to­gether wish list mas­querad­ing as a co­her­ent boost to pro­duc­tiv­ity, GDP growth and house­hold in­comes.

It is a long time since Italy’s econ­omy grew at a pace that brought down its debt-to-GDP level; at 131%, it ranks as the worst EU na­tion bar Greece. Ex­tra spend­ing has the po­ten­tial to kick­start the econ­omy, as Salvini ex­pects, but Ital­ians have a habit of mis­trust­ing politi­cians and their prom­ises. When ex­tra cash comes their way, they save it rather than spend.

More im­me­di­ately, the rat­ings agen­cies are wait­ing in the wings to down­grade Rome’s debt moun­tain and make it more costly to ser­vice. A down­grade could come only weeks af­ter the EU says no.

Still there is pres­sure on both sides. Brus­sels has taken a hard line so far. That looks like in­flam­ing the sit­u­a­tion just when tense Brexit ne­go­ti­a­tions are at their zenith, which seems un­wise. Yes, Salvini’s govern­ment is dis­taste­ful: but it is a duly elected ad­min­is­tra­tion and should be lis­tened to.

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