This essay, on the confrontation between the EU and Italy over the Italian budget, was my Observer column this week. (The column included also a short piece on the nature of public debate.) It was published in the Observer, 16 December 2018, under the headline ‘Europe’s merciless treatment of Italy only hardens popular resentment’.
A standoff with EU officials. Ministers flying to Brussels to negotiate last-minute deals. Cries of betrayal at home. Dark warnings of economic calamity and social unrest.
No, not the Brexit soap opera in Westminster but the EU crisis that everyone seems to have forgotten – the confrontation between Brussels and Rome over the Italian budget.
In October, Italy’s coalition government, comprising the far-right Lega and the populist Five Star Movement (MS5), presented a draft budget that included many of the parties’ electoral pledges, such as a basic income for the unemployed and the shelving of a previous proposal to raise the retirement age. The budget would have increased Italy’s deficit to 2.4% of GDP, higher than that planned by the previous administration, but lower than the EU limit of 3%.
Nevertheless, in an unprecedented move, the European commission rejected the budget for breaking its fiscal rules. Rome’s growth forecast, it insisted, is overoptimistic and the real deficit-to-GDP ratio would exceed 3%. Italy was threatened with sanctions. Last week, the government in Rome caved in, drafting a new, more austere budget. Whether it’s sufficient to placate the commission remains to be seen.
Italy’s real difficulty stems not from its annual deficit but its cumulative debt. This now stands at €2.6tn (£2.3tn), about 133% of GDP, and second only to Greece within the eurozone. If Italy were to default, Europe’s fragile financial system could shatter. So, the commission wants Rome to move towards balancing the books and quickly.
In Britain, the Tories’ pursuit of a similar strategy has ripped at the nation’s social fabric. In Italy, where a third of young people don’t have a job, and more than 5 million people live in ‘absolute poverty’, the impact could be catastrophic.
The budget standoff is not simply an economic argument but a political debate, too, raising questions about democracy. Brussels is effectively telling Rome: ‘We don’t care what the Italian people voted for. Democracy matters less than our fiscal rules.’
This is not just antidemocratic but politically perilous, too. The current coalition government is in part the product of the EU’s response to Italy’s last debt crisis in 2011. The EU demanded then that the Italian parliament pass a savage austerity package, imposing almost €60bn of cuts. The prime minister, Silvio Berlusconi, had to resign, to be replaced by an unelected technocrat, Mario Monti, who oversaw the austerity programme. It was later revealed that the EU had been plotting for months to replace Berlusconi with Monti.
Two years later, when elections were eventually held, popular outrage at both the suspension of democratic procedures and the consequences of austerity led to Monti’s centrist movement being swept away and the populist MS5 tasting its first electoral success. Five years on, continuing public anger propelled the MS5 and the far-right anti-immigrant Lega into power in elections this March. Today, the Lega is the most popular party in Italy. The EU seems to have learned nothing from this history.
The contrast between the EU’s treatment of Italy and that of France is revealing. Until last year, France had broken the EU deficit rule every year since 2008. It has never been sanctioned. President Emmanuel Macron’s recent capitulation to the gilets jaunes protesters, promising to raise the minimum wage and cancelling tax increases for low-income pensioners, makes it likely that France will break the 3% rule again next year. As early as 2003, the European court of justice ruled that EU finance ministers were negligent in not penalising France and Germany for continually flouting eurozone rules. Fifteen years on, the EU’s big beasts remain free to trample over the rules, while smaller nations (even ones as large as Italy) have to suffer democratic and social penalties.
The Italian government has many obnoxious policies, especially the brutal assault on migrants pursued by the interior minister and the Lega leader, Matteo Salvini. The MS5’s economic policies, while not as utopian as the party claims, are, nevertheless, among the coalition’s most progressive. So what’s the EU’s response? It accepts the reactionary policies towards migrants, but will not countenance an economic package seeking to ease the burden on the poor.
In 2013, having been ejected from office by the Italian electorate, Monti, in a valedictory statement to a EU summit, observed that ‘public support… for the European Union is dramatically declining’. To counter ‘the mounting wave of populism and disaffection with the European Union’, he added, the EU must start ‘listening to people’s concerns’. It wasn’t listening then. It’s not listening now.