Thursday

17th Jan 2019

What Italy's budget row is actually about

  • Among Italian diplomats there is an increasing perception that Matteo Salvini's agenda is identical to Valdimir Putin's - namely, the destruction of the euro (Photo: Salvini official Facebook page)

The EU is faced with the dilemma of how to deal with an Italian government actively seeking a confrontation over next year's budget.

Before this week's summit in Brussels, Italy presented an expansionist draft budget for 2019, which has prompted criticism from European Commissioners and ministers in other eurozone countries.

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The European Commission has asked Italy to clarify the contents of the draft budget by Monday 22nd October.

But the new government in Rome – a coalition made up of the anti-establishment Five Star Movement (M5S) and the far right League – seemingly has no intention of changing the budget.

"This reaction comes as no surprise to me," said deputy prime minister Matteo Salvini, adding that financial and political elites in Brussels have become used to treating Italian governments as their "puppets".

Salvini was speaking to the Russian press agency Tass during a visit to Moscow - fuelling speculation that the Italian government is no longer placing its bets on multilateralism.

According to the latest Eurobarometer survey, only 44 percent of Italians consider themselves to be satisfied with the country's membership of the EU, compared to a European average of 66 per cent.

Paradoxically, 65 percent of Italians are in favour of the euro, which is slightly above the European average.

However, among Italian diplomats there is an increasing perception of Salvini's agenda as being identical to Putin's, which would be to attempt to destroy the euro.

Public spending

When the government took office in June, it inherited plans to reduce Italy's budget deficit to 0.8 percent of GDP in 2019.

Italy, however, would like to increase its public expenditure by 2.7 per cent and run a deficit of 2.4 per cent in 2019 and the following two years, arguing that increased public spending will generate growth in the long term, though it acknowledges it will not have any effects next year.

According to the government in Rome, this should lead to higher tax revenues, curtail the budget deficit and eventually reduce the debt-to-GDP-ratio, which currently stands at 131 per cent.

But before the desired effect sets in, rising borrowing costs could lead Italy's sovereign to spin out of control.

The government has also faced criticism for presenting a budget lacking investments in technological innovation and education, which could prevent highly-skilled young Italians from leaving the country - but rather designed for short term electoral gains.

However, the EU has a credibility problem – it voiced limited objections to the "electoral budget" presented by then prime minister Matteo Renzi ahead of European elections in 2014.

Who is in charge?

In the standoff with Italy, Brussels is also facing the problem of who their interlocutors should be.

Parts of the new government in Rome seems to be quite intent upon breaching the EU's rules to provoke a fight with Brussels, with a view to next year's elections to the European Parliament.

This week Salvini announced that he is considering running as the far-right pan-European candidate to become the next president of the European Commission.

More moderate, pro-European technocrats backed by president Sergio Mattarella, such as finance minister Giovannia Tria and foreign minister Moavero Milanesi, appear to be sidelined.

European affairs minister Paolo Savona – who was rejected by Mattarella for Tria's position due to his views on the euro – defends expansionist policies and seems to be informing government policies more than Tria, who should be Brussels' main contact point.

Savona has recently published a document on a "different, stronger and fairer Europe", which Milanesi was tasked with delivering to the president of the Commission, Jean-Claude Juncker.

It is essential, Savona claims, to define "an active fiscal policy" in the EU, which is "consistent with needs of the member states".

Government crisis?

And the Italian government itself is currently beset by in-fighting over the budget.

While the two sides agree on highly symbolic measures like cutting "golden" and former parliamentarians pensions, despite their limited cash inflow, trouble is brewing on different issues.

The other deputy prime minister, the Five Stars' Luigi Di Maio, expressed his outrage on Wednesday at the tax amnesty included in the bill, initially claiming that disloyal civil servants had changed the text after he last saw it and then turning his sights on the League, which supports the measure.

Tax amnesties are anathema to most M5S supporters, especially as this one decriminalises money laundering – a godsend for the organised criminal groups whom Salvini claims he is fighting.

Commentators are now speculating that the row could bring the government down, with prime minister Giuseppe Conte reportedly threatening to resign.

Others, however, see it as nothing but political posturing – the tax amnesty has been public knowledge for weeks and Di Maio may simply be seeking to limit his party's decline in the polls, where the League is now the largest party.

Mads Frese is a Danish journalist based in Italy

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