This ugly stand-off proves exactly why we voted to leave!
YoU’D think the EU had enough on its plate trying to thrash out a Brexit deal with Britain. But it’s chosen this moment to declare war on Italy’s democratically elected government, led by Giuseppe Conte, by refusing to sign off on the country’s budget.
Brussels believes that Italy’s bigspending plans drive a coach and horses through the rules imposed on members of the single currency eurozone, and so has moved to block the budget, an act unprecedented in the history of the euro.
The European Commission – the executive arm of the EU – has given Rome three weeks to come up with a revised budget, and threatened disciplinary action in the shape of enormous fines if it fails to respond. The populist parties which make up the Italian coalition, the anti-establishment Five Star Movement and the far-Right League, accuse the Commission of ‘not attacking a government but the people’.
This is a power struggle certain to have strong resonance for Brexiteers striving to break away from Brussels’ vast, unaccountable bureaucracy.
At the heart of Italy’s arm wrestle with the Commission are promises made by the two populist parties during this year’s election. They pledged to lift the yoke of Brussels austerity, which has delivered economic disaster in Greece, and threatens to do the same in Italy. And these are no idle boasts from Italy’s firebrand leaders: the Commission is playing a dangerous game because Italy – the third largest economy in the single currency – has the potential to play havoc with the stability of the eurozone.
The uncertainty has already sent shivers through the market in Italian government bonds – essentially a measure of the faith international markets have in a country’s economic stability.
There is certainly an argument to be made that the Italian leadership is being unwise in its economic plans. Under the proposed Italian budget, taxes would be cut, spending on the poorest in society would be increased and the state would lower the retirement age.
The problem, of course, is that while such measures might appeal to voters, someone has to pay for them, and already the Italian government has the second highest level of national debt in relation to national output inside the EU at 130 per cent of gross domestic product.
Yet in the past, Italy has found it relatively easy to run big budget deficits and a large national debt because of the willingness of citizens and the country’s economic institutions to hold large amounts of government debt.
The bottom line is that whatever you think of the Italian proposals, it is deeply worrying for Brussels to threaten a sovereign nation over its spending plans.
This is not the first time the EU has sought to take control of the Italian economy. After the convulsions in euroland in 2010, the EU insisted that Italy appointed one of its own, a former European commissioner, Mario Monti, as prime minister.
A Brussels technocrat, Monti had never held any elected office. He was charged with implementing an austerity programme which has now contributed to Italy’s jobless rate of 9.7 per cent (more than twice the UK’s 4 per cent), and a shocking youth unemployment level of 31 per cent of the workforce.
Such appalling unemployment is one of the main reasons Italians turned to anti-Brussels populist parties at the ballot box. So who is going to win this shoot- out? In a budget fight with Italy, Brussels and Frankfurt – home of the European Central Bank (ECB) – must believe they have the upper hand. Recent data from the German-dominated ECB shows that Italy’s banking and financial system is being propped up by almost half a trillion euros (£ 424billion) of short- term loans, at a time when the German government is one trillion euros (£885billion) in credit. The scale of those Italian debts to Europe’s central bank gives its partners in the single currency great leverage over its affairs, yet the confrontation looks certain to revive anti-euro sentiment in Italy.
There will be renewed demands from Italians to leave the eurozone, restore the lira as a national currency and take control over its own destiny.
With global markets teetering thanks to Donald Trump’s trade war on China, the current impasse could not come at a worse moment for the eurozone. Yet Brussels is demonstrating that for its unelected officials blind ideology still overrides democracy. And you wonder why Britain voted to leave.