Wednesday

19th Jun 2019

Opinion

Italy and Belgium - eurozone's overlooked Achilles' heel

  • Silvio Berlusconi's clinging to power does little for the country's economic health (Photo: Council)

The financial crisis in Europe continues to run and run. Every day, analysts feel compelled to proclaim the demise of the euro. Mostly, their focus is on Greece, Portugal, Ireland, or Spain. Yet strangely enough, Italy and especially Belgium have so far luckily escaped the gloomy predictions, despite both being weighed down by large deficits and debts while their political situation is markedly unstable.

Belgium has been without a government for three quarters of a year. The differences between the parties largely run along linguistic frontiers. The Flemish parties - led by Bart de Wever - demand more autonomy for the regions while the French-speaking Walloons are more federally minded.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

A mediator, Vande Lanotte, recently managed to speed up things. Were he to pull off an agreement before year's end, it would be a remarkable achievement.

Not so long ago Mr De Wever referred to Belgium as the "sick man of Europe" while describing the forming of a coalition as "fashioning granite with bare hands." Regardless of this tense atmosphere a consensus has been reached on a new tax code. Still, there is no room for celebration just yet. The crux of the Flemish-Walloon problem - the borders of the electoral district of Brussels-Halle-Vilvoorde - is still far from being solved.

The country badly needs a government. Rating agency Standard&Poor's already put pressure on Belgium by threatening to downgrade its rating unless a new government quickly takes office. This is not unexpected, as the Belgian public finances are in a very poor state.

However, the Belgian data have spooked the markets far less than the balance sheets of Ireland, Greece, Spain, or Portugal. The Belgian state is paying a higher rate of interest than before to borrow money, butcompared to the other "problem children", Belgium still pays a small premium.

That the markets are not yet "punishing" Belgium as hard as - for example - Portugal is quite remarkable. Financially, the Belgians are often doing even worse than the (southern) European countries that are already in sickbay. The national debt equals the Belgian GDP and the country has been struggling with high structural deficits for a long time. Moreover, the Belgian banking sector is very vulnerable.

Belgian indebtedness is disproportionally higher in the Francophone part of the country and the Flemish are complaining bitterly that they have to act as benefactors to Wallonia. So the higher the Belgian debt positions, the larger the risk that the Flemish will say, "Enough is enough!"

This is precisely what the Italians - at least, the Italian parliament - could have told Prime Minister Silvio Berlusconi last week. The flamboyant leader is hanging on by a thread and barely survived a vote of confidence. His wings have been clipped because his support in the lower house is minimal. When laying his political plans he has to seriously reckon with two right-wing opposition parties. At the same time, his coalition partner Lega Nord has a very strong negotiating position. This is far from good news. The far-right party has an explicit regional focus and wants to have little to do with Europe.

The likelihood that the sclerotic Italian economy will be tackled effectively has substantially diminished. To make matters worse, Mr Berlusconi - who has held office during eight of the past 10 years - only implemented minimal reforms. During the era of "Berlusconismo" the usual "Tangentopoli" (AKA Bribesville) system only became more entrenched in Italian society, while the prime minister kept few of his election promises.

Mr Berlusconi's antics may be farcical in many ways but the opposition failed to make the most of its opportunities. It doesn't take a hard line or produce appealing leaders. As the Italian economy is edging ever closer to the abyss - its debts are larger than the combined shortfalls of Greece, Ireland, Portugal, and Spain - Italian politics continues to be highly dysfunctional.

Italian politics are rotten without and within while the economy is far from competitive and the country threatens to drown in debt. Meanwhile, in Belgium political nepotism and corruption are less in evidence but the language groups are at each others' throats and the public finances are in dangerous waters. Both states urgently need large-scale interventions in order to stay afloat financially, yet a likelier scenario is that the stalemate will continue for the time being.

It is obvious that Belgium and Italy are right in the middle of the danger zone. Political developments in these countries are vital to the health and viability of the Monetary Union. And just as Flanders could eventually tell Wallonia it has "had enough" the same could apply to the eurozone as a whole.

For Flanders, read Germany, the Netherlands, and the other strong euro countries and instead of Wallonia read Greece, Portugal, Italy, and other EMU members that are knee deep in trouble. Unless countries such as Belgium and Italy get their act together in the coming period, eurozone-wide solidarity could come under huge pressure.

Voters in the strong member states will likely grumble ever more loudly about the large sums of money disappearing into the void of the "needy" countries as populist anti-European parties continue to rise. Elections loom. Next year, important regional German polls will take place while in 2012 the French will vote on a new president. Any politicians would have to be extremely sure of themselves to make a strong case for handing money to countries that voters believe have pursued an irresponsible financial policy.

Andy Langenkamp is a political analyst with ECR Research, monitoring developments which may have an impact on the markets.

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

Belgium rescues troubled bank amid ratings warning

The Belgian state has said it will pay €4 billion to purchase Dexia, a Franco-Belgian-Luxembourg bank with high exposure to Greek debt. The move comes two days after Moody's warned it may downgrade Belgium's rating.

Catalonia MEPs are a judicial, not political, issue

Carles Puigdemont and Toni Comin currently live outside Spain. They were prosecuted for the serious crimes, and they have fled justice. It is not possible to judge in absentia in Spain, where the justice system protects the rights of defendants.

Letter

MDIF responds to Orban criticism

In his response, Dr Zoltan Kovacs does not even try to refute my main point about Hungary: that most Hungarian news media have been captured by the state, and that this anti-democratic trend is spreading across Eastern Europe.

News in Brief

  1. New socialist group leader to push for Timmermans
  2. Romanian ex-PM frontrunner to head new liberal group
  3. France, Germany and Spain in fighter jet deal
  4. Tusk grilled in Poland over role as PM
  5. Italy is 'most credible' US partner in EU, says Salvini
  6. EU blames Sudan junta for killings and rapes
  7. Report: EU may suspend Turkey customs union talks
  8. Swiss stock exchange could lose EU access in July

Six takeaways on digital disinformation at EU elections

For example, Germany's primetime TV news reported that 47 percent of political social media discussions were related to the extreme-right AfD party, when in fact this was the case only for Twitter - used by only four percent of Germans.

Stakeholders' Highlights

  1. Nordic Council of MinistersNo evidence that social media are harmful to young people
  2. Nordic Council of MinistersCanada to host the joint Nordic cultural initiative 2021
  3. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  4. Nordic Council of MinistersEducation gets refugees into work
  5. Counter BalanceSign the petition to help reform the EU’s Bank
  6. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  7. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  8. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  9. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat
  10. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North
  11. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  12. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody

Latest News

  1. EU urges Swiss to move on talks or face sanction
  2. Frontex transparency dispute goes to EU court
  3. Commission goes easy on scant national climate plans
  4. Macron and Mogherini decline to back US accusation on Iran
  5. EU summit must give effective answer on migration
  6. Spain's Garcia set to be next Socialist leader in parliament
  7. Erdogan mocks Macron amid EU sanctions threat
  8. The most dangerous pesticide you've never heard of

Stakeholders' Highlights

  1. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  2. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year
  3. Nordic Council of MinistersNordic commitment to driving global gender equality
  4. International Partnership for Human RightsMeet your defender: Rasul Jafarov leading human rights defender from Azerbaijan
  5. UNICEFUNICEF Hosts MEPs in Jordan Ahead of Brussels Conference on the Future of Syria
  6. Nordic Council of MinistersNordic talks on parental leave at the UN
  7. International Partnership for Human RightsTrial of Chechen prisoner of conscience and human rights activist Oyub Titiev continues.
  8. Nordic Council of MinistersNordic food policy inspires India to be a sustainable superpower
  9. Nordic Council of MinistersMilestone for Nordic-Baltic e-ID
  10. Counter BalanceEU bank urged to free itself from fossil fuels and take climate leadership
  11. Intercultural Dialogue PlatformRoundtable: Muslim Heresy and the Politics of Human Rights, Dr. Matthew J. Nelson
  12. Platform for Peace and JusticeTurkey suffering from the lack of the rule of law

Join EUobserver

Support quality EU news

Join us